TYCO CASE STUDY 7
Thefundamental role of a company is to maximize the value ofshareholders (Hansmann, 2012). A company is usually owned byshareholders, who put their stake in the company in form of shares.Their decision to invest in a company is made amidst the opportunitycost that the investment foregoes (Hansmann, 2012). As a result,investors expect to get a fair return on their investments, in formof dividends, capital growth and interests. In order to attain thisfeat, the shareholders appoint agents to run the company on theirbehalf, and these agents are principally managers and directors.Managers are the people involved in the daily activities in anyconcern, and should work towards attaining the key objective of abusiness, that is maximizing shareholders worth (Hansmann, 2012).
However, whenever the incentives due to the principals and the agents arenot aligned, conflicts of interests usually crop up. Shareholders areof the expectation that the entire company profits should bedistributed to them (Demsetz, et. Al., 2007). Managers, on thecontrary, focus on their own personal growth and remuneration hencethey prefer to retain some of the profits as a projection of futureuncertainties of growth and profitability. The agents may hence betempted to act in their own personal interests, compromising theinterests of the principals who appointed them. This situation isreferred to as the agency problem (Demsetz, et. Al., 2007). In TYCO’scontext, one of the multinational corporations that deals withindustries from hospital suppliers to fire sprinklers, the executivesplundered the company for personal gain, placing the company on theedge of survival and rendering at risk the employment of thousands ofemployees in the organization.
Toovercome this downfall plus the frustrations of both the employeesand the shareholders, there was an increasing need for change,primarily on the management strategies (Herold, et. Al., 2008).Revolutionizing management strategies comprises of altering theapplication of various tools, skills, and processes in the course ofan initiative, project or the organization at large. Change inmanagement strategies should, nonetheless, be spontaneous. It shouldbe systematic, emanating from the creation of an operative planoutlining when the amendment is needed, the procedure of approval ofsuch alterations, how to effect the changes and subsequentlymonitoring and verifying whether the effected vicissitudes havegenerated the anticipated results (Herold, et. Al., 2008).
TYCOwas a company enduring a tremendous downfall owing tomisappropriation of funds by exaggerating the cost of expenses andclaiming them as company expenses. Infinitesimal expenses, such asthat of a shower curtain, could be embroidered to a figure of 6,000U.S dollars. Consequently, an immense total of 600 million dollarswas fiddled from the company and by extension its shareholders. Itwas discerned that the then Chief Executive Officer, Dennis Kozlowskiand Chief Financial Officer, Mark Swartz, were accountable for theembezzlement. This transpired under the sentinel of the board.
Thisnecessitated the need for management change, and Ed Breen took overthe helm as the CEO in 2002. Breen was tasked with the onus ofdelivering the much needed change in TYCO to avert the imminentcollapse. He had to turn around the diminishing morale of theorganization, and the upsurge of frustrations amongst the employees.In correspondence with this prerequisite, he came up with diversechange management strategies, particularly those with an influence onturnover. He was fortunate enough to take up an organization with arobust operational and financial basis hence there was a triflingprospect of bankruptcy on account of introduction of change.
Amongstthe myriad changes introduced by Breen was the modification ofunethical behavior that had taken its toll in the organization. Thiswas to be effected by a turnaround team that he initiated to overseethe process of weeding out the unethical behaviors that were quite anorm in the organization. One of the mechanisms that Breen employedto eradicate unethical conduct in the organization was instantaneousreplacement of the present board members. This was an indirectmechanism of emphasizing that he was privy to the actions of theboard since they were the superintendents when the vice of fundlarceny was transpiring. By the lapse of his first year of service,the entire executive team had been replaced by more competentindividuals.
Followingthe overhaul of the executive team, he shifted his office to NewJersey from the former Manhattan office, which gave him a view of thecar park as opposed to the Central Park previously. This movesignified that Breen was determined to alter what was the pastleadership style of TYCO. Overlooking the car park facilitated hissupervision of staff as he could easily see their movement and alsoaudit their punctuality. The foremost commitment by Breen was toreinvent TYCO’s integrity and credibility, sentiments he sharedwith employees and shareholders via an epistle. He emphasized on theculture of accountability and good corporate citizenship as thedriving forces of the organization.
Anothermanagement strategy that he imposed was the modification of TYCO’sinfrastructure. Infrastructural change was fundamental in effectingthe new strategies and to also accommodate the additional units thatwere developed. The new management had the duty of creating novelways in which the organization will be able to function as well asdeveloping new organizational practices to be followed (Anderson &Ackerman-Anderson, 2010). For the aforementioned to be effectivelyimplemented, six-sigma training was initiated in TYCO.
Thistraining was pegged at enhancing the quality and efficiency of theproducts and services that the company offered to its customers. Thechallenges that the company faced revolved around communication ofits new strategies, ethical stance and the implementation of thetraining programme (Anderson & Ackerman-Anderson, 2010). Being acompany with a global orientation, TYCO had employed in excess of260,000 employees globally hence communication to the entire stafffraternity posed a major challenge.
Thefocal means employed by TYCO to overcome the communication challengewas the development of a Guide to Ethical Conduct of Employees thatwas to be communicated to the entire employee body. This guide wasmeant to communicate the new policies imposed by the management inrelation to ethical issues. The guide outlined various regulations bythe organization in relation to fraud, harassment, conflicts ofinterest and compliance with the laws. Since TYCO had employeesworldwide and the guide emanated from the head office, the managementsaw the need of interpreting the guide in the 26 languages that werespoken in TYCO.
Anindependent advisor outlined that life needed to be brought into theguide to effectively change the hearts of such a large number ofemployees in line with their ethical stance. This could only bepossible by utilizing the online platform where a mini-website waslaunched. This website was to be accessible by the internalenvironment and was not open to the general public. The websiteillustrated the problems faced by use of vignettes. Further, shortvideos were used to dramatize these vignettes. The new codes ofconduct were implemented through global meetings and in addition, thevideos were displayed in more than 2000 TYCO locations.
Theroll out strategy of the program entailed the engagement of 500 humanresource professionals who in turn trained approximately 20,000managers. The managers had the sole responsibility of cascading thisinformation through the employee base. TYCO’s auxiliary action wasthe production of a monthly newsletter with a column dubbed “AMatter of Principle” to their employees. This newsletter accordedthem a forum to submit any queries and pressing matters they hadregarding ethical issues.
Anderson,D., & Ackerman-Anderson, L. (2010). Beyondchange management: Advanced strategies for today’s transformationalleaders. SanFrancisco: Jossey Bass/ Pleiffer.
Herold,D. M., Fedor, D. B., & Herold, D. M. (2008). Leadingchange management: Leadership strategies that really work. London:Kogan Page.
Demsetz,R. S., Saidenberg, M. R., Strahan, P. E., & Federal Reserve Bankof New York. (2007). Agencyproblems and risk taking at banks. NewYork: Federal Reserve Bank of New York.
Hansmann,H. (2012). Theownership of enterprise. Cambridge,Mass: The Belknap Press of Harvard University Press.