How theft case helped reform corporate world

Directors & Boards is a publication I look at from time to time, and I was surprised to find this mea culpa from its editor this month.

Full marks to Jim Kristie: not many would have the guts to revisit a blunder from the past.

Most of us prefer to forget our mistakes and bury them very deeply, acknowledging them neither to ourselves or to others.

What’s the big deal about Dennis Kozlowski?

Well, he’s currently behind bars, serving a 25-year sentence for abuse of office at his company, Tyco International.

Among the things he pulled off at his organisation: getting Tyco to pay for a $30 million apartment which contained the now-famous $6,000 shower curtains; getting the company to pay $1 million towards his wife’s 40th birthday bash, by disguising it as a “shareholder meeting”; and receiving $81 million in allegedly unauthorised bonuses. Nice money if you can get it.

Still, the real question in the Kozlowski issue was raised by commentator Dan Ackman in Forbes magazine after the trial, referring to the CEO and a co-defendant: “They acted like pigs, as a lot of CEOs act like pigs.

Still, the larceny charges at the heart of the case did not depend on whether the defendants took the money--they did - but whether they were authorised to take it.”

The Kozlowski case was an indictment not of individual larceny, but of a system of governance.

It was one of the many scandals in the early years of this century that led to sweeping legislative change in corporate governance.

The Tyco board was clearly in Kozlowski’s thrall: it had approved a contract for him which stated that conviction for a felony would not be grounds for dismissal!

Cheering squad

In this sense there is a potential Kozlowski scandal brewing in every company.

Boards are put in place to protect the interests of shareholders, not chief executives.

They have to tread a fine line between acting as the CEO’s cheering squad and constraining his behaviour.