Taking Down the Lion: The Rise and Fall of Tyco's Dennis Kozlowski Read online

  Taking Down the Lion

  Taking Down the Lion

  The Triumphant Rise and Tragic Fall of Tyco’s Dennis Kozlowski

  Catherine S. Neal

  This book is dedicated to my parents

  Joyce Honaker Neal and Creston Neal—

  the best people I know.

  And to Kora Jane.

  TAKING DOWN THE LION

  Copyright © Catherine S. Neal, 2014

  All rights reserved.

  First published in 2014 by PALGRAVE MACMILLAN® in the U.S.—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.

  Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.

  Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.

  Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries.

  ISBN: 978-1-137-27891-3

  Library of Congress Cataloging-in-Publication Data

  Neal, Catherine S.

  Taking down the lion: the triumphant rise and tragic fall of Tyco’s Dennis Kozlowski / Catherine S. Neal.

  pages cm

  ISBN 978-1-137-27891-3 (hardback)

  1. Kozlowski, Dennis. 2. Chief executive officers—United States—Biography.

  3. Tyco International Ltd. 4. Business ethics—United States. 5. Corporations—Corrupt practices—United States. I. Title.

  HC102.5.K69N43 2014

  338.7’681092—dc23

  2013032153

  A catalogue record of the book is available from the British Library.

  Design by Letra Libre, Inc.

  First edition: January 2014

  10 9 8 7 6 5 4 3 2 1

  Printed in the United States of America.

  Contents

  Preface

  Acknowledgments

  Part One

  Mogul Style

  1: Six Women and Six Men

  2 BA 0.043

  3: 950 Fifth Avenue

  4: Executive Perquisites

  5: Behind the Elephant

  6: Becoming CEO

  Part Two

  Timing Is Everything

  7: Big Time Scrutiny

  8: The Good Old Days

  9: Extraordinary Times

  10: You Say You Want a Resolution

  11: When the CIT Hit the Fan

  12: “Oh God, what now?”

  Part Three

  Ring around the White-Collar of Criminal Justice

  13: “Pour encourager les autres”

  14: Internal Investigation

  15: People v. Kozlowski I

  16: People v. Kozlowski II

  17: Cut from Whole Cloth

  Part Four

  Inglorious Ending

  18: 05A4820

  19: Observations

  Notes

  Bibliography

  Index

  Preface

  I first became aware of Tyco International Ltd. and its then CEO Dennis Kozlowski when both appeared on the radar during the 1990s as the company achieved impressive results for its shareholders quarter after quarter, year after year. My interest grew during the early 2000s when Tyco and Kozlowski became involved in a highly publicized scandal. I left the private practice of law for academia in 2002, the same year that Kozlowski’s tenure as the remarkably successful CEO of Tyco came to a sudden end. The textbooks I used in my business ethics and business law courses began including case studies about the Tyco corporate scandal soon after I began teaching.

  I began this project with a clear objective, but with no plans to write a book. I simply wanted to understand a situation that on its face didn’t make sense to me. How did a successful, high-profile executive end up in a New York State prison? Why was he prosecuted by a local district attorney, and not a U.S. attorney? It was a very unusual circumstance that set the case apart from others. In the other major corporate scandals that occurred during the same time period, only federal crimes were alleged and charged. But federal prosecutors declined to charge anyone connected to Tyco. Instead, Tyco executives, including Dennis Kozlowski, were indicted and tried by the Manhattan District Attorney under the state laws of New York.

  In addition to being intrigued by his unusual prosecution, I was confused by how Kozlowski’s crimes were described. Why did prosecutors and the media say that he received “undisclosed” compensation and took “secret” loans through the company’s employee loan programs? How could his compensation and loans be considered secret when so many people knew about them? The transactions were processed and recorded in the normal course of business and were audited by one of the most respected accounting firms in the world. During Kozlowski’s criminal trials, not a single Tyco employee testified that he or she concealed information, and not one believed anything was wrong inside the company. Plus, Tyco’s accounting methods were examined and investigated numerous times, yet no material errors were ever identified. It didn’t add up. The more I knew, the less I understood.

  I first contacted former CEO Dennis Kozlowski in January of 2011. Spurred by my curiosity about the scandal, I wrote a letter to him at the Mid-State Correctional Facility, what he often referred to as the “gated community,” in upstate New York. I simply asked if he would discuss his case with me.

  Kozlowski responded with a one-page, handwritten letter in which he indicated his willingness to address my questions. We exchanged several letters and in May of 2011, I met Kozlowski face-to-face at the prison. I visited Kozlowski several times and maintained regular contact with him for two and a half years. I asked and he answered hundreds of questions about his life, his career, and the twenty-seven years he spent at Tyco. Kozlowski gave me access to his attorneys, former colleagues, family members, and friends. Our ongoing conversation and thousands of hours of research evolved into this book.

  In addition to interviewing Kozlowski, I spoke with another former Tyco CEO, and with former Directors, executives, and other Tyco employees. I talked with Kozlowski’s family members, his friends, the man who served as foreperson of the jury that convicted Kozlowski, and I met with legendary former Manhattan District Attorney Robert Morgenthau, who prosecuted the Tyco executives. The information in this book was found in tens of thousands of documents, hundreds of articles, Securities and Exchange Commission filings, the applicable laws and regulations, and numerous court opinions. I also relied on the evidence presented during two criminal trials that, in total, stretched over eleven months and spawned transcripts that contain 28,338 pages of sworn testimony, legal arguments, judicial decisions, a mistrial, and shocking verdicts. I sought the counsel of experts when I needed help interpreting and understanding what I found.

  It’s fair to say that I am biased. I’m a business ethics professor. I spend my life studying and teaching the importance of thoughtful, legal, and ethical behavior in business. I’m probably more critical than most people about right and wrong. I have strong opinions about what is acceptable and what is unacceptable behavior, with particularly high expectations of those in positions of leadership. I’m not a likely advocate for a man who is widely considered one of the most notorious of all the corporate executives tried and convicted as a result of Enron-era scandals.

  But here is what I know (and I’ve heard myself say it dozens, maybe hundreds of times in classrooms full of business students): It’s important to do what’s right, even when it’s unpopular, even when it’s criticized, even when it’s difficult. Especially when it’s unpopular, criticized, and difficult. As I looked into Dennis Kozlowski’s life and explored the Tyco scandal, I didn’t find what I expected to find. As I studied, read, researched, asked hundreds of questions, dug through thousands of documents, and immersed myself in the scandal and criminal prosecutions, I found far more than, and not at all what I expected.

  It would have been easy for me to write the same story about Kozlowski that has been written hundreds of times. I could have focused on the $6,000 shower curtain and his Roman orgy-themed birthday party on the Italian island of Sardinia. I could have skimmed the surface of the facts (saved myself thousands of hours of work) and written a book consistent with the public’s perception of the former CEO of Tyco International. Instead, I decided to write exactly what I found, what I read, what I heard, and what, after more than thirty months of reasoned thought, I believe to be the truth.

  This account of the Tyco scandal is accurate. My research was copious and meticulous and because I know Kozlowski is controversial, I checked and rechecked thousands of facts. I was able to verify about 80 percent of the information I received directly from Dennis Kozlowski and to his credit, there was not a single discrepancy between what he told me and what I found in reliable, independent, objective sources. Nothing he said or wrote was changed, twisted, fabricated, or misrepresented. From our first
meeting, Kozlowski challenged me to look at everything, to talk to anyone and everyone involved, and to reach my own conclusions.

  So that’s what I did. I spent two and a half years going through Dennis Kozlowski’s life and career with a fine-tooth comb. I worked until I was comfortable with my understanding of the facts and the law.

  This book is the culmination of what I learned.

  Acknowledgments

  Writing an accurate, thoroughly researched nonfiction book is a colossal undertaking; it is interesting and arduous work. It was far more of both than I anticipated. This project was time, thought, and energy consuming—it was the most all-consuming project I’ve ever undertaken. It was by far the most enriching and rewarding professional challenge of my career, and it took many people to make it happen.

  Many thanks to my agent Coleen O’Shea of the Allen O’Shea Literary Agency, who believed in this project when it was still an overwhelming, underdeveloped idea. Coleen provided candid guidance and prudent advice, which as a first-time author was invaluable. I had a lot to learn about the world of publishing.

  I am also grateful to my editor Karen Wolny, Editorial Director at Palgrave Macmillan, whose positive encouragement was very much appreciated.

  I appreciate the insights shared by Eric Rayman, Esq. of the New York law firm Miller Korzenik Sommers LLP. Eric’s objective and discerning point of view was of great value.

  Many people contributed to the content of the book. I consulted with several experts who helped untangle complexities and technical issues. In addition, several individuals shared with me their experiences at and with Tyco International Ltd. This book would not have been possible without them.

  I am deeply indebted to attorney Alan Lewis of the Wall Street law firm Carter Ledyard & Milburn. Alan was a rich source of information, counsel, and perspective from the early stages of this project until it was completed. Thank you, Alan, for everything you contributed to this book. Alan also strongly encouraged (i.e., forced) me to take my first solo subway ride in Manhattan, for which this small-town girl from the Midwest is also grateful.

  I am indebted to Mark Belnick, who allowed me to stir up memories of a very difficult period in his life. Mark’s unfiltered honestly was unexpected and more valuable than he knows. His still-raw pain crystallized my understanding of what it felt like to be wrongfully accused of serious felonies and to have a reputation damaged by unproven allegations.

  I owe a debt of gratitude to Joyce, Dennis Kozlowski’s younger sister, who provided research of Kozlowski family history, arranged for me to visit her brother at the Mid-State Correctional Facility, gave me detailed and helpful instructions for how to visit an inmate, and provided valuable insight into her brother’s life.

  I am more grateful than I can express to Robert A. G. Monks for graciously sharing with me his knowledge of corporations generally and of Tyco International specifically. Mr. Monks allowed me to contact him over and over again, and he told me about his experiences as a longtime Tyco Director. I am especially appreciative to him for pushing me to ask the right questions of the right people and for illuminating some of the most important issues discussed in this book.

  I am thankful to former Manhattan District Attorney Robert Morgenthau who at the age of ninety-three sat down with me and discussed Dennis Kozlowski’s prosecution and conviction. Our meeting was one of the most unexpected and enlightening experiences of this project and is something I will always remember and value.

  I am also indebted to Ida Van Lindt, Mr. Morgenthau’s longtime personal assistant. Thank you, Ida, for so efficiently and graciously coordinating my visit to your offices.

  I am grateful to Robert Pastore, who has known Dennis Kozlowski since the two were boys growing up on South 10th Street in Newark, New Jersey. Thank you, Robert, or as Kozlowski would call you, Bobby, for sharing your memories with me.

  I owe a thank you to Isaac Rosenthal, who shared with me his experiences as the foreperson of the jury that convicted Dennis Kozlowski in 2005.

  I am very grateful for the time and insights of Christo Lassiter, Professor of Law in the College of Law at the University of Cincinnati. I had not spoken with Professor Lassiter since I was a student in his criminal law class many years ago, but when I contacted him about my research, he graciously granted me access to his expertise in the areas of criminal law and white-collar crime. Thank you, Professor Lassiter.

  I also owe a big thank you to Robin Engel, Associate Professor of Criminal Justice and Director of the Policing Institute in the College of Education, Criminal Justice, and Human Services at the University of Cincinnati. Professor Engel very quickly responded to my unexpected request and provided data I needed from the Bureau of Justice Statistics. Thank you so much, Robin.

  I am grateful to Brad McGee, whose knowledge of Tyco and insightful observations allowed me to better understand what it was like to be part of Tyco corporate operations during the years Dennis Kozlowski served as the company’s CEO. Thank you, Brad. This book would not be as accurate or complete without your contributions.

  I am indebted to Joshua Berman, former CEO and longtime Director of Tyco International, for generously and candidly sharing his experiences with me. Mr. Berman has more history with and knowledge of Tyco than anyone—ever. Thank you, Mr. Berman.

  Thank you to attorneys Nathaniel Z. Marmur and Michael J. Grudberg of Ballard Spahr Stillman & Friedman for your time and consideration.

  I am very fortunate to be a faculty member at a university that values, supports, and encourages research and creative activities. I am forever grateful to Northern Kentucky University (NKU) for my sabbatical leave, which allowed me to undertake a project that enhanced my research skills and added to my substantive knowledge more than I thought possible.

  For his ongoing support, encouragement, and enthusiasm, I’m grateful to Richard Kolbe, Dean of the Haile/US Bank College of Business at NKU.

  I want to thank the members of the Department of Accounting, Finance, and Business Law (AFBL) in the Haile/US Bank College of Business at NKU—my valued colleagues and friends. I very much appreciate the support provided by Dr. Peter Theuri, Chair of AFBL. A special thank you to Professor Teressa Elliott and Dr. Linda Marquis who submitted our research papers while I was consumed with writing this book, and to Dr. J. C. Kim who provided analysis of fluctuations in the price of Tyco stock. I am especially grateful to my colleagues and friends Dr. Darius Fatemi and Dr. Duke Thompson whose enthusiastic encouragement was frequently needed and very much appreciated.

  I am also appreciative of the assistance of Ann Peelman, former AFBL Academic Coordinator. Thank you, Ann.

  I tip my hat to my students of the past eleven years. They have been my sources of inspiration. My students (at the University of Cincinnati-Clermont from 2002 to 2005 and at NKU from 2005 to present) pique my curiosity and make my job challenging, rewarding, and always enjoyable. This book would not have happened without our classroom discussions about Tyco and Dennis Kozlowski.

  I am grateful to my friend and formal mentor Dr. Fred Beasley, and to his brilliant and beautiful wife Paula Beasley, for their interest, support, and enthusiasm when I decided to undertake this project.

  I would not be a faculty member at NKU without the encouragement and guidance of my friend Dr. Matthew Shank, now President of Marymount University. Thank you, Matt, for inspiring me to be as good at my job as you are at yours.

  I was blessed during the writing of this book with the input and contributions of my family members, who were my advisors, focus group, readers, and enthusiasts.

  I am forever indebted to Dr. Douglas Havelka, my husband, my best friend, my love, and my most trusted advisor. I could not have started or completed this project without you. Thank you for your love, support, unlimited understanding and patience, and for your valuable technical and professional advice.

  I am the very lucky mother of two adult children who are exceedingly kind and thoughtful individuals.

  I am grateful to my strikingly beautiful, brilliant, and kind-hearted daughter Alex Womacks Klingensmith who cooked for me, checked on me, and encouraged me during the many months I worked on this project. Thank you for being so thoughtful and understanding while you were pregnant and doing nice things for me when I should have been taking care of you. Thank you for allowing me to be with you when you delivered our beautiful Kora Jane. It was miraculous and one of the best moments in my life (and the best excuse ever for taking a break from work). Thank you to my smart and ambitious son-in-law Kyle Klingensmith for your support and your interest in the book.