Is Corporate America Really That Far Removed from the Days of Kozlowski?
It lacked the glitz and glamour normally associated with events celebrated by this former captain of industry. It didn’t include a band, models dressed as gladiators, bowls of caviar, chalices of Stoli vodka or even the now infamous ice sculpture of Michelangelo’s David. Then again, this was a decidedly more muted occasion than his wife’s $2 million birthday party in Sardinia, Italy. Regardless, Ex-Tyco CEO Dennis Kozlowski’s release from prison a couple of months ago was indeed a significant occasion – or at least it should have been.
In 2005, Kozlowski was the very image of corporate greed and moral bankruptcy. The once revered executive who championed Tyco’s legendary growth through a series of mergers and acquisitions had at that point been convicted of defrauding the company of more than $134 million through a series of criminal conspiracies, including artificially inflating the value of company stock. His extravagant lifestyle, much of which was paid for through his various illegal schemes, became front page fodder for news publications across the world. He was sentenced to 8 – 25 years in prison
In an ideal world, Kozlowski should have been released from prison back into a society which had been shaped by a renewed Corporate America -- one which had learned from his own examples of avarice as well as the criminal behavior associated with the likes of Enron and MCI Worldcom. Such a perspective, however, ignores the fact that it is still a system built upon the most corruptible form of currency ever known to exist: human capital.
Just last week, NuVasive’s Chairman and CEO, Alex Lukianov, resigned after the San Diego company’s board of directors concluded he didn’t follow “expense reimbursement and personnel policies”. I suspect this was more than just forgetting to sign his the expense reimbursement forms. The move by NuVasive came one day after the U.S. Securities and Exchange Commission (“SEC”) charged Andrew Miller, the former CEO of Polycom, Inc., with using nearly $200,000 in corporate funds for personal perks which were not disclosed to investors. According to the SEC, Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment and gifts. It is alleged that he used company funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were “business-related site inspections in advance of company sales retreats.” One has to imagine that even a reformed Kozlowski would admire such duplicity.
In the case of the Polycom, the SEC also levied a $750,000 fine against the company for having “inadequate internal controls” and for failing to report Miller’s perks to investors.
These recent actions reflect a concerning trend. When Kozlowski began serving his prison sentence in 2005 there were 630 SEC enforcement actions that year. In 2014, there were 755. Thankfully, we are no longer seeing scandals of the same scope and magnitude of the early 2000’s – due in large part to both statutory initiatives (Sarbanes-Oxley, Dodd-Frank) and enhanced listing requirements of NASDAQ and NYSE. Nevertheless, the continued proliferation of fraudulent behavior in Corporate America underscores the reality that no amount of legislative action will curb the inherent greed in a capitalistic system. This is why it is incumbent upon boards of directors – those whom are entrusted to represent the best interests of shareholders – to stand as a sentinel on the pathway to self-indulgence.
Fortunately, corporate boards have undergone a transformation since the days when Kozlowski first donned an orange jumpsuit. Indeed, the advent of “Risk Committees” along with contemporary boardroom diversity initiatives, have their genesis in the aftermath of the days of Kozlowski and his criminal cohort (Lay, Skilling, Dunlap, etc.). Nevertheless, there is a continuing need for the evolution of corporate governance in order to ensure appropriate processes and safeguards are in place to protect shareholders.
What we know from human nature is that the next Dennis Kozlowski is already out there. The question is whether Corporate America is in a position to stop him before the harm he inflicts is irrevocable.