Wednesday, September 18, 2002

Also in the Times today, a brief summary of a Tyco report on misuse of corporate funds by ex-CEO Dennis Kozlowski and his cronies --- the company bought houses and apartments for them at its own expense, paid for decoration and entertaining expenses, forgave loans, and paid for all sorts of knickknacks for Kozlowski and famille, ranging from old master paintings to a $15,000 dog umbrella stand. On at least one occasion, Kozlowski wrote a memo falsely stating that the company had been authorized by the board to forgive certain loans --- but the recipient of the memo wasn't too motivated to question it, since she had received one of those loans herself, for more than $700,000.

This report raises many questions. How has American corporate governance gotten to a state that a company can buy its CEO's old New Hampshire house from him for triple its market value? Why didn't the board notice, or did it just not care, that the company was paying for its CEO's residences and furnishings in Manhattan and Boca Raton without their authorization? Why did the Times deem all the juicy details about Kozlowski's wife's birthday party (half paid for by Tyco) unfit to print? Did board members know about the party? Were none of them invited? And how is it possible to pay $6,000 for a shower curtain?

But most of all --- what the hell is a dog umbrella stand?

(Note added: It's important to disginguish Kozlowski's arrangements from the retirement package awarded to GE's "Neutron Jack" Welch, formerly a rock-star CEO noted for his efforts at minimizing costs. That package, which included all expenses associated with Welch's residences, free use of GE's corporate jet, floor-level seats at Knicks games, and an itemized list of miscellaneous expenses ranging from satellite TV to toiletries, apparently was approved by GE's board...)


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