A CEO's Not So Artful Dodge
Why? That's the question on everyone's lips in the wake of the indictment of Tyco's former superstar CEO, Dennis Kozlowski, on charges of evading $1 million in sales taxes on paintings he bought.
Why would a man who earned $125 million last year and owns planes, yachts, and a quartet of multi-million dollar homes risk it all in an effort to save a million bucks -- probably about what he spends each year to keep his fleet of Harley-Davidson motorcycles running?
But, after immersing myself in Kozlowski's business history, I have an altogether different question: Why is anyone surprised?
The behavior that now has him facing up to four years in prison is exactly the behavior that was the hallmark of his run as Tyco's swashbuckling, take-no-prisoners CEO.
Why is it, then, so shocking to learn that Kozlowski became a small-time con artist to avoid paying taxes on $13.2 million worth of paintings, wryly described by the New York Times as "second-tier work by big-name artists"? This, after all, is the same guy who, in 1997, moved his company's nominal headquarters offshore to Bermuda to -- you got it -- avoid paying taxes on billions in overseas earnings. Apparently, life imitates business when it comes to the art of cutting corners.
According to the less than flattering portrait painted by prosecutors, Kozlowski bought the high-end paintings -- which included a $4.7 million Renoir and a $3.95 million Monet -- for his $18 million, 13-room apartment on Fifth Avenue, but had them routed through Tyco's offices in New Hampshire so he wouldn't have to spring for New York City's 8.25 percent sales tax.
In one case, the cooperative art dealers didn't even bother to ship the paintings for a brief layover in New Hampshire. Turns out it was easier just to ship them directly to Kozlowski's apartment while shipping empty crates to Tyco headquarters. Unfortunately for Kozlowski, along with creating a nice little paper trail of phony invoices, his coconspirators also turned out a number of other incriminating documents. "Here are the five paintings to go to New Hampshire (wink, wink)," reads one smoking gun memo addressed to an art handler. Now he may get to spend a few years at a -- wink, wink -- federally-run vacation institution.
And he might have even bought himself a little more time there because, it turns out, he funded some of his art purchases with no-interest loans drawn from a Tyco program designed to help employees buy company stock. Perhaps if he had made do with a few LeRoy Neiman sports scenes and that perennial classic, "Dogs Playing Poker," he could have avoided downsizing employees and raiding their stock fund.
Of course, it was maneuvers like these that, until his sudden fall from grace, had earned Kozlowski the admiration of Wall Street and a glowing reputation as America's "Most Aggressive CEO" -- the title of a 2001 cover story in Business Week. The magazine even went so far as to laud Kozlowski -- an accountant by trade -- for his "willingness to test the limits of acceptable accounting and tax strategies". Such strategies allowed the company to report billions of dollars in earnings every year, while building up $24 billion in debt. It took the Enron collapse for Wall Street to stop applauding and start asking questions. The disturbing answers caused Tyco's stock to lose three-quarters of its value this year, costing investors $95 billion.
Somewhere along the way, Kozlowski, the son of a New Jersey cop, began to see himself and the multi-billion dollar company he led as one and the same. So why not get Tyco to buy his Manhattan apartment for him and make charitable donations in his name? He viewed all of Tyco's assets as his own because, well, without him Tyco was nothing. Like so many other CEOs grabbing today's headlines, Kozlowski adopted the outlook of Louis XIV, who notoriously proclaimed: " L'état c'est moi" -- "I am the state".
If King Louis was Kozlowski's historical ancestor, Leona Helmsley, who once declared that "only the little people pay taxes," was his spiritual godmother. Dennis the Public Menace's progress from tax aversion to tax evasion began with his loophole-exploiting business practices and ended with his defrauding the public out of tax money New York desperately needs. He was widely praised and richly rewarded for cutting corners in business (hailed as a "tax master" in the financial press), so he did the same thing when it came to his personal life.
Last month, with prosecutors breathing down his neck, Kozlowski gave the commencement address at New Hampshire's St. Anselm College. Freud would have had a field day with the message he chose to impart to the school's Class of 2002. "You will be confronted," he warned them, "with questions every day that test your morals. Think carefully, and for your sake, do the right thing, not the easy thing." You could almost see his superego and his id duking it out underneath his mortarboard. Unfortunately for him, his id won.
We've spawned a corporate culture that has made demigods out of those doing "the easy thing". Turning it around is going to take more than noble commencement speeches. It will take throwing a few of those demigods in jail. I can picture it now: "Still-life In Prison Stripes".