Taking Down the Lion: The Rise and Fall of Tyco's Dennis Kozlowski (10 page)

The May 28, 2001
Businessweek
feature article closed with personal information about “The Most Aggressive CEO.” In addition to noting his place and date of birth (November 16, 1946), his education, employment history, and hobbies, the article revealed that Kozlowski’s stake in Tyco at the time was 12.7 million shares worth $675 million. The article also shared family information, recognized Kozlowski’s two daughters, and listed his marital status as divorced. With his combined marital status and net worth, Kozlowski may have been the most eligible bachelor in the U.S. in May of 2001. However, between the time William C. Symonds researched his article for
Businessweek
and its publication date, Kozlowski’s status changed from divorced to married.
20

On May 5, 2001, Dennis Kozlowski married his second wife in a small family ceremony on his prized historic 130-foot sailing yacht
Endeavour.
The couple exchanged vows just off the coast of Antigua.
21
Kozlowski met Karen Mayo in a restaurant in New Hampshire and the two dated for several years before they married.
22
Kozlowski did not speak of his second wife after the couple divorced in July of 2008 because of a confidentiality agreement. However, two years before the divorce was final, Kozlowski said in interviews that Karen visited him in prison only once—to tell him she wanted a divorce.
23

It’s easy to understand why Kozlowski and his second ex-wife agreed to confidentiality when they signed their divorce agreement. The second Mrs. Kozlowski and her then CEO husband became tabloid fodder after he was indicted in June of 2002, just a year after the two married. It must have been an incredibly stressful time for the bride and groom of a still new marriage. On top of serious legal woes, personal details of their lives were aired very publicly. Media interest in their private lives continued for several years. The reports were numerous, ugly, and usually mean-spirited.

Much of the media coverage stemmed from evidence presented during both of Kozlowski’s criminal trials. Not much seemed to be off limits from the Manhattan DA’s case. During the first of the two criminal trials, Tammy Cross, a former Tyco employee who handled Dennis Kozlowski’s personal finances, was asked to reveal the price of a diamond ring Kozlowski bought in 2001.
24
The Assistant DA (ADA) asked Cross, “Do you recall how much money the diamond ring cost?” Her
reply was, “Five million 38 thousand.”
25
When the ADA asked Cross if she knew for whom her boss purchased the $5 million ring, she testified, “I believe it was for his wife.”
26
The purchase of the ring was irrelevant to any of the charges in the indictment, as was much of the evidence presented to jurors in both trials. It’s unclear why the court allowed the prosecution to admit the evidence.
27
Unfortunately for Dennis and Karen Kozlowski, the media reported almost all of the personal, intimate, easily sensationalized details revealed during the trials. After it was revealed in court, news of the price of Karen’s ring appeared the following morning in the
New York Times.
28

After questioning Cross about the wedding ring, the ADA asked about the infamous fortieth birthday party Dennis Kozlowski threw for his wife a month after he married her.
29

The Party

Kozlowski spent a significant amount of time in Europe during the summer of 2001, focused on the company’s electronics business. He visited all AMP facilities in Europe with then AMP President Juergen Gromer. “We were also putting the full-court press on Airbus,” he said of his goals for the extended trip. “We wanted their business with us to grow to the size of our business with Boeing.” Unlike much of Kozlowski’s time and travel for Tyco, the summer of 2001 was about organic growth instead of buying companies. Kozlowski said he traveled during the week that summer, and on weekends he lived on
Endeavour.

Every June for several years, Kozlowski hosted a birthday party for his former girlfriend, then wife Karen at their home in Nantucket. He knew months in advance there was a problem planning the 2001 event because he would be in Europe the entire month of June. Kozlowski also knew the European Air Show in Paris, which he had to attend on behalf of the company, was the week of June 16, 2001—the week immediately following Karen’s birthday. He didn’t want to break with tradition, so Kozlowski decided to host the perennial birthday bash in Europe. He brought the party to him.
30

In testimony during Kozlowski’s first criminal trial, former Tyco corporate event planner Barbara Jacques was asked about the birthday party for the CEO’s wife.
31
As with Tammy Cross and several others, the prosecution questioned Jacques not only about her work at Tyco but also about the personal details of Dennis Kozlowski’s life. With Jacques and another former Tyco employee, the prosecution solicited testimony about personal relationships the women had with Kozlowski. The ADA presented details of Kozlowski’s personal life to the jury as evidence suggesting he used Tyco funds either to make his two so-called “mistresses” happy or to buy their silence about the wrongful acts of which he was accused. It would have taken an unreasonable stretch of the imagination to reach either conclusion.
Jacques told the jury she was involved in an intimate relationship with Kozlowski in 1986 and 1987. She said it ended mutually, on friendly terms, when Kozlowski “met somebody else” and that the two had no problem working together in the years after the personal relationship was over. Like the shower curtain, the wedding ring, and the Sardinia birthday party, the media loved the irrelevant yet juicy details revealed during Kozlowski’s trials. After Jacques testified, she was thereafter referred to in stories with headlines such as “Mistresses on the Stand!”
32

Jacques testified that Kozlowski first spoke to her about planning Karen’s fortieth birthday party during the Tyco holiday party at the end of 2000. Jacques said after receiving the initial instructions from Kozlowski to schedule the June 2001 party, she had no further conversations with him about the types of events she was planning for Karen’s birthday celebration. Kozlowski has long been credited with choosing the theme and activities. But in fact, Barbara Jacques planned the party.

If they chose to make the trip to Italy, the seventy-five party invitees had a list of events and activities available to them over the four or five days they spent at Hotel Cala di Volpe in Costa Smeralda on the island of Sardinia. Sardinia is an island in the Mediterranean about 150 miles off the west coast of Italy. Jacques said she planned for the guests “[a] welcome reception and buffet. During the day there were activities, bicycles available, they could go horseback riding, water skiing, sailing, golf. The next night we had a beach party for them. Following day there was a scavenger hunt and we took them to dinner at a restaurant—took over the restaurant and had the whole group at the restaurant and the final evening was the birthday party.”

The party was legendary. On Thursday, June 14, 2001, the approximately seventy-five attendees who had flown to Italy to celebrate Mrs. Kozlowski’s fortieth birthday were transported from the hotel to a country club that had been transformed into a Roman-themed fantasy land. The attendees, about half of whom were Tyco employees or Directors, were treated to an over-the-top extravaganza; it was an evening filled with excess, exuberance, and entertainment. When they arrived at the party, Jacques reported that the guests were greeted by “chariots and gladiators at the door with swords. As they went into the reception area, there were live male models, they had a reception, background music going, being played during the reception which was probably for an hour or so.” During her testimony, the ADA interrupted Barbara Jacques and asked, “What did the live male models do?” to which Jacques responded, “Just looked good. . . .”
33

In public displays that would haunt Dennis Kozlowski for the rest of his life, video of the birthday party was shown during his criminal trials. Over protests from defense counsel—all of whom feared Kozlowski and former Tyco CFO and co-defendant Mark Swartz would be unable to receive a fair trial because of the extreme prejudicial effect the video would have on the jury—the judge allowed
thirty minutes of the four-hour video recorded during the party with an additional twenty minutes during which prosecutors showed still photographs of the festivities.
34
The jury saw images of the shirtless, buff male models outfitted in only flesh-colored briefs and cowboy boots as well as women in a similar state of undress who strolled around a sparkling pool occasionally posing with attendees for souvenir photos. There were video and photos of an ice sculpture of Michelangelo’s
David
that urinated vodka, and a birthday cake in the shape of a woman with sparklers flickering from her breasts. The jurors saw video of party attendees dancing to the music of a band from Nantucket, E. Cliff and the Swing Dogs, before they enjoyed a second surprise musical performance. A guest who checked into the Hotel Cala di Volpe under the name “Elvis Smith” a day before the party was Kozlowski’s special treat for his friends, family, colleagues, and his new wife. Jimmy Buffett and his band played for the birthday girl and her party guests for between forty-five minutes and an hour. The cost of bringing a little Margaritaville to Italy: $250,000.
35

According to Jacques’s testimony, an Executive Committee meeting and a TyCom (a Tyco subsidiary) Board of Directors meeting were scheduled on Sardinia the same week as the party.
36
In addition, the few days on Sardinia were offered as a retreat for several of the employees in attendance. “It was a mix of business and pleasure,” Kozlowski said, “and something that happened over and over at Tyco. It was part of the culture, part of the pay-for-performance culture.” He added that “those opportunities were how I connected the conglomerate; we got everyone together and made them feel like a part of a single organization. It was important.”
37

Kozlowski said because of the AMP visits, the focus on Airbus, and the European Air Show, he and other Tyco employees would have been in Europe in June of 2001, regardless of the events on Sardinia. “Those people had been working nonstop; they needed and earned a retreat,” he explained.
38
Many of them, including Kozlowski, missed the Tyco Chairman’s Council in Athens, Greece held a few weeks before the birthday party, because they were tied up with a deal.

Chairman’s Council was a Tyco incentive program that recognized and rewarded top performers. Barbara Jacques explained that there were a few Tyco programs that rewarded employees with trips and retreats, all of which were a mix of business and pleasure. She said the Tyco retreats and incentive programs were similar to Sardinia—the same types of events and activities, the inclusion of spouses and significant others, liquor, food, and big-name bands. She noted that Chairman’s Council and other Tyco events were held in desirable locations, such as New Zealand, Australia, Aspen, Colorado, and Athens, Greece. Jacques, who organized the events, said they had each cost as much as $2 million and she confirmed that Tyco paid for them in full—100 percent.
39

The amount of trial time devoted to the party is inexplicable as none of the charges in the indictments of Kozlowski and Swartz had anything to do with the party. The evidence was irrelevant. However, the prosecution seemingly introduced
evidence of the Sardinia party to suggest to the jury that Dennis Kozlowski used company money to pay for personal, extravagant expenses. The total cost of Tyco events and Mrs. Kozlowski’s fortieth birthday party on Sardinia in June of 2001 was around $2 million.
40
Kozlowski was certain that his instructions to Jacques were to charge him for all personal expenses associated with Sardinia.
41
Jacques confirmed that Tyco was to pay for the business expenses and Kozlowski was to be billed for all personal expenses.
42
She also confirmed that all non-employees paid their own travel expenses to Sardinia. Jacques handled the division of costs between Tyco and Dennis Kozlowski—she determined what was business and what was personal. Kozlowski never saw the bills.
43
Jacques’s division of expenses resulted in an almost 50/50 split, with Tyco footing about $1 million of the expenses.

It looked bad. Even though Tyco regularly threw extravagant, expensive events for its employees all over the world, the video and photographs of the excess on Sardinia were damning. It appeared that Kozlowski had a Roman orgy on the company’s dime. Jacques confirmed that the Buffett performance was the only thing about the party of which Dennis Kozlowski was aware before he arrived on the evening of June 14. The theme, the nearly nude models,
David
pissing vodka, the togas, the gladiators, the laser show, the cake with sparkling breasts—they were all unexpected and unwelcome surprises to Dennis Kozlowski when he arrived at his wife’s birthday party.
44
“It was not at all what I envisioned for that party,” he claimed. “We had family present at that party. My wife’s parents were there. My daughters were there. It was in bad taste and certainly nothing I would ever choose.” Just like the $6,000 shower curtain.

Kozlowski’s
modus operandi
during the years he was CEO included
absolute
delegation of decision-making and details, as he did with Barbara Jacques for his wife’s birthday party. He was by choice focused completely on running the company and he had plenty of money. So he simply handed his checkbook along with his authority and responsibility to those around him who were paid generously to take care of the details of the CEO’s personal life and financial affairs.