The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Thursday, June 13, 2002  

We Ask, “Who's Next?”

We’ve never considered ourselves big fans of Arianna Huffington, but we must say we’ve been impressed by her willingness in recent months to cast a critical eye -- and pen -- on the unrestrained greed and corruption that became so pervasive in the highest ranks of American corporations at the turn of the century. Upton Sinclair she’s not, but given the media’s propensity to provide support and succor to financial and corporate celebrities, no matter their incompetence, she’s a veritable breath of fresh air.

Most investors, pundits, and columnists have been asking why former Tyco International Inc. chief executive officer Dennis Kozloski would go to extraordinary -- indeed, criminal -- lengths to avoid paying $1 million in sales taxes on purchases of $13 million of second- and third-rate paintings given the compensation he had been pulling down at Tyco, including $125 million in 2001 alone.

The salon-ruling ex-wife of a former Republican congressman from California, Huffington asks not, “Why did he do it?”, but instead, “Why is anyone surprised?”

Huffington is absolutely on target. As she explains in her nationally syndicated column today, entitled “Tyco Chief's Art of Putting Himself First”:

“The alleged behavior that has him facing prison is exactly the behavior that was the hallmark of his run as Tyco’s swashbuckling, take-no-prisoners CEO….This, after all, is the same guy who, in 1997, moved his company’s nominal headquarters 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.”

To avoid New York City’s 8.25 percent sales tax, Kozloski initially had the paintings, ultimately destined for his $18 million Fifth Avenue apartment, shipped to Tyco’s New Hampshire executive offices.

Later, becoming more aggressive, Kozloski had empty crates shipped to New Hampshire and the paintings shipped to New York. Kozloski’s trusted dealers, who we already know were ripping him off [Ed.: See “The Fleecing of Dennis Kozloski,” June 13, below.], apparently were more than happy to participate in the scheme.

Even more shamelessly, some of Kozlowski’s purchases were financed by no-interest loans originally intended to support employee purchases of Tyco stock.

While this was going on, Kozloski was being lauded in the financial media and cheered by Wall Street analysts who bought his strategy of “growth-through-acquisitions-but-don’t-forget-to-write-everything-off-so-amortization-charges-don’t-kill-earnings-and-be-sure-to-create-reserves-larger-than-needed-to-create-pools-of-funny-money-to-smooth-future-earnings.”

Tyco’s virtually indecipherable financial statements proved to be no obstacle to sell-side industry analysts who helped to push the stock to outrageously overpriced levels. Analysts from such prestigious brokerage firms as Goldman Sachs & Co., Merrill Lynch & Co., and J.P. Morgan Chase & Co. thought nothing of applying an above-market multiple on the earnings of an illogical, even nonsensical, conglomerate with a seemingly insatiable need for capital that had its hand in such disparate and unrelated businesses as electronic components, medical equipment and supplies, and burglar alarms.

Huffington’s criticism is refreshingly merciless:

“Somewhere along the way, Kozlowski, the son of a New Jersey cop, began to see himself and the company he led as one and the same. Like so many other CEOs grabbing today’s headlines, Kozlowski adopted the outlook of France’s Louis XIV, who notoriously proclaimed: ‘L’etat, c’est moi’ -- ‘I am the state.’”

And relentless:

“If King Louis was Kozlowski’s historical ancestor, convicted felon 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.”

Huffington goes so far as to psychoanalyze this poster child for unrestrained greed and avarice:

“Last month, 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 his message to the 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 Kozlowski’s superego and id duking it out under his mortarboard.”

But Huffington wins our highest praise for thinking the unthinkable, or at least what is surely unthinkable among her Republican friends:

“We’ve spawned a corporate culture that has made demigods out of those doing the easy thing. Turning it around will take more than noble commencement speeches. It will take throwing a few of those demigods in jail.”

Now if only we could convince Huffington to take aim at some of the purported geniuses of the last bull market. She could create a cottage industry for herself given the number of top executives from the 1990s whose “brilliance” had less to do with their alleged managerial talents and more to do with the raging bull-market bubble.

In case you’re reading, Ms. Huffington, our targets would include, among many others: Jack Welch of General Electric Co.; Jeff Bezos of Inc.; Carly Fiorina of Hewlett-Packard Co. and previously of Lucent Technologies Inc.; John Chambers of Cisco Systems Inc.; Jozef Straus of JSU Uniphase Inc.; Bernie Ebbers, formerly of WorldCom Inc.; Larry Ellison of Oracle Corp.; Kevin O’Connor of DoubleClick Inc.; and David Wetherell of CMGi Inc.

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