One mystery lurks at the heart of the saga of former Tyco International (TYC ) CEO Dennis Kozlowski. Why? Why did one of the highest-paid CEOs in corporate history feel a need and or desire to steal tens of millions of dollars from the company he helped build, in addition to the nearly $500 million he was paid during his decade as CEO, as prosecutors allege? Manhattan District Attorney Robert M. Morgenthau has indicted Kozlowski on charges of "enterprise corruption," alleging that he and Tyco Chief Financial Officer Mark Swartz stole more than $170 million from Tyco and obtained an additional $430 million through fraudulent sale of securities.
Few people bring more insight to such a question than Abraham Zaleznik, the famed, now-retired Harvard Business School professor who spent a career studying the psychology of CEO leadership. Zaleznik, who is also a trained psychoanalyst, recently spoke with BusinessWeek Boston Bureau Chief William Symonds about the forces that might have led Kozlowski to commit his alleged crimes and how he might have been able to construct an environment inside Tyco that allowed him to get it away with it for seven long years.
Though Zaleznik has never treated Kozlowski, he has spent decades studying the psychodynamics of leadership and group psychology. In Zaleznik's view, Kozlowski was a supreme narcissist who was also highly skilled in accumulating power by winning people to his point of view. Zaleznik believes that what happened at Tyco speaks volumes about the ability of people to be seduced by power. Edited excerpts from Symonds' conversation with Zaleznik follow:
Q: If you assume for a moment that the charges against Kozlowski are grounded in fact, what would drive him to do it?
A:[It could be explained in part] by a sense of entitlement on the part of the CEO. By entitlement, I mean an aspect of a narcissistic personality who comes to believe that he and the institution are one. So this produces a sense of entitlement: that he can take what he wants when he wants it.
The other [factor] is that [these actions could be] perceived as a victimless crime [at least by Kozlowski]. [Prosecutors may claim that Kozlowski] was robbing shareholders. But shareholders are a sort of faceless community, [which can feed the illusion that there] are no victims. And that tends to ameliorate a sense of guilt.
Q: According to prosecutors, Kozlowski created a criminal enterprise within Tyco and persauded other executives and managers to go along with his scheme. If this is true, how might he have won their cooperation?
A:[One possible explanation] is the absence of what I call "signal anxiety." Normally, if I wanted to rob a bank, the superego or conscience would force a delay, and the trigger is the anxiety [I would feel] in anticipation of doing something wrong. But [signal anxiety] is absent in this kind of person [that is, the narcissistic personality, which I believe Kozlowski is].
Then you have to look at the formation of a delinquent community inside these corporations. After all, a CEO can't do it by himself. So how does he enlist the people around him? He does it by force of personality. People identify with him, and through the seductive aspect of personality he takes over their conscience, their ability to distinguish right from wrong.
Also, such a person makes sure there's a payoff for those who engage in this behavior -- so that they share in the spoils and benefits. [Note: Kozlowski forgave millions of dollars in relocation loans to numerous top executives and managers]. And as [the other executives and managers] identify with the CEO, they also take over [his] sense of entitlement, so they don't have the signal anxiety [they might normally feel].
Q: What about the role of Tyco's board?
A:There is a peculiar psychology at work. The members of the board feel that if they question him, it puts them in jeopardy. Standing directors don't want to lose their job. It's their job to speak up, but they become wimps. That is the short of it.
Also, they have the feeling that if you lose the CEO or stop him, that will create chaos. There is a fear of this and a desire to maintain stability. And that's especially true if the executive has a reputation as very entreprenuerial. So...they could become part of this delinquent community.
I've been on boards. I don't believe the reports that they didn't know what was going on. It is impossible for the board not to have gotten a clue. Guys like [former Tyco CEO John] Fort and [veteran director and outside counsel Joshua] Berman would have gotten wind [of what was happening]. [Note: Tyco's board members have denied they had any knowledge of Kozlowski's allegedly criminal behavior prior to the time they began an investigation earlier this year.]
Q: Wasn't part of Kozlowski's genius his ability to pick people whom he sensed would go along with this?
A:Yes. It goes very much with [his] sense of how to accumulate power. [A CEO like Kozlowski instinctively] knows what a person's hot buttons are. Politicians have this same sense in spades.
There is another formula [that someone like Kozlowski uses], which is: If you want to get someone in your hip pocket, the way to do it is to induce a tremendous amount of anxiety and become the agent who relieves that sense of anxiety. The victim of this double-whammy then becomes very loyal. So, for example, [Kozlowski might] have hinted to a director that the director's days were numbered and then, at the right time, keep him on. It takes a very strong ego to withstand this kind of manipulation.
Q: What about Mark Swartz, Tyco's former chief financial officer and Kozlowski's longtime sidekick? How could Kozlowski have persuaded him to play such a key role?
A:My hunch would be that Kozlowski told him they wouldn't get caught. And also, that this was money they were entitled to, since shareholders are making a lot of money. So they don't feel they are stealing from them [even though they are].
Q: How do you explain former Tyco General Counsel Mark Belnick? He was a guy who had already been very successful, yet allegedly also went along with this scheme.
A:Kozlowski was a master at seducing other people. It is almost hypnotic -- this power of seduction. [As for reports that Belnick was a deeply religious man], that testifies to the ability of people to live on islands, and there is no bridge that goes from one to the other. It is almost like one side doesn't know what the other is doing.
Edited by Patricia O'Connell