WSJ: Dennis Kozlowski Talks Jail, Pay

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The Wall Street Journal
BUSINESS
October 21, 2011

Dennis Kozlowski Talks Jail, Pay

BY JOANN S. LUBLIN

MARCY, N.Y.--As convicted hedge-fund manager Raj Rajaratnam gets ready
to enter the prison system, L. Dennis Kozlowski, a poster child for
the last wave of corporate scandals, is hoping he'll soon get out.

The former chief executive of Tyco International Ltd. was found guilty
in 2005 of looting his employer and sentenced to as much as a quarter
century behind bars. Now, he's suing New York state to win work
release and is awaiting his first parole hearing in April.

Meanwhile, Mr. Kozlowski looks out -- across razor wire made by Tyco
-- onto a world where the stumbling economy and scorn heaped on big
business have a familiar feel. Once one of America's highest paid
CEOs, the 64-year-old felon acknowledges he got "piggy" when it came
to his pay. And he says he shares the outrage over corporate greed of
the Occupy Wall Street protesters, many of whom wonder why the recent
financial crisis didn't send as many executives to prison as the
scandals of a decade ago.

"I understand their frustration," Mr. Kozlowski said in an interview
in a visitors' room here at the Mid-State Correctional Facility.

The former executive, who pulled in a pay package worth more than $100
million one year, criticized ailing financial firms for paying out
sizable executive bonuses after they were helped by taxpayer bailouts.
"That's indefensible," he said.

Mr. Kozlowski also discussed his post-prison plans, his meetings with
General Electric Co. CEO Jeff Immelt about combining their companies,
and the missteps that led to his conviction.

Mr. Kozlowski was found guilty in June 2005 on 22 of 23 counts,
including grand larceny, conspiracy and securities fraud stemming from
giant bonuses and other improper compensation he got as Tyco's highest
executive.

He received a sentence of 8 1/3 years to 25 years, compared with 25
years for former WorldCom CEO Bernard J. Ebbers and 24 for former
Enron President Jeffrey Skilling. In seeking the maximum sentence,
Assistant District Attorney Owen Heimer called Mr. Kozlowski's crimes
"unprecedented" and said he made Tyco into a "symbol of kleptocratic
management."

Mr. Kozlowski hopes to take a work-release job with Access
Technologies Group Inc., a small company in New Canaan, Conn., whose
services include job-search training for ex-convicts. But the state
has turned down his request for work release four times.

He's suing to overturn the decision and chafes that Mark H. Swartz,
the former Tyco finance chief convicted of similar crimes, already has
such a job. The New York Department of Corrections and Community
Supervision confirmed that Mr. Swartz started a Manhattan work-release
assignment in late September but declined to comment on Mr.
Kozlowski's request.

If the litigation fails, Mr. Kozlowski will become eligible for parole
in August, with a first hearing in April. Lucy Baney, the head of
Access, said Mr. Kozlowski can take his senior-management post during
work release or on parole.

Mr.Kozlowski believes he was treated more harshly than other former
executives. "My sentence was far too drastic," Mr. Kozlowski said. "My
sentence is the same as people who brought down Enron and WorldCom."

While those companies disappeared, he said, "Tyco investors have
enjoyed living off a lot of the assets that were accumulated by the
management team that I had in place."

Some ex-prosecutors believe shareholders benefit from convicted
executives' harsh sentences. Lengthy sentences "act as a deterrent
because people don't want to face the possibility of going to jail,"
said Bart Schwartz, a former criminal-division chief in the U.S.
Attorney's office in Manhattan. He is now chairman of Guidepost
Solutions, a corporate compliance, monitoring and investigations firm.

In September, Tyco announced it will break up for the second time in
four years, transforming a serial acquirer with $36 billion in revenue
in 2001 into a single $10 billion entity selling security and fire-
suppression systems.

As Tyco chief, Mr. Kozlowski lived well. His opulent, company-funded
apartment, with its $6,000 shower curtain, became synonymous with
corporate excess. He said it was also where he and GE's Mr. Immelt
conferred in November 2001 and January 2002.

An investment banker arranged the meetings for the chief executives
"to talk about the possibility of putting Tyco and GE together," Mr.
Kozlowski said. One meeting occurred over dinner, a Kozlowski lawyer
testified during his trial.

The chats about the unlikely combination never got beyond the
exploratory stage, Mr. Kozlowski said. A GE spokesman declined to
comment.

Mr. Kozlowski pursued a freewheeling acquisition strategy during the
1990s, estimating he completed nearly 200 takeovers. Less aggressive
growth would have produced slimmer pay deals, he said. "We were
running too fast."

The deposed Tyco chief also wishes he had chosen more seasoned people
for his top team. "The lack of documentation was the key" in his
conviction for taking unauthorized compensation, he said. "We needed
somebody to rein us in and say all these things need better
documentation."

Mr. Kozlowski's lack of remorse still bothers Wendy Lane, a Tyco
director between April 2000 and March 2003. "It continues to amaze me
that he doesn't accept responsibility for his crimes," Ms. Lane said
Thursday

Tyco is still fighting in court to claw back compensation and benefits
doled out to Mr. Kozlowski. The company had sought disgorgement of at
least $505.8 million, and a judge last year ordered him to forfeit
compensation and benefits awarded over nearly seven years starting in
September 1995. Paul Fitzhenry, a Tyco spokesman, said the precise
figure the company has asked a judge to award is under seal. Mr.
Kozlowski failed in his bid to appeal the ruling immediately.

When he headed Tyco, Mr. Kozlowski owned three pricey houses, two
aircraft and the racing yacht Endeavor. He sold everything except his
Florida residence, he said, to cover the $90 million in restitution he
paid to Tyco and a $70 million fine levied by New York state.

In prison, the former chief executive has worked his way up from
serving food and cleaning bathroom floors to picking up and delivering
laundry. He now makes 80 cents a day. "There's no pay for performance
here," he joked, clad in green fatigues and nearly 25 pounds lighter
than during his Tyco days.

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