Before scandal engulfed Tyco International, Tammy Cross worked behind the scenes as a switchboard operator, receptionist, even as a flight attendant on corporate jets.
Cross says her bosses made sure she knew to keep quiet about who flew and what was discussed. They also gave the single mother a surprise benefit: college tuition for her daughter.
“I was overwhelmed,” she testified recently at the ongoing Manhattan trial of L. Dennis Kozlowski, the former Tyco chief executive charged with stealing $600 million from the electronic and medical supply conglomerate.
Cross’ story reflects a pattern of alleged behavior running through the recent flurry of white-collar criminal cases: executives plying their underlings with expensive gifts and other unexpected perks.
Defense attorneys argue that the generosity was meant as good management, not manipulation. But prosecutors and experts on corporate practices contend the real purpose was to buy the support staffs’ loyalty — and silence — as the higher-ups sought to evade regulators.
Larry Johnson, a consultant and author of “Absolute Honesty: Building Corporate Culture That Values Straight Talk and Rewards Integrity,” said the practice, though rare, can arise in corporate cultures where executives have something to hide.
“I’d call it pre-emptive bribery: Treat them well and they won’t squeal on you,” he said.
In the Tyco case, the jury has heard two former Kozlowski secretaries testify that — while having affairs with the CEO — they lived cost-free in Tyco apartments. The two, Barbara Jacques and Mary Murphy, were later given severance packages and loan payoffs worth hundreds of thousands of dollars, according to testimony.
Cross testified this month that after being assigned to the company’s flight department in 1997, Kozlowski told her she “would be seeing different things and to be discreet.”
Around the same time, Kozlowski designated her daughter a “Tyco scholar,” meaning the company would pay her tuition at prep schools and college, she said. Tyco also forgave a $239,000 mortgage she had secured through the company.
Such arrangements “obviously don’t fall within the realm of standard compensation,” said Neil V. Getnick, managing partner with Getnick & Getnick, a firm specializing in advising companies on business integrity.
“And it’s important to remember that there was shareholder money used to fund it,” Getnick said.
To avoid trouble, many businesses strictly enforce “a hard-line set of guidelines that would prohibit any favoritism,” Johnson said.
But alleged favors had been frequent in other high-profile corruption cases that have rocked corporate American in the past two years.
In domestic maven Martha Stewart’s case, an assistant to Stewart’s broker, Douglas Faneuil, claims he was offered an extra week of vacation and a free airline ticket to mislead Securities and Exchange Commission and FBI investigators about his knowledge of alleged insider trading. He pleaded guilty to a misdemeanor in 2002, and will be a key prosecution witness at Stewart’s securities fraud trial starting this week.
Prosecutors in the multi-billion-dollar fraud case against former HealthSouth Corp. chief executive Richard M. Scrushy allege he systematically paid off employees to “buy their silence” about a scheme to inflate earnings. Scrushy, who is awaiting trial in Alabama, has denied any role in the fraud and blamed his subordinates.
Last year, a longtime secretary for former Rite Aide executive Franklin C. Brown testified at his trial in Pennsylvania that he wrote her a personal check for $25,000 in 1998 — a week after she helped him manufacture backdated documents that qualified him for thousands of shares of stock.
Brown, once chief counsel for the nation’s No. 3 drugstore chain, is awaiting sentencing for his conviction on conspiracy, obstruction of justice and other charges.
An attorney for Brown, 75, argued at trial that his client’s penchant for giving personal gifts and loans to loyal associates was innocent, and referred to him as “an old man shuffling around, trying to be useful, trying to be involved.”
The secretary, Mary Lou Egan, told the jury she tried to turn down the offer to use the money to buy a new car — “It was an overly generous offer I was uncomfortable with” — but ultimately relented.
Egan used $22,996 to buy a convertible, and returned the remaining $2,004 to Brown.
“I did not have the feeling that the car was for anything I did,” she said.