Dennis The Menace

(2 of 2)

Since Jan. 1, Tyco shares have fallen some 80%, hitting a six-year low of $10.10 on Friday. Late last week the debt-rating agencies S&P; and Moody's downgraded Tyco's debt, fueling worries that the company, which is trying to trim its $27 billion in debt--$12.8 billion of it coming due in the next 18 months could be caught in a cash squeeze. Tyco announced last week that it may have to delay the IPO of its CIT financial division which was expected to raise $5 billion in cash because of concerns by the SEC.

For much of the 1990s, investors didn't want to let Tyco's improbably high reported growth rate of nearly 40% spoil their fun. Before last week's free fall, Tyco shares (with dividends reinvested) had still gained almost 400% in the decade since Kozlowski took over and turned the company into a merger machine, according to Harvard Business School associate professor Robert Kennedy. Along the way, Kozlowski snapped up electronics manufacturer AMP, security firm ADT and medical-products maker U.S. Surgical.

The son of a police detective, Kozlowski grew up in Newark, N.J., where he played basketball in high school. He majored in accounting at nearby Seton Hall University, living at home to save money, and worked his way through college playing guitar in a wedding band and occasionally waiting tables. At one of his first restaurant jobs, the staff pooled tips, which didn't seem fair to a hard worker like him. Within a month, he had moved to another restaurant, where he got to keep every cent he earned. "There seems to have been a fanaticism about getting every last nickel. That was his Achilles' heel," says Marc Feigen, managing partner of Katzenbach Partners, a consulting firm in New York City, who got to know Kozlowski through a business-school leadership program.

Kozlowski landed at Tyco in 1976, hired by legendary hostile-takeover-artist Joseph Gaziano to fix some floundering acquisitions. At the time, Tyco Laboratories was a small manufacturer of everything from undersea cables to fire sprinklers. (It is unrelated to Mattel's Tyco line of toys.) But when Kozlowski took over in 1992, he re-created Tyco in his spirited image.

Hostile takeovers, for starters, weren't an option under his regime. To get a detailed look at his target's finances and pick up the best talent, the deal had to be friendly. And it had to be fast, finished in a matter of weeks, not months. Going after underperforming firms that were "fat, dumb and happy," in the words of a former Tyco employee, Kozlowski would move in quickly to slash costs and consolidate and close factories; top executives were usually shown the door in favor of eager, young middle managers willing to work long hours. To make sure his charges made their numbers, Kozlowski dangled rich performance bonuses. And he insisted on running a lean, decentralized operation. Memos are practically forbidden, as are lengthy meetings. Only about 150 employees mainly top executives, lawyers, accountants and bankers work at headquarters in Exeter.

Kozlowski liked to think of himself as a budding Jack Welch, but unlike Welch, he never developed a set of business practices that brought real synergy to his disparate businesses. He had little patience for GE's vaunted Six Sigma quality-control doctrine, nor did he make enough investments in information technology. And he apparently didn't do a good job of nurturing a new generation of managers: retired chairman John Fort had to return as interim CEO last week. Some analysts think that in his passion for quick deals, Kozlowski often overpaid, most notably for CIT, which may fetch just half the $10 billion Tyco paid for it in 2001.

Though he has been celebrated on the covers of Forbes and Business Week, Kozlowski is, by most accounts, a relatively shy, unassuming guy, more content to ride his Harley, fly the company helicopter or sail his boat than work the room at a cocktail party. If you didn't have a deal to talk to him about, the conversation probably wasn't going to last long. "Dennis looked like he was always restless," says a business acquaintance. "I wonder if he was close to anybody, including his board."

Apparently not. Late last week Tyco's interim CEO, Fort, emphasized that "Dennis is gone." Then he repeated it: "Dennis is gone."