Update: What Has Happened at Tyco?

In September/October 2003, Ethix featured a conversation with Eric Pillmore, who had recently joined Tyco International as the senior vice president of Corporate Governance. At the time of our interview, Tyco had just been through one of the notable corporate scandals. CEO Dennis Kozlowski and CFO Mark Swartz had been charged with stealing hundreds of millions of dollars from Tyco and illegally earning hundreds of millions more by manipulating stock; they were convicted in June 2005, and sent to prison. We recently made contact with Pillmore to get an update on the progress of restoring the integrity of Tyco International.

In 2003, Pillmore had stated two important goals. One was to restore the confidence of the employees of Tyco, to make them proud of the company they worked for. He said at the time,

“I soon recognized that the reputation of the company was damaged to the point where employees were no longer proud to wear a shirt that has the Tyco monogram on it. People ask me how you measure when you have addressed the issues with the employees? One way is to wait for the day that people begin putting their T-shirts back on, demonstrating their pride and trust in the company.”

How have they done against this goal? Pillmore said, “We conducted a study internally (during 2006) to determine if we should keep the Tyco name. On the one hand, it had been tainted by the scandal, and we wondered if it could be recovered. On the other hand, there would be extensive costs associated with renaming the company and shareholders and customers strongly supported us retaining the name. We decided to keep the name and move forward with the turnaround of the company. At this point, employees are proud to wear their T-shirts again, because they are proud of the company as it is today, and also proud of our turnaround.

“It has been challenging in some respects, because the each newspaper article covering the trials put the company back on the front page, reminding people of what had happened. However, we are proud of our company, and we believe we made the right decision in retaining the Tyco name as we continue to demonstrate the turnaround.”

Modeling Corporate Governance

A second goal Pillmore had spelled out in 2003 was to share the company’s governance plan widely, making Tyco a model for corporate governance. He said,

“(Our governance plan) is an asset. But we are choosing to manage this asset a bit differently than others … I think what we’re doing here is bigger than Tyco. I’d like to see the guide for ethical conduct raise the standard for every public company in America.”

When asked how they had done against this goal, he said, “We’ve made progress here as well. GovernanceMetrics International (www.gmiratings.com) provides a governance rating for companies based on six criteria: board accountability, financial disclosure and internal controls, shareholder rights, remuneration, market for control, and corporate behavior. Companies are given both a global rating and a home market rating. In December 2002, we had a rating of 1.5 (on a scale of 1 to 10, with 10 being high). By September 2006 that had risen to 10. This has required hard work by our whole company including our chairman, Ed Breen, and the entire board.

“While we don’t have hard evidence of other companies learning from us, I would estimate that we have shared our approach with over 100 companies, of all shapes and sizes. Many of these companies have adopted at least some of our practices. I am pleased that our CEO/Chairman Ed Breen has encouraged me to proactively share our ideas with a variety of companies. While we still have some areas where we can improve, we have made tremendous progress in our governance, and are committed to continuing to share our best practices with a wide group of companies in the future.”