How we're fixing up Tyco.

Abstract

Among all the companies that were touched by scandal in 2002, Tyco was uniquely positioned to serve as a laboratory for governance reform. It had solid manufacturing businesses and, unlike Enron or WorldCom, it was not the victim of massive, systemic accounting fraud. Yes, there was serious malfeasance at the top--exemplified by the $6,000 shower curtain, the $2,200 wastebasket, and the other extravagant items purchased at shareholders' expense for former CEO Dennis Kozlowski's New York apartment. But undergirding the company was a foundation of profitable basic businesses. In this article, Tyco's first-ever senior vice president for corporate governance describes the steps the company is taking to wipe the slate clean and restore share-holders' and employees' trust in its operations. The company began by bringing in a new CEO, Ed Breen; hiring some 60 new senior executives; swapping out the entire board of directors with individuals who boast strong backgrounds in operations as well as in finance; and meticulously, systematically scrubbing all the books. Tyco's new board is clear about who has authority over which transactions and, with three executives within the company reporting directly to it, has a window into day-to-day affairs. Most important, Tyco is creating the conditions for good governance below the senior executive level, including a stronger boundary between finance and operations management. "In the heat of the new economy ... it became unfashionable for [finance] to exercise checks and balances on [operations]," Pillmore explains, which is why a lot of abuses went unchecked at many companies. After more than a year of effort, much of the groundwork for effective governance has been laid at Tyco. Now, the challenge is to get the word out about the reforms and let the effects speak for themselves.