Eric Pillmore, the first senior VP for corporate governance at the once-disgraced company, told a Minneapolis audience how Tyco is working to mend its reputation.
Corporate ethics may sound like an oxymoron to many Americans these days, as the scandals of recent years at Enron, WorldCom, HealthSouth and Tyco continue to make news.
But one of those companies -- Tyco International -- sent a vice president to Minneapolis on Wednesday to talk about how it is working to straighten out its crooked reputation.
(Tyco became notorious in 2002 for then-CEO Dennis Kozlowski's extravagances such as a $6,000 shower curtain and a $2 million birthday party for his wife. Also, the company just agreed to pay a $50 million fine to settle claims that it inflated profits from 1996 through 2002.)
The first step toward recovery was a near-total housecleaning of company leaders -- the old board of directors and 290 of 300 corporate employees were replaced by early 2003, Eric Pillmore told an audience of business leaders gathered by the University of St. Thomas, the Center for Ethical Business Cultures and the Minnesota chapter of the National Association of Corporate Directors.
But the basic principles that Pillmore hopes will sustain a culture of ethics at the diversified manufacturer can apply to other business as well, he believes.
Giving credence to Pillmore's work as Tyco's first senior vice president for corporate governance are two independent business measures. GovernanceMetrics International, whose clients include investment managers and mutual funds, rates Tyco one of the most-improved companies globally. On a scale of 1 to 10, Tyco rose from a 1.5 at the end of 2002 to 8.5 this February. Also, Tyco stock has recovered some of its value.
After falling from a pre-scandal peak of $62.12 to $10.10 in June 2002, it is now up to around $26.
The GovernanceMetrics rating covered qualities such as financial disclosure, board accountability and environmental, health and safety records.
Principles of ethics
Pillmore's first principle calls for strong leaders who see themselves as stewards of the company and mentors for its future leaders. What got some companies in trouble, he believes, were top financial officers who instead saw themselves as big dealmakers. He said he was lucky to have a mentor who stressed that a chief financial officer's first responsibility is to take good care of the money. "I think mentorship is huge, and I don't think there's enough emphasis on it," Pillmore said. "None of us has ever gotten a pat on the back or a bonus for it."
The second principle is what Pillmore calls "a web of accountability." Business leaders often are charismatic and intimidating people who don't take well to being challenged.
"It's not enough to think you're an ethical person, I don't think," he said. "You need somebody, even somebody outside the company, constantly asking good questions."
The third necessity, Pillmore said, is a "robust process to get at how people really are behaving." At Tyco, that means including company values in every assessment of managers and leaders. It also means trying to reach all 240,000 employees worldwide with a statement of ethics, and letting them know that the company really does want to hear about problems.
To encourage that, Tyco publishes a quarterly report on any problems employees brought to their attention, then the company's findings and any disciplinary action -- leaving out all employees' names. It's one of the most popular reports among the workforce, Pillmore said.
Pillmore keeps it all real, he said, partly by traveling around the world and talking to as many employees as possible.
"Facing them on a regular basis keeps you from being a bureaucrat," he said. "Also, I spend a lot of time talking about what we're learning, and I find that's very appealing to people."
Pillmore has his eye on a new frontier: the interviewing process.
"The thing still lacking is how we transfer this to the front end, to keep bad guys from getting in," he said.