The same ethical guidelines that helped salvage Tyco International following revelations of greed and corruption in 2002 could benefit investment banks caught in today’s financial meltdown, a former Tyco executive said Oct. 28 at Thunderbird School of Global Management.
“It’s really important as a leader in crisis to make decisions and move forward quickly,” said Eric Pillmore, who helped engineer Tyco’s turnaround as the company’s senior vice president of corporate governance from 2002 to 2007.
Today he is CEO of Pillmore Consulting, a company that helps clients with corporate governance, ethics and leadership coaching. He spoke at the invitation of Thunderbird’s Lincoln Center for Ethics in Global Management to an audience of about 200 students, faculty and staff in Glendale, Ariz.
Pillmore said large corporations embroiled in crisis — as well as healthy companies of any size that simply want to avoid crisis — could learn at least three lessons from Tyco. While Enron, WorldCom and other companies fell into bankruptcy following the 2002 accounting scandals that rocked Wall Street, Tyco was able to act quickly and rebuild its corporate culture and reputation.
Mentoring and education
Pillmore said one key involved a renewed focus on “mentoring, teaching and education” of Tyco employees at all levels of the company — especially new hires.
In the years building up to the 2002 crisis, Pillmore said, leaders at Tyco and other companies got caught in a high-powered culture of getting deals done. Things such as ethics and integrity got pushed aside as stock values climbed.
“This is something you could get trapped in tomorrow,” he said, “jumping into a high-powered culture in a company. You could get sucked into not really understanding the breadth of your responsibilities — and where integrity sits in and among your responsibilities — making sure you’re doing the right thing to represent shareholders.”
Pillmore said companies that want to avoid corruption must develop ongoing programs to train and mentor “high-integrity” employees.
Web of accountability
Another thing companies must develop is a web of accountability around employees at all levels of management — including the chief executive officer.
Pillmore said these systems of checks and balances must include a discipline process to hold people accountable for ethical violations when they get caught.
“It’s really important as a leader — and this applies to the CEO of a company all the way down — that you surround yourself with people independent of your chain of command who will hold you accountable for what you do,” Pillmore said.
He said the executives who fell in the 2002 accounting scandals typically surrounded themselves with “loyal” people afraid or unwilling to speak up when they saw wrongdoing.
“It was pretty common across the board, that none of these men had a group of people around them who were holding them accountable,” Pillmore said.
Boards of directors and other stakeholders also can take steps to safeguard a corporation from scandal, Pillmore said.
He said too many investors simply care about the bottom line, and they don’t pay close attention to issues such as ethics and integrity as long as their stock values are climbing.
“Not enough shareholders care about the character of corporate leadership,” Pillmore said.
This apathy comes with a price. Pillmore said boards and senior leadership teams that want to protect shareholders must develop and implement sophisticated reviews to evaluate the character of senior management.
After the fallout in the 2002, Tyco established an ombudsman, a senior vice president of corporate governance and an internal auditor who all report directly to committees of the board of directors.
“Those committees of the board of directors have the right to select and remove the people in those three jobs,” Pillmore said. “If you’re in one of those three jobs, when you wake up in the morning, you’re accountable to make sure that the board of directors gets complete, accurate and timely information on what’s going on inside the company.”
Pillmore said many corporations are stepping up their efforts to apply these three lessons, but ethical violations still occur. Ultimately, he said, individuals must decide before they take any corporate job what their values are.
“I need you to ask yourself one question,” he told the business students in the audience. “And that question is: What are the principles that you live your life by, that you’re willing to lose your job for? What are those non-negotiables in your life that you would stand for, no matter what?”