anagement Planning at Tyco David Heinauer University of Phoenix MGT/330 July 27, 2010 Instructor: Willetra Brittian Management

Planning at Tyco Over the past decade, corporate greed has come to the forefront of the national news in America. Corporations such as Enron, WorldCom and Global Crossing have become synonymous with corporate greed and corruption. In 2002 Tyco joined these companies when its Chief Executive Officer and Chief Financial Officer were accused and later convicted of looting the company of $170 million in loans for themselves with no formal approval or knowledge to shareholders (Kemmerer & Shawver, 2006). Tycos Board of Directors started the planning that would eventually turn the corporation around. Through effective management planning Tyco will avoid bankruptcy and become a respectable, profitable company. Tycos corporate social responsibility was to restore shareholder and consumer confidence in the company. Tyco tackled this responsibility head on by overhauling its executive ranks, replacing every senior executive by the end of 2002. The Board of Directors hired Ed Breen as Tycos new CEO. Breens first order of business was to personally hire the over 60 senior executives, making it clear upfront that the highest standards of business practices and ethics would be expected by everyone (Pillmore, 2003). Additionally, investors expressed interest in replacing the board members with more operations minded members. The board members at the time had mostly a financial background and Breens new strategy for the company was operationally focused, a substantial shift from the financially focused strategy of the past. Breen also recognized that he could improve shareholder confidence with a new board. Though it was difficult, Breen successfully convinced the board to step aside and shareholders selected new board members (Pillmore, 2003). The executive planning to replace all senior management and the board helped Tyco restore investor confidence, enabling the

company to begin recovery. Tycos ethical challenges were enormous. Kemmerer & Shawver (2006) suggest that the failure of Tycos leaders to create and ensure ethical top-down organizational values eroded the corporations ethical values. Pressures resulting from the ethical collapse from both investors and society led to the massive ethical reforms at the top-management level, requiring extensive planning to create and ensure these values are passed down. Senior managements plan called for its new strategy to create a corporate governance czar, a senior vice president position. This new position reports directly to the Board of Directors nominating and governance committee, with a dotted line relationship to the CEO. The position was responsible for creating a comprehensive process to ensure effective corporate control and prevent any abusive power by corporate management (Pillmore, 2003). Changes from this new position are viewed as positive. Governance Metrics International, a governance-rating consulting firm, increased Tycos governance rating from a 1.5 out of 10 in December 2002, to a 9.0 in August 2005 (Kemmerer & Shawver, 2006). The company distributes an in-depth ethical guide to all of its employees which is built upon several corporate core values including integrity, excellence, teamwork, and accountability. Every employee is obligated to assert acceptance and understanding of this guide. (Verschoor, 2006). Legal issues from the scandal led to a comprehensive plan to establish extensive auditing processes and restructuring the organization to prevent corporate corruption from ever happening again. Tycos investigation into the activities of its senior managers was more extensive than any other company had ever done (Pillmore, 2003). Tyco conducted two levels of investigations. The first was into the activities of its senior executives. The second, phase 2, was into Tycos 15 largest acquisitions to determine if there had been any systematic fraud in the accounting for these transactions. Tyco also

intensified its internal audits and operations reviews. Tycos senior vice president of corporate governance notes, The companies top executives, its most trusted stewards, had acted improperly. How could we ensure it wouldnt happen again (Pillmore, 2003 p. 3)? The results of the investigations led Tyco to realize that there new strategy must plan to separate finance from operations. Historically, companies that suffered corporate governance breakdowns had one factor that stood out more than anything else: there werent clear delineations between finance and operations management (Pillmore, 2003). Tycos plan to separate finance and operations management involved changing the reporting structure of the executives leading finance. Previous CFOs reported directly to the operational executives of their respective business segments. Now they report directly to a corporate CFO, with a dotted line relationship with to their business segment operational executives. This reporting structure ensures that everyone in finance is on the same page and that checks and balances between finance and operations are restored (Pillmore, 2003). As a part of its retribution from the scandal, Tyco agreed to pay a $50 million fine to the SEC stemming from claims of inflated profits. Deutsch (2006), notes that although Tyco still faces a number of lawsuits from shareholders, it should be able to settle these suits without significant impact to its earnings. Being that both former CEO and CFO Kozlowski and Swartz received lengthy jail sentences and $240 million in fines and restitution (Deutsch, 2006), the spotlight on this scandal shifted the minds of many investors and the public. Breen and other top management must continue to plan change within the organization to ensure ethical behavior becomes a key component of Tycos corporate culture. Corporate greed, corruption, ethical culture and social pressure significantly influenced every facet of Breen and his top executives approach to strategic, tactical, operational and contingency planning. All

of these factors were the core focus when senior management planned its strategy to turn the corporation around. To stay in business, Tyco had to quickly reinstall confidence in its investors and stakeholders. Breen, with the help of the board of directors and his senior executive team developed a strategy of implementing the highest standards of business practices, high ethical morals, and a corporate culture that is framed on the premise of each employee being responsible for the conduct and the success of the company. Through extensive planning, Tyco was able to successfully execute its strategy: restructuring the organization, establishing an effective corporate governance body, and establishing an extensive auditing process, to avoid bankruptcy and become a respectable, profitable company. References: Deutsch, C. 2006. Tyco Will Pay $50 Million To Settle Case With S.E.C. New York Times: pg.C.3 Kemmerer, C. H., & Shawver, T. J. Tyco: A Top-down Approach to Ethical Failure. Journal of Accounting, Ethics & Public Policy, 6(2), 155-163. Pillmore, E. M. (2003, December). How Were Fixing up Tyco. Harvard Business Review, 1-10. Verschoor, C. 2006. Tyco: An Ethical Metamorphosis, Strategic Finance. April 2006: 15-16.