Triple Crown Leadership

Triple Crown Leadership

Why Tyco Threw Out Its Entire Board

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Interview with John Krol and Ed Breen
Tyco International
Leaders Speak Series

John Krol was elected to Tyco’s board in 2002 and served as lead director until 2008. He is the former chairman and CEO of DuPont.

Edward Breen was chairman and CEO of Tyco from 2002 until September 2012, when the company separated into three public companies. Breen is currently non-executive chairman of the Tyco board. Prior to joining Tyco, Breen was president and COO of Motorola.

John Krol & Ed Breen, Tyco International

Krol and Breen took over the leadership of Tyco International after its former CEO and CFO were jailed.

The company, once a Wall Street darling, had fallen into an abyss.

We interviewed them about their early leadership moves at Tyco for Triple Crown Leadership:

What were the priorities when you arrived at Tyco?

Breen: A few key areas were critical. One was a new vision and values. It starts with the board of directors being very tied-in with the CEO and the senior management in setting the values and vision. That becomes the groundwork for the message that disseminates through the organization.

Second was the focus on talent and teamwork. Teamwork is at least as important as having the best players on the field. I’m always obsessing with the talent. They’re all smart, or they wouldn’t have progressed to this level, but I always look at how passionate they are because passion and excitement are infectious.

You have to get the rotten apples out. That impacts teamwork. If you don’t have good teamwork, the chemistry is quickly ruined.

Third, the company needed to have an operating rhythm–an expectation of what was wanted day in, day out, and week in, week out. We have a very defined structure of how we go through a month and a quarter. I call it the black book, and there’s not a lot you can hide from by the time you go through the business as we do. We do consistent operating, strategy, and talent reviews. The organization then clicks together.

The fourth area was just overall strategy: spending time on it and making sure the organization understood what that strategy is. I’m not just talking the month-to-month strategy. I’m talking about multiple years.

Fifth was a rigorous customer focus. That sets a real tone for what’s important. You want customers to be delighted and that priority to permeate the organization.

What kind of company were you trying to build?

Breen: I like a very collaborative organization because that’s how you learn. People are talking; they’re open; they’re communicating, especially the CEO. When you listen, it’s easier to make a decision.

But you have to be able to make a decision and move on. A fair number of organizations are overly collaborative, waiting for total consensus and never making the decision. The organization stymies. The speed of decision-making is important.

When I got to Tyco, we, as a team, talked a lot about things like vision and values.

At the same time, Jack and I said we have to run this company for cash during the first year because it could go under. We were in dire straits. We needed a whole different way of running the company.

Previous management would wake up every Monday and buy a company. We said that’s over, but some of the management just never got that.

Running a company for cash is different than running it for earnings. You do different things. We had to get a lot of people out who just couldn’t buy into what we needed to do. But it was critical that we accomplish that in the first year. That’s an example where the CEO’s got to put his foot down and say, “Here’s where we’re going, and here’s what it means.”

How was the board involved in this transformation?

Breen: Our board was involved in setting up our values and vision with our management team. That’s how you get buy-in. They were all part of it. They agreed with it. You don’t rush those conversations because you want everything to be on the table, and there’s no reason to rush that. You also want a board that the whole organization respects. Our management team looks up to our board.

Krol: Before Ed, there was a carrot-and-stick approach. The business leaders focused on buying companies, which led to large bonuses. If they didn’t get the job done, they got punished.

When we came to Tyco, we found little focus on values, the charter for how the organization was going to operate, and how the board was going to operate. So, we developed a set of values that defined the new culture we expected and a set of principles for board and committee operations.

The number one thing in the turnaround of Tyco
was a culture of basic values.

We were in a tremendous hole.

How did you two work together?

Krol: Ed and I split the duties. He focused on getting the company straight, resolving litigation, SEC and DOJ investigations, solvency, and operational excellence. I focused on the board: putting together board principles, charters for board committees, delegation of authority documents, code of conduct, and recruiting a new board.

In the first couple of weeks, we concluded that we must quickly establish credibility. Customers were fleeing; suppliers were demanding payment in advance; and the stock price had plunged. To establish credibility, we had to change the board, among other things, not because they were bad people individually, they were very accomplished people, but they were associated with the previous management and failures. In building the new board, we recruited directors with strong operational backgrounds. Most of the previous board had financial backgrounds.

Over a period of three months, we recruited a new board and developed the board principles, delegation of authority, a code of ethics, and their implementation processes.

How did you persuade the old board to step down?

Krol: Ed had a lot to do with that. Some board members thought it was the right thing to do, but others fought it. We just convinced them we were right, and it was in the best interests of the company.

The fall of Tyco was brought about by
a lack of governance and board accountability.

Breen: Jack and I knew in our gut we needed a new board. No one had ever done it before in corporate America. I think many people who have a tough time making decisions would not have made that one. “All right, I’ll look for maybe two new people, and we’ll move on.” It just would not have worked.

Krol: It was one of the things we had to do to get credibility because, as long as they were there, we had a cloud hanging over the company. “Is the company really going to change? You still have the same old board.”

If either you had been alone, would it have been more difficult?

Breen: Very much so. Jack and I were talking every day.

Krol: We were working together all the time. As we got the new board members together, we asked them to provide input and approve the new values, board principles, committee charters, code of conduct, and delegation of authority. The board didn’t understand why we were involving them in reviewing these documents, but eventually they got into it. We reviewed one or two of these at every board meeting until everybody had their say. Then the board owned them. The process was from the top down with the whole board involved.

Breen: We permeated all this in the organization, talking about it a lot. We came up with four core values: Integrity, Excellence, Teamwork, and Accountability. With those four, we have nine behaviors that we think are important in leaders. When we do everyone’s talent assessment, we do it consistently based on the nine behaviors that come out of those four values. [See table below.]

That’s how we graded our people. They knew this tied right back to what the senior team and board felt were important. The grade resulted in a promotion, a bonus, or you don’t belong in the company. It’s all tied together. We did it twice a year, a full talent review. I personally reviewed the top 200 to 250 in the company, and people knew it.

Krol: Ed then reviewed these assessments with the board. We have one or two sessions a year where Ed and his team would go through least 50 or 75 of the top people, and those with high potential. We get to know these people.

Does the board examine itself for these values and behaviors?

Krol: We do a self-assessment every year. Almost every year, we’ve changed the way we do it to try to keep it fresh, adding new questions as needed. But the questions that relate to how well the board is doing in demonstrating leadership and promoting the values and principles stay the same.

The board has to live by these values and principles too.
It starts with the board.

You hear this phrase “tone at the top.” I can’t say enough about that. It starts with the board. If you don’t have the board in synch and driving these, you’re going to lose some of the power for changing the company’s culture.

Was there a need to adjust your leadership approach?

Krol: Within four to six weeks of Ed coming in, 290 of the top people in the company left. These are the people that Ed had to weed out, and it had to be done quickly. Either they knew what was going on with the previous management, they were part of it, or they just didn’t fit in with the team. That was the hard edge.

When the new people came in, Ed turned into more of a nurturing person. He went from being hard when we had to be hard to warm and fuzzy.

There are several things that are important in a leader, and I saw those in Ed. Leaders must have a lot of comfort in themselves. I know CEOs who are always looking over their shoulder. They’re not confident, and that gets translated to the organization.

Facing reality and responding promptly is another characteristic that is second nature to Ed. He drives this into the culture of the organization.

Breen: When you’re the CEO and there’s a hard decision to made, I ask, “If I owned 100% of Tyco, what decision would I make?” A lot of CEOs, when they’re not confident, play to different audiences: “What are these big shareholders going to think? What’s going to get printed in the paper? People aren’t going to like that; it’s going to look bad.”

You’ve got to sit back and say, “If this were just mine, and I didn’t have to worry about any other thing, what’s the decision?” That’s always the right decision.

Krol: A good leader also has to have a sense of humor and humility. When Ed came into the company, the situation was grim. In working with the team, even though he was firm on getting things done, there was always some fun. It was important for people to see that he was a real person.

A leader not only has to be a good communicator, but people have got to trust you. Ed went around the company talking to people in those early days to communicate our values and expectations. The organization developed trust in him.

Ed listens to a lot of people, but he’s tough, not wishy-washy, about coming to a decision. I think these attributes are infectious to the organization.

Earlier, Ed was talking about passion and excitement. I call it high energy. When Ed’s engaging with you, you can feel the energy, and that he believes what he’s saying That gets transmitted to the organization. This was very important in those early days, not only in the organization, but also with customers, suppliers, and shareholders.

Those are the kinds of things that drew me to Ed. The first day I met him was fun, even though we were talking about really serious things. As grave as some of our problems were, we actually had a lot of fun getting the company on track. I used to tell my people at DuPont, and it’s the same at Tyco, that “fun is winning.”

Finally, Ed surrounds himself with a strong leadership team, and he moves quickly to replace those leaders with irreparable weaknesses.

What do you look for in leaders?

Breen: I’m always looking for the passion and the excitement, because I think just so much more gets done. You look at the stability of the person emotionally. Are they calm under fire?

It’s who the person is. If a person does not exhibit the values of your leadership team, you’ve got to move on them quickly because they become a cancer. It stymies the whole team. We had so many examples, people who just wanted to buy a company every day. Some didn’t have personal values, or were playing to an $8 million dollar bonus, doing things that weren’t in the long-term interest of the company. You weed them out quickly.

You bring in people with self-awareness and personal values, but they’ve got to be able to get results. That’s why we grade people on those nine behaviors because it talks about the person, their integrity, their trust, their courage as a leader, but also results. That’s the balance.

Krol: You look for people who feel good about themselves—people who are physically healthy and emotionally grounded. They also have to have strong personal values and self-awareness.

Was leadership concentrated in a few people or widely distributed?

Breen: Widely distributed. In a conglomerate like Tyco was, there is a core management team–my direct reports–but I tell everyone in some manner they are a leader of something. We expect the same traits in them. We have companies that do $300 million, and we expect them to have the same values and behaviors that parent Tyco has.

 

Bob and Gregg Vanourek are authors of Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (McGraw-Hill, 2012), based on interviews with 61 organizations in 11 countries.
Web: triplecrownleadership.com/
Twitter: @TripleCrownLead
Facebook: facebook.com/TripleCrownLeadership

 


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