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June 09, 2004
Governance Overhaul: An Interview with Tyco Corporate Governance VP Eric Pillmore
    by William Baue

Mr. Pillmore speaks candidly with about rebuilding reputation and trust, engaging stakeholders, and increasing transparency.

The luncheon talk at the Green Mountain Summit on Investor Responsibility that convened in Stowe, Vermont late last month was given by Eric Pillmore, senior vice president of corporate governance at Tyco (ticker: TYC). "What's a Tyco guy doing at a socially responsible investment (SRI) conference?" is the obvious question, what with the company's governance scandals plastered on recent headlines. Less obvious is the governance overhaul precipitated by the scandals, which may go farther than reforms at companies with more solid governance reputations.

For example, in its proxy this year, Tyco recommended voting in favor of a shareowner resolution asking the company to assess its corporate-wide environmental management system (EMS), a rare gesture of support from a company to its shareowners (see related article). This move exemplifies Tyco's new attitude toward its stakeholders, according to Mr. Pillmore, who spoke frankly with before the luncheon. Please comment on how reputation can impact a business in terms of share price, winning business, attracting employees, or other criteria.

Eric Pillmore: Reputation, to me, translates into trust: that's a foundational layer to a relationship with a stakeholder. When a relationship of trust breaks down for some reason, there are obviously chips in the armor, and it takes time to repair those. And vice versa: if you have a damaged reputation and you work with those constituents to rebuild trust, I think you see a corresponding improvement in reputation. People want transparency. From a public company perspective, people want to know what are the practices, processes, standards, and values you're using to run the company and being open about those. We do that via our Guide to Ethical Conduct on our website.

SF: You say that transparency is key--is there anything you've done recently to increase transparency?

EP: We built our entire website to communicate what our standards are, how we run the company and the board, how we monitor ethical conduct; we have significantly broadened our disclosures via our financial filings with the Securities and Exchange Commission; through a series of investigations that were conducted on the company in 2002 and 2003, we were very open with our findings, which are out on the web and very available for public investors; in our proxy statement, we were very open about our stance on compensation; how we handled the shareholder proposal on environmental disclosure: those are all examples of how we're trying to be more transparent.

SF: In Tyco's experience, what positive impact has addressing reputational issues had on business?

EP: The improvement in our share price is a measure of how things have gotten better. We've also seen sales growth, and we've seen investors react positively to the increased disclosure and engagement.

SF: What are specific examples where Tyco has engaged stakeholders on sustainability-related issues?

EP: This most recent proxy recommendation on the environmental initiative is how we'd like to engage. When we see good ideas, we like to jump on them. I think our employees and our shareholders all had a very strong voice in shaping what we did in 2002 that turned the company around. You can pay a lot of money for consultants to tell you how to do things, or you can go out on the road and talk to shareholders, customers, and employees and get a lot better ideas, if you listen.

SF: Is Tyco examining how responsible business practices might translate to issues such as environment, diversity, child labor, worker safety, etc. How has Tyco's position on these issues changed over the last 2 years?

EP: We hired Bob Frantz from GE's aircraft engine business to head up environmental health and safety and establish standards that are consistent with company standards, not just minimum standards in the jurisdictions where we operate. It's a brand new position at the corporate level, and it reports into the general counsel, who reports to the CEO.

We're hiring a diversity leader as part of the human resource function to drive diversity issues going forward, but in the meantime, we established a diversity council at the corporate level. We've hired a diverse board, including Sandra Wijnberg, who is the CFO from Marsh & McLennan, Bruce Gordon, formerly of Verizon, and Carl McCall, the vice chairman of Healthpoint. We've also made a number of senior level diversity hires, including our new comptroller previously with Dell, John Davidson.

Child labor is not something we specifically have an initiative on because it's not something we support. Our standards are the same in the US as they are worldwide in terms of worker conditions and how we run our factories. As we go into China, there's a lot more people in a Chinese factory than there are in an American factory, just because it's a lot less automated, but with regard to working conditions and the practices we use, there's no difference in how we run those factories.

SF: To what degree do these standards extend into your supply chain?

EP: We have a professional sourcing organization that does due diligence on the various suppliers that we partner with to make sure that their standards match our standards. We have a code of conduct that they use. We have not yet gotten to the point where we roll that out and ask the supplier to sign off--that's a step down the road.


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