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Clean Slate

March 1, 2004
Related Topics: Ethics, Featured Article, HR & Business Administration

Laurie Siegel, senior vice president of human resources for the beleaguered conglomerate Tyco International, isn’t one to brood, hesitate or theorize. When she was offered the job, she knew she had to take it. When she showed up for work, she knew exactly what she had to do. "When you’re in a hole, you don’t need a PowerPoint presentation to tell you which way is up," Siegel says. "You just head up. And you know you’re doing the right thing."

    Siegel has been making the long climb toward the surface for 14 months. Difficult, high-pressure jobs are her specialty, and she’s obviously enjoying this one, but even she isn’t certain that the company will make it out of the pit dug by previous management. Tyco, which employs approximately 260,000 innocent bystanders, manufactures and sells everything from suture needles to circuit breakers, burglar alarms to duct tape. But to most of the world, its name is a synonym for corporate corruption. Its former chairman and chief financial officer face the possibility of significant jail time, and the company itself is involved in multiple shareholder lawsuits and an ongoing SEC investigation for malfeasance.

    Less widely publicized is the company’s tentative comeback under new CEO Edward Breen. Unlike most of its fellow corporate black sheep, Tyco has not yet been charged with accounting fraud, although various irregularities have prompted it to write down nearly $700 million. It has not declared bankruptcy, although it barely survived a liquidity crisis early last year. In the fiscal year that ended September 2003, Tyco earned $979 million, or 49 cents a share, rebounding from massive one-time charges and a horrific loss of $9.2 billion, or around $4.50 per share, for fiscal year 2002. Tyco’s stock, which traded at around $60 at its bubbly high in January 2002, plunged to $10 at its low point seven months later. In early February, it had climbed to $28.

    "I think Tyco is in good shape. It’s got good businesses and good margins and good new people," says Eric Landry, an analyst for Morningstar Inc. Detractors, however, say that Tyco is just a loose collection of mundane businesses assembled to produce the illusion of real growth and might as well be dismantled.

    Whatever the ultimate outcome, Siegel, a 48-year-old straight arrow, will play an integral role. So will the galvanizing effect of her long-held belief in the power of tough but ethical competition. The Tyco scandal was a failure of corporate governance and of the strategic role of human resources, two of Siegel’s passions. Recalling a conversation she had with Breen about what her responsibilities would be, she says that her new boss put it something like this: "You have a mess to clean up. Clean it up. Build a system with an independent board, with a real compensation committee, so that what we know happened before will never happen again. Help us be an operationally excellent company. And make us a company that attracts and develops excellent talent."

    Seated at a small conference table in a partially decorated office in Tyco’s nondescript new headquarters in Princeton, New Jersey, Siegel says with only a touch of irony, "It’s definitely a career-defining opportunity."

    That’s the press-release version of what she told her friend and former colleague Robin Ferracone when they talked in late 2002. "Laurie said to me that she really liked Ed Breen," says Ferracone, now a partner at Mercer Consulting in Los Angeles. "That it [Tyco] was the top human resources job anywhere. That this was what she’d been aspiring to her whole career. To take a new situation and make improvements to it, chart a new course. Set her own agenda. Connect with the people in the company and give them hope and security and confidence that they’ll have a place to work tomorrow."

    When Jane Kennedy, vice president of staffing and one of Siegel’s first hires, arrived for work last March, Tyco had no corporate intranet, or even a company-wide e-mail system or phone book. There was no department of intellectual property, environmental safety or college recruiting. No labor attorneys. No CIO. "Of course, I didn’t have an assistant," Kennedy says. "I had to grab Laurie’s assistant when she had a minute or two to spare."

    Upon taking office, Breen, a no-nonsense former CEO of Motorola, fired the entire board of directors. He then dismissed the entire headquarters staff of 125 people. He recruited a new, completely independent board of directors and hired a CFO, an ombudsman and a vice president of corporate governance who reports directly to the board.

    While Breen has been dealing with investors, analysts and the media, hacking away at expenses and closing 200 of Tyco’s 2,000 facilities, Siegel has been working 12-hour days. Breen told her that her first priority was to set up corporate-governance and compensation systems and controls, then to transition "to really driving the talent machine." For much of her tenure, she has handled both tasks simultaneously.

    During her first days, Siegel worked closely with the board and head of corporate governance to draft a strict company code of ethics. She then arranged to have it taught simultaneously at a special ethics training day in May to every Tyco employee. In the first few months, she also advised the compensation committee on how to replace Tyco’s old salary and bonus policy, which rewarded acquisition-based company growth. The new system is based on measurable company performance. Bonuses and restricted-stock grants are linked to objective measurements, including each business unit’s earnings before interest and taxes, and Tyco International’s overall performance.

    Top officers are required to hold company stock worth 3 to 10 times their yearly base salary. They must hold 75 percent of their restricted stock and stock options until a minimum level has been reached. Above that level, they must hold 25 percent for at least three years. Severance pay is limited to two times an individual’s yearly salary plus bonus. Post-handshake perks like consulting contracts and free transportation in company aircraft have been abolished.

    In the bad old days, Siegel says, Tyco hadn’t really been run as a corporation. Its growth was driven by acquisitions rather than increased sales or cost-cutting. "It was really organized as an M&A house, an investment firm that did deals," she says. Another peculiarity was that Tyco management considered itself so special that it never bothered to compare its practices to those of other companies deemed successful by the outside world. "There was an arrogance," she says. "And because of that, they never looked around and asked, ‘Well, what do great companies do for talent development?’ But now the tables have turned."

    Siegel says that she makes a point of recruiting and hiring executives of "successful multi-industry companies." Despite the stain on Tyco’s name and the new compensation policy, she’s had no problem attracting good people. A knowledge of or willingness to learn Six Sigma is mandatory. So is honesty, competitive fire and an attribute she calls "managerial courage." "We need people who will say, ‘The Emperor has no clothes.’ "

    Recent hires have included alumni of GE, Dell, Siemens, Raytheon and Merck. Siegel also has reached down into the ranks of the "old" Tyco for talent. For several years Hal Johnson was in charge of leadership development at ADT, Tyco’s Florida-based security systems company. He was never able to convince anyone that similar programs should be implemented Tyco-wide. Two weeks after meeting Siegel, he was appointed Tyco’s vice president for leadership development.

    Since her arrival, Siegel has made more than 65 "mission critical" hires, not including the 100 auditors she recruited to conduct a crash company-wide audit. She still interviews three or four people a day, and confers with Breen and CFO David FitzPatrick at least once daily. "I would say that we have conversations about the business, we have conversations about people, we have conversations about how we think about life, how we think about how the company is doing. We’re a very action-oriented group. We use each other to help reflect. And to make sure we’re on the right track."

Tyco management considered itself so special that it never bothered to compare its practices to those of
other companies deemed successful by the outside world. "There was an arrogance. And because of that,
they never looked around and asked,
'Well, what do great companies
do for talent development?'
But now the tables have turned."

    Breen credits Siegel with playing a pivotal role in keeping Tyco alive. "I think she’s fantastic," Breen says. "If she hadn’t been here, we couldn’t have made nearly the progress that we have made.

    "Her office is next to mine," he adds. "Doesn’t that tell you something?"

Missing Mr. Kozlowski
    Long before it became known for corporate larceny, Siegel had Tyco International on her mind. In 1998, when she was head of executive compensation at the aerospace firm AlliedSignal, she worked closely with its CEO on a takeover of electrical manufacturer AMP Inc. As the deal was closing, Tyco’s CEO, Dennis Kozlowski, acting as a "white knight," gobbled up AMP. The failure of its acquisition led directly to AlliedSignal’s 1999 merger with Honeywell, with control going to Honeywell’s CEO. In 2001, GE made its hostile takeover bid for Honeywell.

    Feeling restless, Siegel explored her options. "My husband said, ‘Why don’t you send your résumé to Tyco?’ And I thought, Hmm, that might be fun. But to just send a résumé, then show up at their door and say, ‘I want to head up your HR organization’? I finally told him, ‘That’s not how you get a job, honey.’ "

    Siegel’s adherence to executive protocol served her well. With the help of a somnolent board of directors and compliant underlings, Kozlowski and his CFO, Mark Swartz, allegedly turned Tyco into their own private ATM. In 1999, Kozlowski’s official yearly compensation was $170 million, but in mid-2002, New York State authorities accused the pair of supplementing their paychecks with $600 million in self-awarded bonuses, misappropriated funds and tainted stock sales. A suddenly energized Tyco board demanded and got Kozlowski’s resignation. Several months later, Siegel got an unsolicited call from a headhunter who was recruiting for Tyco.

    For much of her time at Tyco, Siegel has had the unusual experience of working in near anonymity to save a company whose ex-managers are involved in a high-profile trial. Last year her predecessor, former human resources chief Patricia Prue, testified for the prosecution that she was (1) a recipient of Kozlowski’s largess, (2) clueless as to the legality or illegality of his actions, and (3) powerless to stop them. Siegel won’t comment directly on Prue, whom she’s never met, but will say, "If you look at the people who work in corporate human resources today and the people that worked there in years before, the profile has changed completely."

Action figure
    Born in Chicago, Laurie Siegel is the daughter of a physician who "was absolutely passionate about his work" and often got up in the middle of the night to handle emergencies. Her mother was a homemaker. "Interestingly, she was a very talented musician, but her family was poor and all the money went for lessons for her brother because he was the boy," Siegel says. "So she always instilled in me the message, ‘You have every opportunity to fly. Make sure you don’t miss your chance.’ "

    After graduating from the University of Michigan with a bachelor’s degree in general studies, she entered the Harvard Design School to study architecture and city planning. But halfway through the graduate program, she dropped out. Architecture wasn’t for her. "There’s a lot of dealing with bureaucracy, massaging things politically. It takes 10 years to get permission to build things and another 10 years to get them built. I thought, ‘This will drive me nuts. Absolutely crazy.’ "

    She entered Harvard Business School in the mid-1980s. "I was entirely stimulated by the environment," she says. She also remembers that at her graduation many classmates pasted dollar signs on their mortarboards. "A lot of otherwise great people got caught up in that. I bet a lot of them now think, ‘That was pretty tacky.’"

    After graduation, Siegel joined Strategic Compensation Associates, a Los Angeles consulting firm where she worked with Ferracone. "We were part of a movement toward value-based measures of performance," Siegel says. "Figuring out the real drivers of value, then rewarding people for creating, not destroying it. Sounds familiar, doesn’t it?" Ferracone remembers Siegel completing projects for clients under extremely tight deadlines. In 1993 Siegel joined Avon, where she was in charge of executive compensation. There she worked with Alan Hait, now vice president for compensation and benefits at InterActiveCorp in New York. "When we got there, the attitude was, ‘The company will be nice to you no matter what you do,’ " Hait says. "Laurie was part of the team that changed the company. She installed long-term incentives that rewarded executives for sticking their necks out."

    Jim Taiclet, her former boss at Honeywell’s aerospace division and now CEO of American Tower Corp., marvels at how Siegel assembled a talented crew for a subsidiary without offering them inflated salaries or stock options. She did it by finding talent in her own organization rather than bidding for Silicon Valley superstars. She also kept everyone calm through a nerve-racking period of takeovers and mergers. "I was thrilled with how she managed people," Taiclet says. "I can’t remember anyone leaving us at that time."

    Siegel is married to Joseph Nosofsky, a financial services executive who now runs a DVD production and marketing company out of their home. They have two teenage daughters, for whom Siegel zealously guards her weekends.

    If, as she predicts, Tyco becomes a company with the same boring crises as any other non-scandal-ridden corporation, she says that she might consider leaving. Perhaps for another corporate basket case, perhaps one where it’s her job to fire the bad guys. "Let’s put it this way," Siegel says. "I’ve been married to the same man for 14 years. So there are areas where I need stability. But in my career life, if I do anything for more than two years, I get bored."

Workforce Management, March 2004, pp. 26-33 -- Subscribe Now!

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