Ed Breen, CEO of Tyco, and Kathy Bloomgarden, co-CEO of Ruder Finn, one of the world’s largest public relations agencies, speak at the Princeton Chamber’s Fall Leadership Forum on Thursday, November 8, at 7:30 a.m. at the Nassau Inn (609-924-1776). Breen was among the dozens of business leaders Bloomgarden interviewed for her book, “Trust: The Secret Weapon of Effective Business Leaders,” (St. Martin’s Press, 2007, $23.95), as excerpted below.
by Kathy Bloomgarden
One could be excused for concluding that Ed Breen was making an ill-advised career move when he decided to become CEO of Tyco in the summer of 2002.
It’s not as if Breen didn’t know that saving Tyco would be tremendously difficult, some were saying impossible, undertaking. “It wasn’t just the scandal [of Dennis Koslowski leaving in disgrace],” Breen remembers. The much bigger problem was the company’s mounting liquidity crisis.” When he asked for monthly profit-and-loss statements for each of the businesses and was told that they did not exist, Breen knew this was a company out of control.
But Breen also saw what others did not: an underlying strength in Tyco. Peeling away the excess, a result of hundreds of acquisitions during the previous five years, Breen could envision a smaller, leaner, more focused company that would take advantage of Tyco’s key assets in its core businesses of electronics, health care, and security. “I really tried to dig down into the iceberg to see what was there,” he says. “Looking out over a multi-year period, I thought the company had great opportunities.”
Most important from Breen’s point of view, he believed he was the person to take on the challenge. “From studying the situation, I felt I could have a really big impact and get it fixed. Once I make that determination, I’m not shy about taking a risk. It seemed exciting.”
Breen’s stated goals were reinforced by his behavior. During his first hundred days he fired the board, hired a senior vice president of corporate governance, rebuilt every senior corporate direct report, devised a new operating blueprint, and put everything under a Six Sigma umbrella. The result was an entirely new corporate culture and a rebuilt internal trust.
As another break from the past, Breen traded Tyco’s sumptuous corporate headquarters in Manhattan, with its pricey views of Central Park, for a nondescript office park in Princeton.
Breen decided that Tyco had fallen so far that cleaning house was the only way to restore faith in the company. But he was careful to keep a handful of senior management on, plus many more than that in the company’s 2,000 locations around the world. Bob Hormats of Goldman Sachs cautions against being rash during even the most radical transformation. “Employees know who’s good, so if you simply wash everyone out, they don’t get a sense that merit means very much,” he says. “By keeping some very good people, Ed Breen reinforced the importance of human assets. The rapid pace of change, but also its perceived fairness, instilled trust among the workforce, which was needed for the difficult days ahead.”
Breen is an inspiring example of the kind of executive who can convince reluctant stakeholders to suspend judgment long enough to allow a radically changed business model to begin showing results. That will convince them to stick with management a little longer; until the turnaround is complete.
In a situation like Tyco’s, a good rule of thumb is that whatever you were doing before disaster struck, do the opposite. In Tyco’s case, a sharp turn meant putting a halt to an undisciplined growth strategy that had seen Kozlowski acquire nearly a 1,000 businesses in a six-year period. “Here was a company,” says Breen, “that was the biggest acquisition machine around. It was almost like a private equity firm. As soon as I got here I announced we were going to become a world class operating company and that we wouldn’t be making a single acquisition for at least a few years.”
Ed Breen believes that communicating, or even over communicating, is a crucial ingredient in any successful rebuilding process. The entire company will be looking over your shoulder as you make decisions, so it is not the time to be secretive. Breen found that the mere act of opening up got people on the same team and started to rebuild camaraderie and a new culture.
Should leaders fall in love with their new business models? Breen thinks that’s absolutely necessary in order to keep people on your side. “When you’re in a crisis mode, you are going to be working long days and weekends, so you’ve got to have a burning desire to want to do it.”
Celebrations and strict discipline might sound contradictory, but according to Breen they are essential components in any successful turnaround. In a crisis mode, he believes you have to focus on a few priorities. Have a personal list of no more than 10 items — preferably fewer — that you allow yourself to pursue. “You can’t worry about every brush fire going on around you,” says Breen.
Breen says fun comes with the territory because, as far as he’s concerned, nothing is more exciting than meeting a challenge. “I’ve had a lot of people say to me, ‘Ed, in that first year, that was the most fun I’ve ever had in my career.’ It was stressful and tense, but it had a lot of excitement.” That’s an attitude all executives should cultivate, regardless of whether they are in crisis mode. There is satisfaction in small, and ultimately large, successes. Celebrating these milestones raises morale, creates constructive enthusiasm, and ultimately raises productivity that can be sustained during tough times.
Proof that things are on the right course comes from successfully meeting a series of disciplined goals. In Tyco’s case, these goals included reducing debt to $10 billion by using increased cash flow to fix the balance sheet and to buy back stock to create additional shareholder value.
Breen believes that “perhaps the turning point was when we suddenly realized we had stopped firefighting. We’re becoming a normal company. ”
According to Andrew Grove, former CEO of Intel and himself a veteran of sharp turns, “Your way through a strategic inflection point is like venturing into what I call ‘a valley of death,’ the perilous transition between the old and the new ways of doing business.” Breen is just thankful that Tyco was able to move out of the valley, and in record time.