Eric PillmoreEric PillmoreMay 2004May 2004

Building Trust By StrengtheningBuilding Trust By StrengtheningEthics Processes and PracticesEthics Processes and Practices

Less Than Two Years Ago…Less Than Two Years Ago…

• ConfusionConfusion… New Issues Every Day… New Issues Every Day

• Liquidity Crisis… Liquidity Crisis… Living Day-to-DayLiving Day-to-Day

• Weakened Corporate StructureWeakened Corporate Structure… Leadership … Leadership MandateMandate

• Board Board Transition RequiredTransition Required

• Investors UpsetInvestors Upset… Stock Price at $8.00… Stock Price at $8.00

• Significant Opportunity to Learn from the PastSignificant Opportunity to Learn from the Past

• ConfusionConfusion… New Issues Every Day… New Issues Every Day

• Liquidity Crisis… Liquidity Crisis… Living Day-to-DayLiving Day-to-Day

• Weakened Corporate StructureWeakened Corporate Structure… Leadership … Leadership MandateMandate

• Board Board Transition RequiredTransition Required

• Investors UpsetInvestors Upset… Stock Price at $8.00… Stock Price at $8.00

• Significant Opportunity to Learn from the PastSignificant Opportunity to Learn from the Past

A Crisis That Threatened Tyco’s Existence

Lessons learned from troubled companies…Lessons learned from troubled companies…

1.1. Strong Strong functional leadership and mentoringfunctional leadership and mentoring is is critical to the ongoing development of high critical to the ongoing development of high integrity leaders and employeesintegrity leaders and employees

2.2. Leaders must have a Leaders must have a “web of accountability”“web of accountability” surrounding them … with process disciplines surrounding them … with process disciplines in place to hold them accountable.in place to hold them accountable.

3.3. Boards must develop and implement more Boards must develop and implement more sophisticated means to sophisticated means to evaluate senior evaluate senior management character management character

1.1. Strong Strong functional leadership and mentoringfunctional leadership and mentoring is is critical to the ongoing development of high critical to the ongoing development of high integrity leaders and employeesintegrity leaders and employees

2.2. Leaders must have a Leaders must have a “web of accountability”“web of accountability” surrounding them … with process disciplines surrounding them … with process disciplines in place to hold them accountable.in place to hold them accountable.

3.3. Boards must develop and implement more Boards must develop and implement more sophisticated means to sophisticated means to evaluate senior evaluate senior management character management character

Lessons learned from troubled companies…Lessons learned from troubled companies…

4.4. Leaders must model ethics from the top Leaders must model ethics from the top down and communicate an unyielding down and communicate an unyielding commitment to their employees… commitment to their employees… servant servant leadershipleadership

5.5. Multiple Multiple “open” communication outlets“open” communication outlets are are critical to ensure bad behavior is surfaced critical to ensure bad behavior is surfaced when it does occurwhen it does occur

6. Ethics and character matter6. Ethics and character matter to employees, to employees, customers, suppliers and investors…customers, suppliers and investors… Reputation is only who people think you Reputation is only who people think you

are…are…

Character is who you truly are…Character is who you truly are…

4.4. Leaders must model ethics from the top Leaders must model ethics from the top down and communicate an unyielding down and communicate an unyielding commitment to their employees… commitment to their employees… servant servant leadershipleadership

5.5. Multiple Multiple “open” communication outlets“open” communication outlets are are critical to ensure bad behavior is surfaced critical to ensure bad behavior is surfaced when it does occurwhen it does occur

6. Ethics and character matter6. Ethics and character matter to employees, to employees, customers, suppliers and investors…customers, suppliers and investors… Reputation is only who people think you Reputation is only who people think you

are…are…

Character is who you truly are…Character is who you truly are…

FINANCIAL MANAGEMENT

OPERATING MANAGEMENT

SHAREHOLDERS

SU

PP

LIE

RS

EMPLOYEES

CU

ST

OM

ER

S BOARD

OF

DIRECTORS

Building Trust – Ethics & Governance VisionBuilding Trust – Ethics & Governance Vision

Developed vision during August 2002

Solicited key inputs from Mike Useem (Wharton School) and Ira Millstein (Weil Gotshal)

Benchmarked best practice governance companies

Interviewed companies that had been involved in similar crises

Clear Vision Helped to Develop Strong Sense of UrgencyClear Vision Helped to Develop Strong Sense of Urgency

Business PrioritiesBusiness Priorities

Operating Businesses

Governance, Compliance & Ethics

Operational Excellence

Building a Corporate Team

Building Trust - Leadership Values & BehaviorsBuilding Trust - Leadership Values & Behaviors

• Drives for ResultsDrives for Results• Business AcumenBusiness Acumen

IntegrityIntegrity

ExcellenceExcellence

TeamworkTeamwork

AccountabilityAccountability

• Champions Integrity and TrustChampions Integrity and Trust• Managerial CourageManagerial Courage

• Customer FocusCustomer Focus• Learning/Change AgilityLearning/Change Agility

• Builds Effective TeamsBuilds Effective Teams• Manages Vision and PurposeManages Vision and Purpose• Champions DiversityChampions Diversity

Unyielding Commitment to Integrity and Unyielding Commitment to Integrity and AccountabilityAccountability

• Increased Employee Communication

• Ethical Conduct Training• Externally Communicated

Improvements

• Board Guidelines & Committee Charters• Delegation of Authority• Guide to Ethical Conduct• Proactively Addressed Shareholder

Concerns• New Compensation Plan

• New Board of Directors

• New Corporate Team

• SVP Corporate Governance

• Ombudsman… VP Audit

• New Board of Directors

• New Corporate Team

• SVP Corporate Governance

• Ombudsman… VP Audit

Committed to Leadership in Corporate Governance

Policy

Leadership

Communications

Building TrustBuilding Trust

Building TrustBuilding Trust

Stronger, Independent Reporting Relationships

Board of DirectorsBoard of Directors

AuditAuditCommitteeCommittee

Nominating & Nominating & GovernanceGovernance

CompensationCompensationCommitteeCommittee

CEOCEO

VPVPAuditAudit

110110AuditorsAuditors

70007000financefinance

employeesemployees

SVP CorpSVP CorpGov.Gov. CFOCFO GeneralGeneral

CounselCounselSVPSVPHRHR

300 Legal300 LegalEmployeesEmployees

OmbudsmanOmbudsman

FINANCIAL MANAGEMENT

OPERATING MANAGEMENT

SHAREHOLDERS

SU

PP

LIE

RS

EMPLOYEES

CU

ST

OM

ER

S BOARD

OF

DIRECTORS

Building Trust – Ethics & Governance ProgramBuilding Trust – Ethics & Governance Program

A Continuing Work In Progress…A Continuing Work In Progress…

Initiatives underwayInitiatives underway

• Corporate Audit Staff Corporate Audit Staff revitalization revitalization

• Sarbanes-Oxley 404 initiativeSarbanes-Oxley 404 initiative

• Ombudsman OfficeOmbudsman Office

• Organization and leadership Organization and leadership reviewreview

• Compliance and Risk Compliance and Risk Assessment ProcessAssessment Process

We recognize the steps we have taken so far are only the starting We recognize the steps we have taken so far are only the starting point of an ongoing and sustainable Ethics and Governance point of an ongoing and sustainable Ethics and Governance strategy…strategy…

““Courage is contagious…when a Courage is contagious…when a brave man takes a stand, the brave man takes a stand, the

spines of others are often spines of others are often stiffened” – Billy Grahamstiffened” – Billy Graham

Eric PillmoreEric PillmoreMay 2004May 2004

Building Trust By StrengtheningBuilding Trust By StrengtheningEthics Processes and PracticesEthics Processes and Practices