Functional leaders can temper the ambitions of the top leader. To what extent areleaders of HR, finance, legal, marketing, and other areas playing a strongfunctional role in your company? To what extent are people underneath you ableto surface issues?2.
Leaders must have a "web of accountability" surrounding them, withprocess disciplines in place to hold them accountable:
Leaders at thecompanies that ran into trouble had few systematic constraints on their actions."Whatever they wanted to roll out, they could pretty much roll out," Pillmore said."Any CEO is doomed to fail without an accountability structure around them. Idon't care how good they think they might be, or how strong their integrity. Withpressures to make earnings forecasts, you are asking for trouble without thatstructure in place."At HealthSouth, five CFOs came into the company in a 10-year period and all fivewent to jail. None of them could confront chief executive Richard Scrushy. "Theywere all drinking the same Kool-Aid," Pillmore said.How are leaders in your company held accountable? What structures andprocesses ensure that they are called to task? Even if your systems are workingwell with current executives who have high integrity, how could they be open toabuse in the future by less ethical leaders?3.
Boards and senior leadership teams must develop and implementsophisticated means to evaluate senior management character:
In thecompanies that got into trouble, managers were evaluated based on their ability tohit their numbers, but there wasn't much assessment of their character. "Theboards had little idea of the character of these people that ran their companies,"Pillmore said. Tyco now evaluates 10 character traits of top managers annually. Itlooks for qualities such as "managerial courage." Pillmore noted that ScottSullivan, former WorldCom CFO, said on the day that he was sentenced that hisbiggest regret was that he was a coward under pressure. "You want people in thegrassroots of the organization who are empowered to be courageous," Pillmoresaid. "Leaders create the environment that makes it comfortable to becourageous."Does your company evaluate the character of its senior leaders or merely tracktheir contributions to financial performance? Does the firm encourage people to becourageous? What aspects of character are most important to the long-termsuccess of your firm?Boards need to be alert for these three warning signs. "Get your antennae up if you seeintimidating leaders, people who don't understand the scope of their functions, and if noone is really worried about the character of the leaders," Pillmore said. "You are lookingat a potential disaster. Those are the common threads."
How did Tyco go about turning around its own governance? To transform itself, thecompany changed leadership, policies, and communications. To strengthen leadership,Breen brought in a new board of directors and a new corporate team. He also establishedPillmore's position and an ombudsman—both reporting directly to the board. Thecompany also created policies to support good governance. The guiding principle: If