ADT 2002 Annual Report Download - page 32

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financial reporting matters was substandard; there had been limited review of bonuses and incentive
compensation across Tyco; and the manner in which former senior management managed Tyco did not
reflect a commitment to sound corporate governance nor the processes required to ensure the highest
standards of financial integrity and accounting rigor to which the new senior management team and our
Board of Directors is committed and our shareholders deserve.
New senior management believes that prior senior management’s primary focus was on
earnings-per-share accretive acquisitions which resulted in our growing considerably over the past
several years, including the acquisition of approximately 700 companies of varying size and in varying
businesses around the world, but which also strained the internal control environment and limited our
investment in these areas. In addition, new senior management believes that prior senior management
during the past three years placed undue reliance on non-recurring charges and pro forma financial
information. New senior management also believes that the rapid pace of acquisitions and attendant
restructurings made it difficult to ascertain the level of our organic growth.
New senior management is committed to improving the state of our internal controls, corporate
governance and financial reporting. Our Board of Directors and new senior management have initiated
the following actions:
• Replaced the Board of Directors;
• Created new Board charters;
• Created a new employee guide to ethical conduct and conducted worldwide employee meetings
to train employees;
• Created new mission, values and goals statements;
• Conducted the Phase 2 review;
• Instituted detailed operating reviews with the Chief Executive Officer and Chief Financial
Officer and each business segment;
• Realigned reporting such that the business segment chief financial officers and general counsels
report directly to our Chief Financial Officer and our General Counsel, respectively, and
instituted similar reporting within each business segment;
• Reviewed total incentive compensation spending with the Compensation Committee of the
Board of Directors;
• Issued a new delegation of authority to govern, among other business processes, the expenditure
or commitment of funds;
• Initiated a controllership assessment process to identify the status of key routines and controls;
• Conducted a thorough review of internal audit processes and procedures;
• Required internal representation letters, similar to the certifications by our Chief Executive
Officer and Chief Financial Officer, for key financial and legal executives;
• Instituted a code of conduct for all financial executives;
• Developed a corporate policy manual to provide broadly applicable and consistent direction on
authority, procedures and accountability with respect to business operations;
• Instituted an account reconciliation process to improve controls over core accounting records;
• Created an Ombudsman network;
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