Tyco: Global Business Leader Adopts A Pure-Play Strategy

Thursday, December 13, 2012 - 18:13

The Editor interview Marc Lemberg, Vice President and Associate General Counsel, Tyco.

Editor: Please tell us about Tyco and about your current role.

Lemberg: My title is vice president and associate general counsel. I report to Judy Reinsdorf, who is the executive vice president and general counsel of Tyco. I have a vertical and horizontal role in the law department, with responsibility for the general support of our approximately $2.1 billion Global Products businesses. In addition, my role involves leading functional support across the enterprise for mergers and acquisitions; labor, employment and benefits; and intellectual property.

Editor: Tyco recently separated into three independently traded public companies. Please talk about this development as a strategic business decision.

Lemberg: On September 28, we completed the spin-offs of our former North American residential security business and our former flow control business into separate, publicly traded companies through a distribution to Tyco shareholders.

As of October 1, Tyco is a pure-play fire and security company with approximately $10.4 billion in 2012 revenue. Our business has two major components. The first focuses on the installation of products and ongoing services in the fire and security space. The second is a set of global products businesses that provide fire suppression and detection products; security, video surveillance, access control and intrusion detection products; life safety and respiratory products for first responders and industrial users; and solutions that help retailers reduce shoplifting, theft and vendor fraud, as well as maintain inventory accuracy.

We have industry-leading brands such as Ansul, Grinnell, Sensormatic, American Dynamics, Scott Safety, Simplex, etc. We also own the ADT brand outside of North America, and this business includes a number of security services, both subscriber residential and business security systems. Inside North America, the spinoff company, The ADT Corporation, owns that brand. Tyco is a market leader in a $100 billion, highly fragmented global market that we believe is growing in excess of global GDP growth.

Editor: Describe Tyco’s legal department for our readers.

Lemberg: The department has approximately 75 lawyers and 200 total professionals worldwide. Like some other multinational organizations, we operate within a matrix structure consisting of vertical and horizontal responsibilities.

Our global or regional P&L leaders are part of the vertical setup, so we have lawyers who are functionally tied to businesses and to the management of global P&Ls. That setup occurs mostly in North America and then outside on a regional level. We also have specialty horizontal functions such as compliance, M&A, IP, employment, litigation, public affairs and communications, and these specialists provide services across the enterprise. And then we have an ex-North America regional function, which is both vertical and horizontal and is based on geography – covering all things Tyco in that geography and working in partnership with the other law department teams I just discussed.

Depending on your role within the function, you have a variety of goals. First is educating your peers, so if you’re supporting the global leadership in a business, you want to communicate the key strategies and key legal issues that your peers may face around the world. As a functional or geographic leader, you would communicate about the nuances of your geography or specialty in order to assist your peers in advising the global P&L leaders. It’s ultimately a push-and-pull process that combines different skills and responsibilities. It only works well if the communications and the learning go in both directions.

In the provision of legal services, you need both general practitioners who have breadth and regional and functional experts who have depth. Like many organizations of similar size, Tyco has the financial underpinnings required to conduct the build-versus-buy analysis of using in-house versus external counsel. We’re always looking for the right balance here.

Editor: Let’s talk about how you use outside counsel.

Lemberg: As with every other investment of capital, the build-versus-buy analysis is a strong factor. One of the great strengths of in-house counsel is in providing breadth – the ability to look holistically across an enterprise, spot issues and know when to assemble the right team of internal and external professionals. One of the great strengths of external counsel is the ability to provide depth of expertise in a practice area or the ability to flex the firm’s resources over a short burst of time.

During the build/buy analysis, I might ask: is this a unique area of expertise in which I lack in-house resources, or is there enough work in this area to justify full-time focus within our department? Litigation is a classic example. Our in-house attorneys are not licensed everywhere, and they cannot have the expertise in every jurisdiction.

We know our business well enough to be able to roughly assess the scope of what is needed and then enter into partnerships with outside firms, where we do fixed-rate or fixed-price, defined-scope arrangements. Those partnerships provide cost certainty for us and revenue certainty for the provider, and they create a continuous mutual learning opportunity to drive better results at an ever-more efficient price. We have seen excellent results working with partner firms on several fronts, for instance, in the areas of products liability in the U.S. (Shook, Hardy & Bacon), commercial litigation in the U.S. (Pepper Hamilton), labor and employment in the U.S. (Ogletree Deakins), executive compensation (Reed Smith), insurance recovery (Morgan Lewis) and a broad pan-Europe, Middle East and Africa relationship (Eversheds).

We realize that our outside firms deserve to be paid a fair price, and we recognize that the legal profession is very self-selecting and risk averse. My prior professional experience is in the telecommunications and IT systems integration space – where I routinely supported business models that required the company to predict fixed-price projects based on the utilization of professional resources. Many of our services businesses here at Tyco operate in similar environments. As a result, I often challenge our legal providers to understand that taking appropriate risk based on their understanding of their own business model is integral to the fixed-price or fixed-rate deal – just like it is for our business.

I am always on the lookout for outside firms that differentiate themselves beyond offering very smart, very hard-working people who can get to a sound answer in a timely and responsive manner. That alone is not a differentiator. It takes more than that.

Editor: What are the core competencies and attributes you look for in hiring in-house attorneys?

Lemberg: With this concept of horizontal and vertical skill sets, we focus on both results and behaviors. In order to operate successfully in the matrix environment, technical skills are a given, as is the ability to identify issues and provide sound legal advice with clarity of communication that influences clients. Those are table stakes.

Beyond that, we focus on core competencies around leadership behaviors, such as organizational agility, dealing with ambiguity, business acumen, as well as customer results and focus. While business acumen, for instance, can be considered a baseline qualification, dealing with ambiguity is not. Dealing with ambiguity requires self-confidence as it involves identifying stakeholders, assembling teams and influencing those who may not report to you to get things done together as a team.

Dealing with ambiguity also feeds into the concept of being a boundaryless organization. At Tyco, we sell products and services to our end customers not only through our own services businesses but also through distributor channels, which presents some inherent conflict. If you are supporting one side of the business versus the other, you need to be able to think about the enterprise; engage in challenging conversations with your legal peers; and, sometimes, influence your clients to communicate at this challenging level with one another. That is a sign of organizational leadership, which is a key attribute I seek.

Editor: Does the legal department participate with clients in day-to-day support of operations?

Lemberg: We want to be engaged in business discussions and support decision making, but must also balance these activities against the fine line of preserving legal privilege. Being an effective business partner involves understanding the difference between risk avoidance and risk mitigation.

Our business lawyers are part of the leadership team of their respective P&L businesses, and they serve as a portal for access to functional and regional colleagues, either when issues arise or when there is a proactive need to educate and train. Performance on the reactive side – putting out fires, if you will – is more intuitive and easier to measure. It’s more difficult to measure performance aimed at avoiding those fires while we grow profitably. There’s an inherent tension in growth and profitability, and the in-house lawyer’s job is to provide pragmatic advice that ideally avoids risk, but realistically mitigates it. Decisions should be informed, based on a process, with understood mitigation actions that get implemented. I often tell people that, while we face plenty of cutting-edge legal issues, much of the day also is spent dealing with issues of law that are well settled. Getting to the “answer” is not the end – it is just the beginning. Much of the day is spent influencing business leaders and supporting the team to make sure compliance with those well-settled principles actually gets embedded in our business processes … and stays there.

This job also includes managing our own function’s P&L. We focus on cost versus return, which includes assessment of build versus buy, head count versus cost, and the total cost of providing legal services as a percentage of revenue. It’s another area that distinguishes in-house counsel from external counsel – and an area of focus when it comes to risk mitigation.

Editor: Please talk about the challenges of managing a global legal department, particularly in emerging markets.

Lemberg: We talked about the matrix structure and effective behaviors within a boundaryless organization. We can also talk about specific growth areas. A lot of our growth is coming from emerging markets.

Emerging markets present unique challenges, many of which focus on compliance and controls, such as in terms of antibribery laws, trade compliance, IP protection, and labor and employment matters. In these markets, delivering quality legal services in complex areas, such as M&A, can be challenging to accomplish at costs that make sense in the context of the price point for our products/services and the kinds of investments we are making. 

Another interesting challenge involves the fact that legal costs may not directly correlate to the size of the business. Legal costs tend to be greatest as a percentage of revenue for businesses or geographies that are growing or shrinking rapidly. Thus businesses that operate in unstable or less developed environments often will generate the higher legal costs, while more stable businesses, regardless of size, actually may incur lower costs as a percentage of revenue. It is a point that is not always intuitive to clients, and one that is important to get on the table as part of the broader discussion about entering a new geography or line of business.

Emerging markets tend to be just the ones that are growing the most quickly and where clients may have the most learning to do. These markets also offer a smaller pool of qualified applicants, both for in-house and external legal work, and the practical difficulties here tend to center mostly on language and the ability to communicate in a clear style that resonates with a multinational executive client base.

On the M&A side, for example, many target companies in emerging markets are privately held or state owned. They tend to be less sophisticated in the art of dealmaking, at least as those in North America and Western Europe typically understand it; this can increase the deal’s cost as compared to similar deals in mature markets. So it’s incumbent on in-house and outside counsel to communicate that potential for increased costs to our clients and to come up with creative fee arrangements that can ensure the cost of the deal is in line with the economic fundamentals of the deal.

Editor: I’d like to hear your closing thoughts.

Lemberg: Let me first speak about our world-class compliance programs, which are absolute priorities for our general counsel, Judy Reinsdorf, and for our CEO, George Oliver, and are driven through the leadership of a lot of people here, including my colleague Matt Tanzer, our chief compliance counsel. Every opportunity our leaders get to talk to our 70,000 employees worldwide includes a message about the need to act with integrity and in line with our core values. That’s tone from the top.

Tone from across the organization is also critical. Employees must feel safe and included so that they can speak up and feel confident that their concerns around compliance issues will be heard and addressed. Finally, you have to focus on driving the expectations and behaviors of middle management, because this so often is where the compliance rubber hits the road.

At Tyco, we’re excited about moving forward as a pure-play company in consolidating and expanding markets in which we’re already a global leader. We are focused on profitable growth and see tremendous opportunity in the growth of developed as well as of emerging markets. Finally, we are proud of the transparency with which we manage our law department and of the standards we have set for evaluating and developing the technical and leadership skills of our in-house counsel.

Please email the interviewee at mlemberg@tyco.com with questions about this interview.