But where many of its peers like Enron Corp. and Worldcom Inc. failed to survive their own accounting scandals and the criminal depredations by top executives, Tyco has not only rebounded financially–it has become something of a model corporate citizen, with a gleaming new governance ethos, admirable transparency, and an internal ethos that rewards honesty and openness and refuses to tolerate misbehavior or deception. It has been a dramatic turnaround, perhaps unique in recent corporate history in its thoroughness, speed and consistency.

"No other company we have followed has made such a leap," says Gavin Anderson, CEO of Governance Metrics International. GMI recently gave Tyco its highest rating (a 10), placing it among a top 20 of America's largest 1,800 public companies–alongside Procter & Gamble and Kimberly-Clark in corporate responsibility and transparency. Less than four years ago, in December 2002 when it wallowed with the likes of Enron and Worldcom, GMI had handed Tyco a grade of 1.5.

Playing it straight–along with all the work to satisfy regulators–is paying off for shareholders, as well as employees. CFO Chris Coughlin points out that the technology introduced to create transparency at the revived Tyco also has improved the financial management of the sprawling firm. While the company's stock is still well below the pre-scandal era peak, it is currently at four times the level of its scandal-plagued bottom. The company, in 2005, also increased its dividend eightfold to 10 cents a share.

Eric Pillmore, senior vice president for corporate governance at Tyco, remembers the dark days. Coming to the company in August 2002 at the request of the new Chairman and CEO Ed Breen, Pillmore recalls that it was "very lonely" and "hard to focus" with the news media trumpeting the excesses of Koslowski and Swartz almost daily.

In short order, however, Tyco's top management took major steps to begin the process of turning things around. On the financial side, the company set the entire expanded audit staff to the task of conscientiously reviewing the books for 2,000 legal entities of the far-flung conglomerate–a project that led to the voluntary writing down of $1.6 billion in earnings. "That was a difficult effort," recalls Pillmore, a former Navy auditor and destroyer officer, "but had we not done it the way we did, it would have trickled out over three years in audits."

Breen and new Lead Director John Krol also ordered a complete housecleaning, appointing an entirely new board of directors and firing or "pushing out" 290 of the company's top 300 executives. Other initiatives included: the creation of an ombudsman as an independent and impartial avenue to raise concerns; establishment of a Health and Safety office; and a dramatic enlargement of the internal corporate audit staff from 40 to 110. The company, which had seen how top executives could abuse bonuses, placed a cap on future bonuses, aligning them with total company performance, not just the performance of an executive's own unit. A code for ethical conduct was drawn up, which mandates the reporting of wrongdoing or deceptive practices. The financial reporting process was changed so that segment CFOs report up to the corporate CFO "with a dotted line to the operations officers at the local units," says Pillmore.

But Breen and Pillmore were out to change the culture, not just the structure, traveling to Tyco's many locations to speak directly with employees. In late 2003, a British employee came forward who was resisting pressure to engage in an unethical practice involving a business deal at her unit. She reported the problem to senior management. The next year the employee was introduced to a meeting of 500 Tyco executives, where she received a standing ovation. "We aren't just punishing people for not reporting problems," says Pillmore. "We are recognizing ethical heroes."

Pillmore also notes that the company was "very selective in finding board members who would challenge the status quo at Tyco." Tyco also receives praise from governance experts for its decision to have the entire Tyco board face re-election each year. Board members must also annually win a majority of votes, not just a plurality. "With all their international operations and all the pieces that make up the company, they've had a hard row, and they've done a great job," says Charles Elson, a professor of corporate governance at the University of Delaware's Weinberg Center for Corporate Governance.

That said, there is still work to be done at Tyco. While GMI gives the company top grades, other governance watchdogs offer praise but with caveats. Among the criticisms: excessive signing bonuses; one director on the board of a company that went bankrupt and another has figured in the controversy surrounding the huge payout to New York Stock Exchange Chairman and CEO Richard Grasso; and finally, Tyco's incorporation in Bermuda.

The challenge now is to maintain new standards over time, says Pillmore, who like Breen and several other executives are veterans of General Electric Co. "GE's system works as well as it does because they've had leadership training and audit systems since the 1930s," he says. "We've had our system operating for just three years. But a lot of our people came to Tyco because they wanted to participate in something historic."

The next major challenge, he says, is to prepare for the breakup of Tyco into three companies–targeted to happen next March. By then, Pillmore says, "we've got to have boards recruited and management teams in place." So far, "everything is on target."