C.E.O. Anne Mulcahy brought Xerox back from the brink. Now if only she can duplicate that success with the stock price.
MAKING COPIES Anne Mulcahy, photographed at Xerox headquarters in Norwalk, Connecticut, on August 1.
Photograph by: Jake ChessumMotorola, Incorporated (MOT)
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Anne M. Mulcahy, Summary:
The Company markets and supports document management systems, supplies and services through a variety of distribution channels around the world. View More
Industry:
Consumer Goods
Biography:
Anne M. Mulcahy, Joined Xerox in 1976 as a sales representative and held various sales and senior management positions. Named … View More
On the day Anne Mulcahy was named president of Xerox back in 2000, the company’s stock dropped 9 percent. Mulcahy had worked at Xerox for more than two decades—she had even run a $6 billion division—but most of her experience was in sales and human relations. “When I joined the company, there was not a glimmer of thinking that I’d someday be running it,” she says, and in 2000 she was still a dark-horse candidate. She took the C.E.O. job a year later with virtually no finance experience, and Xerox’s name was so tarnished that she couldn’t find a C.F.O. Not long after she took the top job, the Securities and Exchange Commission hit Xerox with an accounting review that led to the restatement of $6.4 billion in revenue. The bulk of the problems occurred before she became C.E.O., but Mulcahy was lumped in with rogues like Worldcom’s Bernie Ebbers and Tyco’s Dennis Kozlowski.
Can Sprint Nextel C.E.O. Dan Hesse dial up a fast fix? Nobody makes that mistake now. Seven years later, Mulcahy, who will be 56 this month, has turned Xerox around. The company’s heavy debt load has been cleared up, and it’s solidly profitable. In 2006, its stock dividend was even restored. Xerox spends more than $900 million a year on research and development and has transitioned into the digital world, where it now leads the global market for color-imaging equipment. It also handles business services like helping companies convert their records into digital files; those services are more financially predictable than copier sales and so far have helped the company weather the current economic slowdown. Still, some challenges remain. The stock price is stuck in the low teens, where it stood about five years ago, and Xerox faces fierce competition for all parts of its business from companies like Hewlett-Packard, Canon, and Ricoh. Mulcahy, who serves on the boards of other companies, including Target, Citigroup, and the Washington Post Co., talked about these issues with Condé Nast Portfolio contributor Michael Fitzgerald at Xerox’s corporate headquarters in Norwalk, Connecticut.
Xerox’s earnings have gone up throughout your tenure, but so far investors haven’t noticed. Your market cap is lower than your annual revenue. What can you do to make the stock go up?
We’re riding a wave right now that’s more about the market than it is about Xerox. You don’t get to manage the market; you only get to manage your company. And I think we’re focused on the right things. I spend a good amount of time talking with investors and analysts, but those conversations are never about trying to manage a stock price. We’re a long-term value investment.
Even though people refer to the turnaround at Xerox in the past tense, you’re still cutting people—1,000 employees in the second quarter, out of 57,000 worldwide. Do you feel like thejob is done?
The job is never done. I mean, the turnaround is way behind us. I expected to reach some point in time where I could put my feet up and coast a little bit. But I don’t think that’s the nature of global businesses today.
When you first got the C.E.O. job, did you talk to other executives who had been through a corporate near-death experience?
I talked to lots of C.E.O.’s, many of whom were our customers. I went to talk to Michael Capellas while he was going through the turnaround at Compaq. I went to talk to the C.E.O. of Motorola at the time, Chris Galvin. (See “Who Shot Motorola?”) You learn that almost every company has some time in the barrel, and there’s also a lot that can be learned from companies that actually survive and reinvent themselves and go through that.
Interestingly enough, I joined the board of Target in the late 1990s, and they had all sorts of issues. You don’t think about it now because they’ve had such a long run of wonderful results, but they were subject to a takeover offer. That was a learning lab for me, to watch Target focus on great marketing, great retailing, the discipline of running a great business. I had a front-row seat.
Did you get any advice when you took over that you completely ignored?
There were a lot of people who suggested that Xerox was a typical big corporation with a sluggish culture, and that you had to kill the culture if you were going to turn the company around. You had to destroy what Xerox had been and build it back up from the ashes. For me, that didn’t work. I was the culture. I’d been there already for 20-odd years. The other thing is that there were a ton of people who suggested that we fix the financial problems as quickly as possible by reducing research and development. We had fully drawn on a $7 billion line of credit that was never intended to be drawn on. So it was really a panic situation for the banks. The vast majority of people said, “Pay that money back as quickly as possible or you’re not going to make it.” And we didn’t do that. We kind of strung the banks out. We used that money to buy time so that we could build a future while we were solving a lot of our operational problems.
You majored in English and journalism and had very little finance experience when you took over—and no C.F.O. How did you get through that?
I went to school with the financial team. One of the good things about being a little desperate is that you get very humble about asking for help. I had to be able to hold my own discussing accounting with the S.E.C. I had to make presentations to 58 bankers who wanted their $7 billion back. But we have tremendous financial talent in the company, and they were gracious enough to make sure I was well prepared. As a matter of fact, I got put on the Treasury Department’s accounting task force recently because I’m one of the few C.E.O.’s who actually know accounting.
You have things in your labs like invisible ink and erasable paper, which lets the print on the pages dissolve after a day or two so that they can be reused. Is part of your goal to reduce the amount of paper that companies use?
Absolutely. We want to help our customers print less. This is the information world, and content management is a very big deal. A lot of what we do in our services business is help people go from paper to digital, help people create content that’s searchable, help people really live in a world of smart documents versus dumb documents. Documents that actually have embedded intelligence in them.
You still sell copiers, but not very many of them.
We don’t sell any stand-alone copiers. Everything we sell is networked. Most of it is multifunctional. It copies, it prints, it scans, it faxes. So most of it is really part of the networked world. And almost half of what we sell is now full color.
You said that by 2008 you wanted 10 percent of the pages Xerox prints to be color, and right now you’re ahead of that. The company’s at 16 percent.
It’s going to be 100 percent, because the world we live in is in color. And color is growing by double digits right now. Also, digital technology is letting us do things like print-on-demand and one-to-one marketing. Offset printing, the method usually used for marketing materials, is a $400 billion market. Only a small slice of it has gone to digital. One of the things we’re starting to enter into is digital packaging for consumer-product companies. We recently did a demo for a gum wrapper. Consumers can create their own personalized packages, or companies can print regional versions or versions in different languages. It’s more flexible and it’s cheaper.
Xerox is not known for creative marketing or fun, splashy ads. Is that something you want to change?
We’re not a consumer company. Our thing isn’t going to be about ads at the Olympics. Our audience is a bit more targeted.
In January, Xerox rolled out a new logo. Why the switch?
I felt that the company had changed so dramatically, and what we had was a very flat logo, very traditional and corporate.
It looks to me—don’t get mad—I know that it’s supposed to be the globe, and that the soft X stands for Xerox, but it looks like a croquet ball to me. Was this a long process?
Well, there you are. It took longer than I thought it should have, because I tend to think that things should move pretty quickly. I mean, how tough is it? But the fact is that this is a corporate asset. You need to test it. You need to think about it. We wanted the logo to be more informal, and we wanted it to be more attractive in a three-dimensional world versus a two-dimensional world. We also wanted to make sure that the color palettes reflected the color business and the company.
Also, the new logo took a long time to roll out. The name is everywhere, so you have to transition everything. We immediately transitioned on the Web. But they were telling me it was going to take six months to get the logo on the outside of the headquarters building here. About two weeks after we made the announcement on the brand, I was in Egypt. And I’m coming out of the airport and there’s this huge billboard with the new brand on it. I was on the phone saying, “Guys, I’m in Egypt. [Laughs.] And there’s a billboard up. I think you can do better than six months on the headquarters building.”
Was it there by the time you got back?
I’d like to say I moved mountains, but I think it took about four months versus six months. [Laughs.]
You’ve got Xerox moving in the direction that you want, just in time to run smack into a recession. There’s a sense that Xerox is sort of a proxy for the corporate economy, that businesses only upgrade office equipment when times are good. Is that still true?
It’s not. More than half of our revenues come from outside the United States now. So as much as we play in U.S. corporate accounts, the reality is it’s much less important than it was a few years ago.
It’s also a time when being a services business is hugely important. We go in and say, “We’re going to own your document infrastructure, and we’re going to save you 20 to 30 percent of what you’re spending because we can do it more efficiently.” The other thing is that we’ve worked very, very hard to make sure our business model is annuity-driven versus transaction-driven.
Meaning?
Under contract. Our consulting, our financing, our technical services—all of that is under contract for multiple years. About 72 percent of our revenues are annuity-based.
Whom do you like in this election and why?
Well, I’m certainly a Democrat. I began by supporting Hillary. Now I’m supporting Obama. I’ll be happy to see this election season over with. We need to go from talk to action. We need action in this country, big-time.
What are you hoping to see?
One of the worrisome things about the party right now is that there’s not a lot of great talk about trade. We need a focus on trade that may not make for great political sound bites but is desperately needed in a global economy. I also worry a lot about the postponing of some of these very big issues, like health-care reform and Social Security. I feel like we’ve stalled on these.
Any question I haven’t asked?
Yes, and I’m glad it didn’t come. You didn’t ask me about being a woman C.E.O. [Laughs.] That’s big. That could be a first.