Q&A with Xerox' Mulcahy: Lessons from a Baptism by Fire

As a survivor of trials by fire, Xerox Corp. Chief Executive Anne M. Mulcahy has few rivals. She became president of Xerox in May, 2000--a month before the Securities & Exchange Commission launched its investigation of the copier maker's financials--and stepped up to the top job last August.

In the past two years, Mulcahy, 49, a lifelong Xerox staffer, has reworked her entire top management team, renegotiated a $7 billion bank line of credit, settled an SEC fraud complaint against the company, and restated five years of financial filings. Now she faces a more challenging task: pushing the company back to a healthy growth rate. On a recent Sunday afternoon, as she prepared for a trip to Europe to meet with customers and staff, Mulcahy talked in her Stamford (Conn.) office with

BusinessWeek Associate Editor Nanette Byrnes.

Q: On June 28, Xerox filed its belated 10-K, including all of the restatements you had agreed to in your April settlement with the SEC. It is close to 1,000 pages long. As someone who made her career as a saleswoman, you have shown an amazing facility with finances. Was it difficult to get your arms around the accounting issues?

A: I know everything. I'm one of these people who can sign those statements and feel totally comfortable that I know and am accountable for everything because I do know everything. It has been a pretty interesting experience.

Q: Xerox has been hit in the press and in the stock market because the restatement of revenue was about double what had been expected. Is that reaction fair?

A: This accounting issue tends to be somewhat miscast. This was all about an accounting methodology that had to do with the timing of revenue, not the authenticity of revenue.


What have you changed at Xerox in light of the questions raised about the company's accounting and management over the past few years?

Historically, we were trying to run the business by product, by industry, by segment, by geography. And when you are into a multidimensional approach, it tends to get a little cloudy as to who is actually responsible. So we did clean up the organizational structure so that everybody sitting at the table has a clear responsibility.

A: I think that has helped everyone deliver on very concrete, deliverable objectives. And then we have held people accountable, and that is critically important when you're in the midst of a turnaround where you can't afford to waste a lot of time.

Q: Some observers have been questioning whether, as a Xerox insider, you are the right person to turn around the company. Is it hard to make the tough calls, to tell a colleague you have known for years that they're just not measuring up?

A: I think that in the past two years I have probably made tougher decisions than most CEOs. We have had to shut down businesses, we have taken 22,000 people out of the business. I don't think those are easy choices. I think they're really tough to do, and I don't think I want them to get easy.

Q: What experience have you drawn on the most in the past two years?

A: Customer focus has to be at the top of the list. Most of my career has been in sales. I spend 50% or more of my time with customers and employees, and I can't wait for it to be more than 50%.

Q: The SEC ordered you, as part of the settlement, to reevaluate your internal financial controls. What are you doing in that regard?

A: That's not a new project. Over the last few years there have been a lot of changes. We outsourced internal audit to Ernst & Young to bring in more skills. I do an internal controls review at every operations review I do. We have also done things like a hotline for any kind of issue that popped, and that gets reviewed regularly and also gets reviewed with our audit committee. We do training for our management team on all sorts of ethics and compliance issues.

Q: Xerox has been criticized for having a culture of denial. The SEC criticized the company for a lack of cooperation. Has that culture changed?

A: When a company goes through a crisis--and we have--it's an opportunity to face problems squarely and address them. We must spend all our time understanding what's not working well, what our customers want to see from us that they're not getting from us, and creating an environment where we can get in front of problems and not wait for them to become so glaring that we have a crisis on our hands.

Q: Why--in the summer of 2001, when you became CEO--didn't you immediately settle with the SEC?

A: At that point in time, people were still being subpoenaed, documents were still being subpoenaed. There was all sorts of investigation still going on. It wasn't ready for a conclusion. We reversed the accounting. The bottom line is, it's done, and I don't think it's terribly productive for us at this point to spend a lot of time dissecting the past, either defending the past or, quite frankly, critiquing the past.

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