Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Anne Mulcahy Turned Xerox Around from the Brink
Transcript
- Lucas: So it's June 2001. Xerox has seventeen billion dollars in debt. The stock has fallen from sixty dollars to under six. They have a SEC investigation looming. And the board just named a new CEO — a woman who had never run a business unit, never managed a P&L, and had spent her entire career in sales and HR. Luna: That sounds like a recipe for disaster, not a turnaround. Lucas: It does. And yet, Anne Mulcahy not only saved Xerox from bankruptcy — she did it without a finance background, without an MBA, and without laying off a single R&D employee. Today I want to walk through exactly how she did it, because the moves she made are counterintuitive. Luna: I'm curious to hear this. And before we go deep — quick thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. That's literally what keeps this show ad-free and lets us spend time on stories like this one. Lucas: Yeah, and it's genuinely appreciated. If these conversations have moved your work forward in some small way, that link is there. No pressure. So back to Anne Mulcahy. Luna: So she takes over at the worst possible moment. What's her first move? Lucas: First thing she does — she learns the numbers. She had never read a balance sheet before. So she takes a crash course from Xerox's treasurer. She says later, 'I had to learn finance in real time, while the company was bleeding cash.' Within weeks she can talk debt covenants and cash conversion cycles. Luna: Right, but learning isn't the same as acting. What actually changes? Lucas: She makes two big strategic calls. First, she sells off assets — Xerox's entire Asian operations, some European manufacturing, even the iconic Xerox PARC research center. That raises about two and a half billion dollars. Second, she cuts costs aggressively — two point five billion in total — but she shields R&D. Luna: Why protect R&D? When you're that close to bankruptcy, wouldn't you cut everything? Lucas: You'd think. But Mulcahy understood something fundamental: Xerox's competitive advantage was in its technology — the DocuTech, the iGen3 digital press. If she gutted R&D, there would be no future products. She said, 'We can cut our way to profitability, but we can't cut our way to growth.' So R&D budget stayed essentially flat. Luna: That's a bet. Meanwhile, what about customers? Lucas: This is the part I find most impressive. She personally visits the top one hundred Xerox customers. Not sending the sales team — she goes herself. She listens to their complaints, their fears. One customer told her, 'We were this close to switching to Canon.' She asked what it would take to keep them, then went back and made it happen. Luna: That's so basic and yet so rare in a crisis. Most CEOs go into bunker mode. Lucas: Exactly. And she also changes the culture. Xerox had this arrogant, entitlement-driven culture from decades of monopoly. Mulcahy brought humility and urgency. She told employees, 'We are not entitled to exist. We have to earn it every day.' She also famously answered her own phone — anyone could call her directly. Luna: How long did the turnaround take? Lucas: By 2003, Xerox was profitable again. By 2005, the stock was back above fifteen dollars. She had paid down eight billion in debt. The SEC investigation settled without major penalties. She was named CEO of the Year by Chief Executive magazine. But here's the thing — the turnaround succeeded. The long-term survival? That's a different story. Luna: Because the business model was still in trouble. Digital was eating their core copier business. Lucas: Right. Mulcahy retired in 2009 and handed the reins to Ursula Burns, the first Black woman to lead a Fortune 500 company. Burns tried to pivot Xerox into business services — buying Affiliated Computer Services for six billion. That didn't work well. And then the company split in two in 2016. Luna: So the lesson is: you can save a company from bankruptcy, but you can't save it from irrelevance unless you reinvent the core business. Lucas: That's the haunting part. Mulcahy did everything right in the crisis. She kept the company alive, kept the culture intact, preserved the technology. But the industry was shifting from selling machines to selling subscriptions, and Xerox never fully made that jump. It's a cautionary tale about the limits of even brilliant crisis leadership. Luna: So what should a CEO take away from Mulcahy's example? Lucas: I think three things. One: you don't need to know everything when you start. You need to know how to learn fast. Two: protect your innovation engine even when everything is on fire. Three: go talk to your customers yourself. Those three moves bought Xerox a decade of life. Whether that was enough is a question for the next generation of leaders. Luna: And for us, a reminder that turnarounds are often more about character than credentials. Lucas: Exactly. Anne Mulcahy didn't have the resume. She had the curiosity, the humility, and the willingness to do the hard work. And for a while, that was enough.