Q&A: CEO savior Anne Mulcahy on getting the color back into lifeless Xerox

Also offers her views on presidential race, CEO compensation and the H-1B debate

BOSTON -- When Anne Mulcahy took over as CEO of Xerox Corp. in August 2001, the outlook for the company to which she had devoted 25 years of her life could hardly have been bleaker. Xerox was over $17 billion in debt, bankruptcy appeared inevitable, and the SEC was investigating alleged accounting irregularities.

During a visit here last week, Mulcahy spoke at length with Computerworld. In the process, she shed some light on how she engineered what Money magazine called "the great turnaround story of the postcrash era," and why she ranks No. 2 on Fortune's 2007 list of the 50 most powerful women in business. Excerpts from the interview follow:

Former Hewlett-Packard CEO Carly Fiorina is an adviser to the McCain campaign and has even been suggested as a running mate. Do you get involved in politics at all? I do personally. I try not to get terribly active from a business perspective. I'm a Democrat, so I'm on the other side of the ledger.

Are you a Hillary Democrat? Yes, and now I'm an Obama Democrat. I won't be writing in my vote. These days, we have enough significant issues that one of the good things about this particular campaign is that more people are involved than ever, which is a really good thing. But I certainly try to keep the business and personal sides somewhat separate.

The two presidential candidates have taken positions on the issue of CEO compensation. Sen. John McCain is calling for all aspects of a CEO's pay, including any severance arrangements, to be approved by shareholders. Sen. Barack Obama favors a requirement for companies to hold a nonbinding shareholders' vote on compensation packages. Where do you stand on that? The principles of what this thing on pay are all about are things that I do think are important. I think transparency is important, and companies have to be into the role of clear and full disclosure as it relates to compensation. I think the principle of performance-based [compensation] is hugely important. Pay is not an entitlement -- it goes with performance. It should be taken away in light of nonperformance or issues companies have. So I definitely believe that we should have a set of principles that companies live by with regards to CEO pay.

Xerox CEO Anne Mulcahy
Xerox CEO Anne Mulcahy

I'm not necessarily sure than an advisory vote on pay is the most productive use of our shareholder voices. I do believe that is the job of a compensation committee, and that shareholders now have the ability, with majority voting, to say "yea" or "nay" to the people that they put on boards, and that that's appropriate. Executive pay is a complicated set of decisions and discussions, and suggesting we're going to solve it with advisory votes from shareholders -- I don't think that's the way it should be addressed.

You've noted that business and government need to work together to solve social problems, and that when the time comes for a change from what you're doing now, you'd like to be involved in that. In what way? I do believe that the public/private partnership really is the model for solving big issues, and I think it's pretty well-developed today. Whether it's a world crisis or a business challenge -- and I would include education in that as well -- the need for collaboration to solve some big problems is a big deal.

There's just a ton of issues in this country today about job creation and the best source of innovation. The reality is the facts are pretty sobering, in terms of the lack of a pipeline for math and science graduates, the implications of restricted access for doctorates in skills that should be welcomed inside this country, what's happened to government funding of research over the last three decades as a percentage of GDP. There's just a whole laundry list of wake-up calls that need to be addressed here in this country if we're not going to lose our technological dominance.

It's a really, really concerning issue, and government, education and business all have to play together to start to reverse the trend that we're seeing here. So I believe it's the right model to solving big problems, and necessary. And I also do feel that that's an opportunity for former CEOs and other business leaders to make a contribution. Use a lot of their business skills on behalf of solving some big public-policy challenges or issues that we have to solve as a country.

Can you envision yourself getting into politics? After 32 years at Xerox, I think it's hard to envision it. I don't think it has to be politics. There are plenty of opportunities, whether they're nonprofit opportunities or providing the kind of behind-the-scenes support that a lot of public issues require. I don't envision politics as the main thrust.

Where do you stand on the H-1B visa issue? Obviously, we think that's a missed opportunity right now, and it's far too restrictive. I was out at our Palo Alto Research Center a couple of months ago, and the reality is that we have great people who are returning to their native countries because of restrictions here, and who could have gone on to be U.S.-based technologists and researchers and contributors. Just at the time when we need to work harder to keep people in this country, we have less access than we've ever had before.

What is your response to unemployed IT workers who resent the H1-B visa program? I guess I would look at it first of all and say you have to look at the amount of jobs that have been created by people who have come into this country -- the founders of places like Google and so many companies I couldn't even begin to name. And if you look at the pipeline of people graduating from our universities, the majority of these folks in doctoral programs are foreign, vs. U.S.-based. It matters where jobs get created. These are the kinds of people that can actually create jobs, that aren't responsible for losing them. It's so much the solution vs. the problem that I find it kind of amazing that we tend to emotionally focus on an outcome because a lot of things have become commoditized and therefore do get offshored or outsourced. Innovation is a source of value creation, and it's a completely different approach to solving the problem.

How do we reverse the decline of the percentage of women in the IT profession? We're a good example of the fact that like any other objective, focus is hugely important. For example, in IT and engineering, I just spoke to 200 interns that Xerox has brought in for the summer, and two out of five are women. With focus, you can certainly do that. But the issue is we need a bigger pipeline in general. So one of the things Xerox focuses on is raising the interest in areas like math and science in secondary schools. We take our engineers out to the classroom and have "invention days." We invest in robotics competitions. Focusing on getting the best talent suggests you ought to be inclusive, and that means not just women, but minorities need to be focused on in terms of increasing that pipeline.

Computerworld's annual IT salary survey shows that the gap in pay between men and women is hovering in the 10%-to-12% range. To what do you attribute that gap to, and how do we close it? I'm sure if you dig under it, some of that speaks to tenure. In professions, usually when you get into those discussions, the fact is women sometimes don't have the tenure that their male counterparts have. I think you fix it by paying for results -- creating a level playing field. We should be paying people for results and for contribution. Clearly, companies need to be looking and ensuring that they have a level playing ground and creating equality for good results. That's good for companies. Pay for performance plays everywhere, and that's true of men and women as well.

How important is mentoring in building and retaining talent in an organization? I am a fan of mentoring, but we have to think about it in a nontraditional way. We've got to be broader and wider in terms of the people who we consider mentors. Sometimes we think of a mentor as that one person up there who can help kind of pull me up the career ladder, and I don't really think that's the way it happens. Mentoring can come from all sorts of sources -- your peers, people who work for you can be great sources of learning and opportunity. One of the most powerful ways for people to get promoted is for there to be a groundswell of people beside you and who work for you that think you're terrific. That's a lot more powerful than having one senior person whose radar screen you're on.

You're No. 2 on Fortune's 2007 Most Powerful Women list. What does that feel like? I don't think it has a set of feelings that goes along with it. My identity is Xerox, and any feedback I get should be regarding my success at Xerox, not so much my standing as a stack ranking. I understand that with so few women in leadership positions, bringing attention to it is a good thing, as is drawing attention to the fact that we certainly aren't taking advantage of the enormous opportunity to hire and promote more women in the workforce. But I think my identity has to be linked with Xerox and my performance for my constituencies there.

What are the most important qualities to have to be successful as a CEO? "Followership" would be No. 1 on my list. If you run a big company, individuals don't really get anything accomplished. Teams get things accomplished. So the ability to build good teams, and have good teams that build good teams, is really the path to success in a big company. I think we also live in a world today where transparency, or credibility, or authenticity -- there are lots of words for it -- but there has to be a sense of trust that needs to be apparent to the people you're asking to follow. And I think that's something that's become a lot more important recently than it was in the past.

Is there anything you brought to the position simply by virtue of being female that enabled you to be more effective than your male predecessors had been? No. I like to think there are a lot of things I brought to the job that hopefully have equipped me to be successful at Xerox. But I don't attribute them to gender. I attribute them to a leadership profile. The context that women or men have inherent advantages because of gender is something I try to stay away from. If you sign up to suggesting that you have inherent advantages, then you leave the door open for saying you have inherent disadvantages, and I think that's a slippery slope.

Let's talk about the turnaround you engineered. One of the first things you did when you became CEO was pick up the phone to call Warren Buffet to set up a meeting with him. What advice did he give you? Like he's become known for, his advice was very straightforward and fairly basic, but right on the mark. That was to focus on employees and customers. And don't get confused or distracted, because the constituencies that will not just have you survive, but make you successful, will be your employees and your customers. Sustainable companies are built on great relationships with those constituencies.

Employees and customers as opposed to shareholders? As opposed to banks, as opposed to analysts, there's a whole set of constituencies. And quite frankly, even at that point in time, shareholders were looking for results, not stories. And the only way you're going to get results is by focusing on employees and customers.

Rather than creating a traditional vision statement, you put together a fictitious Wall Street Journal article that described what the company would look like in 2005. How did what was actually written in 2005 differ from that fictitious article? I think we probably kept that fictional story somewhat high-level so that we'd have the benefit of saying, "See? It did come true!" So we left room for some degree of alignment and hope. But I think what was most important was that we had placed big bets on staying with our research and development investment so that we would be proud of our technology pipeline. That certainly has materialized.

We were building our services business, and the fictional article said we would become known as a services-led technology company. I, too, believe that has materialized -- we built a $3.8 billion services business. Most importantly, it was written to really give people the view of how you would feel being proud of your company again. And I totally believe that's materialized. I think the brand esteem, the pride the people have in the company, the reputation that we've built back -- we were recognized as one of the top five companies for ethics in the industry by the Ethisphere Institute just recently -- the vast majority of things people could relate to. We certainly built in some financials and stock prices that haven't all materialized yet.

You've said that effective communication was the single most important component of your turnaround strategy. What's No. 2? Close to No. 1 would have been our investments in research and development. While we were making really tough decisions everywhere in the company, we knew that the long-term success of the company would only be sustained if we had a great pipeline of innovation coming through.

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