Xerox's Dynamic Duo

Anne Mulcahy and Ursula Burns saved Xerox in a historic turnaround. Now they face a different kind of challenge: sharing power and managing succession. Fortune goes behind the scenes.

By Betsy Morris

October 19, 2007

[continued, page 2]

FORTUNE later dubbed her the "accidental CEO" because she had never aspired to the job—hadn't even considered it. She had a degree in English and journalism from Marymount College and a career spent mostly in sales with some HR and line experience.

On paper, at least, she looked like a desperation choice. But she immediately enlisted the strongest talent she could find. A key player was Burns, an engineering hotshot from Rochester who, despite her smarts, had an equally unlikely history. She had been raised in a housing project on Manhattan's Lower East Side by a hard-working single mother who cleaned, ironed, did child care—anything to see that Burns got a good Catholic education and eventually a graduate degree in engineering from Columbia.

Their loyalty, true grit, and stubbornness made them the right leadership team for the times. Mulcahy became a charismatic leader, Burns a fearless problem solver. As Mulcahy cajoled bankers by day and studied nights to teach herself enough finance to handle the restatement of three years of earnings (she had no CFO, and nobody would touch the job because of allegations of past accounting fraud), it was up to Burns to downsize Xerox without killing its future.

Mulcahy's instructions were pretty simple, Burns recalls: Keep the company going. Don't ask anybody to do what you wouldn't do. Make sure we come out of this with a company our kids could work at. "Go away and figure out how to get $2 billion out," Burns says. She remembers walking out of the cafeteria thinking, You want me to do what?

Their time in the crucible spawned an operating style that was working just fine until the succession issue arose. It called for zero hierarchy and protocol. Day in, day out, nobody seems to care much how the dotted lines cross the org chart.

Xerox is so lean at the top (its workforce is now 58,000, down from 91,000) that it just sold its monolithic glass-and-concrete headquarters building in Stamford, Conn., because it was practically empty. Most high-level work gets done on the fly in quick phone calls, hallway pass-bys, or one-on-ones (as in a real-time conversation between the two decision-makers).

"We're big on one-on-ones here. We didn't have so many of those at IBM," says CFO Larry Zimmerman. That's one reason Mulcahy was able to talk him out of retirement after a 31-year career at Big Blue and fly in from his home in Colorado every Monday morning to be her CFO.

Once she had chosen the best people for the top jobs, she allowed a balance of power to develop among them. She realized she had "better be damned careful to surround myself with people who actually have respect for the facts," she says.

That would only work, though, if those people were strong enough to challenge her and tell her the truth—people like North American operations chief Jim Firestone, whom Burns and Mulcahy call "the intellect," and the irreverent Zimmerman, whom they refer to as "the bully" because of his persistence.

This is Mulcahy's inner circle, which meets biweekly in her office with no agenda except to discuss the company's pressing issues with brutal honesty and vigorous debate. Everybody has a say in decisions; when they don't agree, Mulcahy makes the call.

Their discussions often focus on how to get Xerox's top line growing again. Recently Mulcahy told Burns to "go find" $20 million in R&D to redirect from the withering B&W business to faster-growing color and document services. Burns held her tongue, though she knew it would cause havoc with thousands of customers who would still expect software upgrades and tech support for the life of the expensive machines.

After analyzing the request, she came back with a compromise. Most people, Mulcahy knows, would have just followed the order, if only because she's the CEO. But that's not what she's after. She's interested in the best outcome that emerges from the equilibrium on her team. Naming a successor was surely going to disrupt that.

The Xerox board, however, was determined not to be caught off guard again. "Succession is hard. You walk a tightrope," says Ralph Larsen, former chairman and CEO of Johnson & Johnson and a Xerox director since 1990. A CEO's natural tendency is to stall—to prolong the tryout, to sidestep the bruised egos.

Mulcahy is "one of the most effective leaders I've ever seen. She's worked 24 hours a day, seven days week, and now, all of a sudden, she has her baby breathing and moving in the right direction and she has to give up power and share the responsibility. That's hard on her," he says.

But the board had been nagging Mulcahy about the issue for at least three years, and it was not going to let up. Directors knew that Burns wanted to someday run a company, and they did not want to risk losing her. "We would talk about it at every board meeting, and obviously just by talking about it, there's pressure," says Larsen.

Last spring, when it was finally time to promote Burns, Mulcahy told her board that she'd like to talk to Burns herself about how to design their new working relationship. That in itself was unusual, since it's the kind of thing that's usually worked out in a "smoke-filled room ... shrouded in all kinds of fear and secrecy," says board member Robert McDonald, vice chair at Procter & Gamble.

"It was Anne's idea," recalls Larsen. "She wanted to talk openly to Ursula and get the benefit of her insight. And we had an unfailing trust in how Anne wanted to handle this." Even Mulcahy had no idea how difficult the conversation would be.

She and Burns have a relationship that is complex and sometimes contentious. That results from being driven, passionate, and, Mulcahy believes, equally stubborn.

Does Mulcahy get angry with Burns? "Oh, yeah," she says. And Burns: "Never angry but frustrated."

In a conversation about it recently, they are both in Mulcahy's office where they can't help but finish each other's sentences. "I think we are really tough on each other," says Mulcahy. "We are in a way most people can't handle. Ursula will tell me when she thinks I am so far away from the right answer."

Chimes in Burns: "I try to be nice."

1 | 2 | 3 | 4 Next Page>