Inside The Xerox Boardroom Saga
The company that gave us the ethernet, the mouse, the graphical user interface, and the PC has succumbed as much to technology disruption as to corporate rot.
(This story originally appeared in Chief Executive Magazine)
Xerox recently announced the sudden departure of chief executive Jeff Jacobson, a shakeup of two-thirds of its board, a lawsuit by the largest individual shareholders, and a potentially failed merger with joint venture partner, Fujifilm, which a judge proclaimed was “massively conflicted.”
Then the next day, the company reversed itself and reappointed the CEO and the original board, and began to renegotiate the deal with Fujifilm. While shareholders twist in the wind, the board and CEO get to hide behind corporate indemnity while waiting for a “Hail Mary” according to the CEO, and competitors are already targeting the company’s customers and employees.
It didn’t have to end this way.
The company that Steve Jobs credited with the inspiration for the Apple Mac after he toured Xerox PARC (Palo Alto Research Center), now sits ignominiously on the selling block for the sole purpose of fetching the highest bid.
The company’s troubles began long ago as a succession of once glorified CEOs failed to address the company’s lackluster performance in a world dominated by more nimble competitors. Those earlier chief executives acted as caretakers, waiting for a rich retirement that allowed them to pass along festering problems to a successor.
When Ursula Burns and the Xerox board appointed Jeff Jacobson, a long time Rochester Xerox and Kodak executive who came equipped with a law degree and an Ivy League education, as her successor, they failed to recognize that good corporate governance is now part of the core skillset of the CEO.
“THE ENDING TO THE XEROX ROLLER COASTER IS NOT FAR OFF, AND IT WILL BEGIN WITH THE PHRASE ‘YOU CAN’T MAKE THIS STUFF UP.’”
Shareholder lawsuits reveal that inside Xerox has had a culture of poor corporate governance, was tone-deaf ear to shareholder activists (who owned 15% of the company) and convened a board hopelessly broken by divided loyalties. For example, not long before the blow-up the board initiated a search in anticipation of firing the CEO, only later to side with him in contradiction to the shareholder activists.
The legendary investor, Carl Icahn, didn’t buy his way into Xerox because he liked making copies, but because he likes making money. Icahn told the CEO, Jeff Jacobson, only one year into the job, sell the company or find other work. The board agreed with his poor assessment of Jacobson’s performance and began a search for a new CEO at the time, which it disclosed in a subsequent proxy filing.
But Jacobson saw the timing was constricted and chose to do a deal of convenience with his joint venture partner, Fujifilm. The terms included a large cash payoff for shareholders, perhaps a modern form of ‘greenmail,’ which Icahn and Deason felt was inferior. But then when they he learned Jacobson would emerge as the merged entity’s CEO, it sounded fishy to the Wall Streeters, and they he told Jacobson to pack his bags and return home.
At first, the board sided with Icahn. On Nov. 10, it informed Jacobson the board was “disappointed by his performance,” and that he was to “discontinue any and all” communications with Fuji. At that point, according to the lawsuit, a new CEO candidate was named.
But Jacobson went forward with the deal and flew to Japan anyway, thinking this might be his only chance to save his job. He pushed Fujifilm to perform, citing Icahn’s impatience, which was an understatement. He also feathered his own nest by telling the bankers that, according to Fujifilm, his role was paramount in making the deal happen. Then he sat back and waited for the term sheet to be signed on November 30.
When it arrived, the board chose to keep Jacobson in the job, as it appeared he would meet financial targets. Mr. Jacobson texted a Fujifilm executive, saying, “we will finish our mission and win,” which even Jacobson told his chairman was a “Hail Mary.”
Once the Fuji deal was announced, the other largest individual shareholder, Darwin Deason, teamed up with Carl Icahn and sued in New York Supreme
Court to fight what they called a “complex deal that would cede control of Xerox to the Japanese company.”
While former (and now current) Xerox chairman, Robert Keegan, defended the deal on the ground that “Mr. Jacobson was fully authorized (by the board) to engage in discussions with Fujifilm,” the Judge considered the merits of the deal conflicted. He issued a preliminary injunction to temporarily stop the deal in its tracks. In in New York Supreme Court he said the deal was “largely negotiated by a massively conflicted CEO in breach of his fiduciary duties to further his self-interest.”
After the deadline passed for the company to negotiate an agreement with the
shareholder activists, Xerox subsequently reappointed its former CEO and board, and has already started renegotiating its deal with Fujifilm.
According to informed sources, the companies are considering “adding $5 a share to the $2.5 billion special cash dividend of roughly $9.80 per share that Xerox shareholders would receive as part of the deal.”
The ending to the Xerox roller coaster is not far off, and it will begin with the phrase “you can’t make this stuff up.”