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"It Was a Deal Made in Heaven."

Timing isn't everything, according to this veteran CFO (and neither is "niceness"). An interview with Lawrence Zimmerman, Vice Chairman and CFO, Xerox Corp.
Roy Harris, CFO Magazine
December 1, 2010

When Xerox Corp. vice chairman and finance chief Lawrence Zimmerman was asked at a recent forum why 2010 was the best time for Xerox to make a $6.4 billion acquisition, he smiled and said, "It wasn't."

That crisp reply was typical of Zimmerman, a 31-year IBM veteran who was lured out of retirement in 2002 by Xerox's then-CEO, Anne Mulcahy, to become CFO for a company in search of a new direction. Elaborating on his quip about Xerox's acquisition of Affiliated Computer Services (ACS), Zimmerman explained that companies must be opportunistic about acquisitions, and pounce when a deal seems important enough, even if the timing isn't optimum.

The importance of the deal for Xerox is clear: a company that remains best-known for photocopiers believes that a bold move into technology services is key to its reinvention. To lay the groundwork for this corporate makeover, Zimmerman began his Xerox tenure with an intense period of finance-department reorganization, bringing in top talent from other global firms and repositioning the accounting function as a centralized and more independent entity.

Another adjustment has entailed learning to navigate what current CEO Ursula Burns has called, perhaps pejoratively, the Xerox culture of "niceness." Zimmerman certainly didn't have to worry about that at IBM, and he admits that by nature he can be contentious. Nonetheless, he says, "It's my job as a leader to not necessarily change the culture, but to understand it and to work within it to help lead us where we need to go."

Obviously, when a company makes a $6 billion acquisition, finance is involved, but what specific role or roles did it play?
Prior to the ACS acquisition, finance was there both tactically, fulfilling fiduciary responsibilities, and strategically, studying what was available in the marketplace for Xerox as we considered how to proceed with the transformation. Before ACS, we did some small acquisitions, and then decided that scale was really what was necessary. So that was the first big piece of work.

There was also a tremendous amount of due-diligence work in the mergers-and-acquisitions department, and in the treasury shop, for the significant financing associated with it. And once we closed the acquisition, getting all the plugs in the right places so we can report earnings and have the right measurements and controls for the expanded company. So there are really three stages of it, and finance plays an important role in all three.

The initial investor reaction to the creation of this repositioned Xerox was, at the very least, uncertain. What steps did you take to increase the Street's understanding of the acquisition and your overall strategy?
Investors were uncertain, in part, because of the surprise aspect — this was a large deal that we did not telegraph. Investors knew we planned to do a services acquisition, I think, but it took some educating for them to see the adjacency of ACS and Xerox and what results when you put them together: an infrastructure that contains business process, IT, and document outsourcing. They now see that we're the only company that does all that. I think once investors understood that, they began to see it was a deal made in heaven.

You may not have telegraphed the deal, but once it was done you were unusually forthcoming about the anticipated results.
One important decision we made was to offer visibility about where we thought the company would be financially over the next three years. It was bold, but it showed the expected growth of the combined companies through synergy, along with the base business growth. We took earnings per share, cash flow, and debt reduction three years out, and we actually showed how much cash would be available as soon as the middle of 2011. We gained credibility by explaining those numbers over three years, and it made a huge difference in increasing the understanding that the deal was going to be viable and very positive for shareholders. And, we've delivered above Street expectations in the first, second, and third quarters while also raising the forecast numbers both for 2010 and 2011 as of this last quarter. So not only did we meet forecasts, we're projecting to exceed them.

When CEO Ursula Burns describes Xerox as having a corporate culture of "niceness," she seems to imply that it isn't necessarily an unreservedly good thing. How has that culture challenged you as the CFO, an executive who has to make tough decisions and sometimes deliver hard truths?
I'm not sure I'd be categorized as nice! But, you have to understand and respect the cultures you manage, because within a company you can get different cultures in different areas. You might have a different culture in Europe than in the United States, or a different culture in California than you have in Rochester, New York.

The environment at Xerox tends to be less contentious than I'm used to. I'm a contentious person by nature, and I view contention as a way to get to and solve problems. I think what Ursula was referring to — and I agree with her — is that, to the extent that people are not contentious, sometimes you don't get at the true issues. We don't want to offend anybody, but we certainly want people to be direct and get the issues out on the table, because that's the only way you're going to solve them. And I think that's what Ursula is looking for and what I'm looking for: getting everything out in the open.


What else did you look for when you took the Xerox job, and how does that relate to any advice you might give other CFOs who are assessing new positions?
Number one, you have to have the best people working for you. The expertise needed to deal with accounting and tax and treasury and business control and mergers and acquisitions is 10 times greater and more complicated than it once was. No CFO can learn it all and manage it all. In the case of the team we built at Xerox, my treasurer is world-class, my tax person is world-class, and so is investor relations, and on through the list. So I can interact with each one of these people and we can make the changes necessary to keep up with the rapid changes in the marketplace and the environment.

Shifting to the accounting arena, as a global company, how do you regard the prospect of a shift to international financial reporting standards [IFRS]? And if you were the CFO of a small firm, would you feel the same way?
Most of the IFRS-related changes have really positive aspects. My only concern as a large company is, how many things do you want to change at the same time? You risk confusing the investment community because there's a lot to absorb and people understand the way things are done now. They can understand if you change 1 or 2 things, but if you change 10 things, even if you restate prior years and make them comparable, the investment community can lose its bearings.

And it's worse for small companies. They don't have the ability to absorb it all. Just on Sarbanes-Oxley, we spent a lot of money to get it done, but I know that small companies paid a [relatively larger] price for it.

With so much change rushing at finance executives so quickly, what advice would you give to someone who wants to be a CFO someday?
First, I would advise not to worry about money and titles, but just get experience working across the corporation, to really help the CEO out. My experience came at IBM, where you could be in all sorts of disciplines: finance and sales, finance and development, finance and manufacturing, and so on.

You also have to work harder than everybody else, because you're in a contentious role. You're bringing up issues, and if you're not working hard to understand them you're not going to have credibility.

Succeeding in finance can also pose a challenge in balancing home life and work life, and if your goal is to be a CFO, you have to make the right adjustments so you and your family can do that.




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