The Analysis: Restoring Reputation

Since 2001, with CEO Anne Mulcahy pulling the strings, Xerox's reputation has enjoyed a successful turnaround

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The last decade has seen many of the world's leading companies descend from their once lofty positions. More than three-quarters (79%) of the world's No.1 most admired companies have toppled from the top spot in their respective industries over the last five years, according to research done by . In 2001, the famed Xerox (XRX) corporation was among those.

Today, however, Xerox's reputation recovery has been hailed as an unqualified success. In fact, in 2007 Xerox announced it was reinstating its dividend, which it had done away with in 2001. Xerox now boasts a sterling reputation that's as good as, if not better than, the proud one of years past. The turnaround is largely due to the colossal efforts of its Chairman and Chief Executive .

First Critical Steps

How did this first-time CEO turn the company around? Her first order of business was to earn credibility for herself and Xerox by showing early signs of progress. This she accomplished by focusing on financial stability, which she achieved by quickly selling unprofitable business units and accelerating retirements.

Then Mulcahy took several critical steps to begin refurbishing Xerox's tarnished reputation. She was brutally honest about problems; she asked for help; she listened carefully to friends and foes; she communicated tirelessly; she established clear priorities, including strengthening research and development; she built her team; and she made firm, tough calls.

Mulcahy spent the first 90 days on the road traveling to offices. Although she had 31 years with the company, the new CEO did not act as if she knew it all, but listened to anyone with a perspective on how the company needed to change.

Having taken these steps, Mulcahy then focused the organization on three main goals—reducing $1 billion in costs, selling $2 billion in assets, and concentrating on the core business.

The Second Act

Seven years later, the Xerox turnaround is undeniable. As Mulcahy said: "In many ways, the curtain has closed on the Xerox turnaround. But we are keenly aware that most great plays have two acts." While the curtain goes up on Xerox's second act, the document company's reputation is mended—but only for the time being. Mulcahy wisely points out that reputation restoration is never complete. When done correctly, restoring reputation is always a work in progress. Reputations are always vulnerable to change. A company must always strive to meet ever higher standards, always protecting its reputation.

According to Mulcahy, Xerox must be more than good enough: "We constantly remind ourselves that the enemy of great is good."

By taking the right steps—taking the heat, sharing the pain, identifying the root cause, righting the culture, and minimizing risk—Xerox's recovery was not only possible but indeed likely. Restoring reputation, however, is not a 1-2-3 fix. It might have taken much longer had its recovery not been so expertly managed.

Becoming Newly Reputable

According to Weber Shandwick research, reputation recovery takes approximately four years to go from poor to good and another several years to go from good to great. Xerox did not recover its reputation immediately or even soon afterward. As Mulcahy said: "A silver lining, however, often graces even the darkest of storm clouds." This is what Mulcahy discovered when she began cleaning house at Xerox. In a period of crisis she was free to challenge long-held assumptions and impose substantive transformations that under more positive circumstances would never have been possible or tolerated.

While business leaders are unlikely to invite a crisis so they can start afresh, nearly all confirm that losing reputation provides a once-in-a-lifetime opportunity to make things better. Obviously, reputation loss is to be avoided, but should it occur, the follow-up effort to recover it constitutes a universally recognized opportunity to initiate sorely needed change.

Dr. Leslie Gaines-Ross, is chief reputation strategist at Weber Shandwick, and author of Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation (John Wiley & Sons, 2008).