For Xerox Director Ann N. Reese, a Disastrous Tenure

The dust has settled after Xerox Corp. (NYSE: XRX) announced another poor quarter. Its share price hovers around a 52-week low. Someone has to be accountable for the catastrophe that has continued to destroy the low-tech company, but who?

Ann N. Reese acts as the lead director of Xerox. In that position, the co-founder of the Center for Adoption Policy has as much a voice in the fate of drowning CEO Ursula M. Burns as any other member of the board. The board knows as well as any other group that Burns has continued to cripple Xerox, as its financial results have deteriorated for years.

Reese is also the longest-serving director at Xerox, after her appointment in 2003. Burns joined the board in 2007, the year she was appointed president. Burns became CEO in 2009 and chairman in 2010. Reese has had the chance to watch Burns. Reese also has been a party to the approval of Burns’s extravagant compensation, which reached $22.2 million in 2014.

The Xerox proxy defines the job Reese holds:

Our lead independent director’s responsibilities include: presiding at executive sessions of the independent directors; calling special meetings of the independent directors, as needed; addressing individual Board member performance matters, as needed; and serving as liaison on Board-wide issues between the independent directors and the CEO, as needed. Under our Corporate Governance Guidelines, each regularly scheduled Board meeting must include an executive session of all directors and the CEO and a separate executive session attended only by the independent directors.

This means Reese supervises meetings during which the performance of Burns is examined. That examination, to the extent it has gone on, has not helped shareholders at all.

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In an analysis of Burns’s recent performance and her comments about the results of the most recently reported quarter, 24/7 Wall St. recently wrote:

Burns was upbeat in comments about the most recent period, as she usually is, no matter what the numbers:

Our earnings are in-line with the guidance we provided. Results in Document Technology, which included the increased impact from foreign currency, largely met our expectations. Several of our Services businesses performed well, but overall Services segment results fell short of our expectations driven by higher implementation costs in certain Health Enterprise platform accounts.

Hitting guidance is not a badge of honor. This is especially true when revenue drops and net profits collapse. Xerox’s revenue dropped 6% in the March quarter to $4.5 billion. Net income fell 20% to $225 million. Operating margins were 7.6%, which Xerox management says was off 1.1 percentage points from the same quarter a year ago.

As for its forecast:

We expect increased currency headwinds, softer signings and acquisition timing to impact revenue; and Services margin to be impacted by increased implementation costs in legacy Health Enterprise accounts. As a result, we are adjusting our full year expectations.

Burns became Xerox’s CEO well over five years ago. She engineered the buyout of Affiliated Computer Services, which cost Xerox $6.4 billion. Meant to help Xerox move beyond its roots in document production, it is hard to find evidence that the strategy worked. In the past five years, Xerox shares have risen 10% while the S&P 500 has moved higher by over 78%.

It is time for Reese to claim some measure of responsibility, and credibility, and to press for Burns to leave.

Note: Reese also sits on the board of retail failure Sears Holdings Corp. (NASDAQ: SHLD).

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