Interview

With Xerox chairman C. Peter McColough

April 18 1977
Interview

With Xerox chairman C. Peter McColough

April 18 1977

With Xerox chairman C. Peter McColough

Interview

A ruddy-faced, action-oriented, diplomatexecutive, C. Peter McColough rules the five-billion-dollar Xerox empire from a futuristic headquarters deep inside the verdant reaches of Connecticut’s Greenwich County. The calm elegance of his outer office is enhanced by Picasso charcoal sketches: his inner sanctum has soft, mushroom-shade velvet sofas and four large palm trees. Born in Halifax 54 years ago, he spends most summers aboard his 54-foot ketch roaming the Atlantic from Cape Breton’s Bras D’Or Lake down to Venezuela. After graduating from Dalhousie (and Osgoode) law schools, he attended the Harvard business school and worked for E. P. Taylor’s Standard Chemical Co., a forerunner of Domtar, now one of Argus Corporation’s chief holdings. He joined Xerox in 1954 and 17 years later was named chairman. An active director of some 33 companies and advisory boards, including Nova Scotia’s Industrial Estates Limited, McColough was recently interviewed in his office by Maclean’s Editor, Peter C. Newman.

Maclean’s: Do you retain any special feelings about Canada?

McColough: Yes. I go back, not as much as I would like but as much as 1 can. I was brought up in the Thirties and, being very provincial, my family lived in Nova Scotia for a long time. I was really brought up to think of myself as a Nova Scotian first and a Canadian second. Ontario was a strange place to me. Even today, when people say, where are you from, I’ll much more likely say Nova Scotia than Canada.

Maclean’s: How would you compare Canadian businessmen with their American counterparts?

McColough: They seem to be more conservative. Also, they don’t have the hostility toward government that we have. Most big businessmen here look at American government as almost our worst enemy. Maclean’s: Going through your security arrangements here, I have a feeling that U.S. business lives in a state of siege. McColough: It is under siege. Government people will say to you, “I was in Congress . . .” so on and so forth, meaning, “What can we do to help you?” And my answer is always, “We don’t need your help, we’re big and strong enough, just leave us alone, we’ll solve our own problems around the world. We don’t want your help.”

Maclean’s: I suppose one of your great problems at Xerox, which was such a fabulous growth company during the Sixties,

is coming up with an annual encore. McColough: That’s right. People always want to know what you’re going to do for them tomorrow. It’s very difficult. The arithmetic for us, or for IBM of course, gets much more difficult as you grow. When I started in this business 24 years ago, it was a $ 10-million company. So if you had some good new products and you were innovative you could see growth of 20% or 30% a year. But when you get to the size of five billion dollars, as we are now, a reve-

Xerox—any American company—will very much hesitate to invest in Quebec today

nue growth of, say, 15% a year, which is roughly what we’ll do this year, means you’re having to add $750 million of new revenue. Many large modern industries in the world don’t have that kind of total turnover.

Maclean’s: What percentage of your business is international?

McColough: About half, in terms of revenue and profit. That really doesn’t tell you the whole story because it has been increasing rapidly over the years and, in terms of the placement of equipment, there’s far more than half overseas that is on a rental basis.

Maclean’s: How much freedom do you allow in the multinational sides of your oper-

ations? What are the basic reporting procedures? How closely do you control your Canadian operations?

McColough: We allow a good deal of freedom. The essential thing that we work together on is what we call our operational plan, and every unit, domestic or overseas, will come in with a two-year operational plan starting in April. Then there is also a long-range plan for the five years after that. So, we’re really in a seven-year cycle. We will send out to the operating units in Canada and so forth some guidelines after discussion with them on what the plan ought to be. Essentially, it’s their plan and I would say that there’s a great deal of local authority and autonomy but it is tied into a worldwide plan in terms of the introduction of new products. Canada, for example, may say we’re not going to take a certain new line next March, we’re going to take it next October. We aren’t ready in March. Well, that’s their decision. But if they said, we aren’t going to have that product at all, we’d have quite a dialogue with them. They might win or they might not, depending on the circumstances. Maclean’s: How do you keep track of their operations?

McColough: We really follow three things. One is we have their actual sales, expenses, etc. which come in every month. We also compare their results against budget. Our budgets never—I won’t say never—almost never change during the year. But each month we update the outlook so we really look at three things: their actual results, their outlook each month, and the long-range picture.

Maclean’s: Do you have local Canadian directors?

McColough: Yes, in Canada we’re an Ontario company and the majority of the board is Canadian.

Maclean’s: Is your Canadian company listed on the Stock Exchange?

McColough: No. Canada is unique for us. It is the only country outside the United States where 100% of the company is owned by Xerox Corporation.

Maclean’s: Why?

McColough: It’s partially historic. The other countries where we operate, we started usually with a partnership. Canada started with sending a few people over the border to run a business many years ago as part of the American company. And we really never changed it.

Maclean’s: Is there, in your view, such a thing as a true multinational corporation, or are they in fact American corporations with foreign branches?

McColough: I think we’re talking semantics now. It’s very hard. We’ve tried to give a lot of thought to acting and being what we think of as a multinational corporation. Maclean’s: George Ball has differentiated between the two by stating that true multinational companies don’t have loyalty to any one country.

McColough: Yes, well, that’s the theory. On the other hand, operating with your headquarters here you do come under the rules of the U.S. state department and the commerce department on many things. It’s very hard to get away from. Of course, we think our board of directors should reflect our operations and interests around the world and we have foreign directors on the boards. Right now we have an Englishman as chairman of our Rank Xerox company out of London on the board; we have a very distinguished Dutchman, Ernst van der Beugel, who was at one point foreign secretary of Holland and later head of KLM, and we have a Frenchman, Jacques de Fouchier, who is the head of Paribas, which is the largest financial institution in France. We’re somewhat unique as a large American international or multinational company in having foreigners on our board.

Maclean’s: Are there any Canadians, or have there been any?

McColough: No, although we’ve considered that, and would welcome it. We’ve also tried, as best we can, to use nationals overseas rather than Americans. It’s not our policy to send Americans abroad by and large.

Maclean’s: Do you see any conflict or any potential conflict of, say, a Japanese employee between his loyalty to Japan and his loyalty to Xerox?

McColough: Of course it’s difficult to ignore your loyalty to a country of which you happen to be a citizen, a resident. But on the other hand, there is a very deep loyalty that develops to the company and I don’t know which is overriding. I can tell you right now that we face very tough Japanese competition around the world and our Japanese associates at Fuji Xerox come here frequently and we go there, talking about how we can battle Japanese competition. There’s no question where their loyalty lies. To them it doesn’t make any difference if competition comes from Japan, the United States, Germany or any other place. There are some things that we as Americans get into, some of these stupid things where we’re supposed to stop the Canadian company from shipping to Cuba. That’s a tough issue. I can see the Canadian side of it and our side of it. Maclean’s: Surely American laws

shouldn’t apply in Canada.

McColough: Well, I don’t always agree with American policy. But if I live here as an American citizen, unless I want to go to jail, I have no choice. I don’t agree with that necessarily and I can see as a Canadian where the Canadians would want the Ford Motor Company or Xerox to do busi-

ness with Cuba, because that’s the national policy. I don’t know what the answer is. It’s a very tough issue.

Maclean’s: How do you define the oftenused phrase “being a good international corporate citizen”? Does it really mean anything?

McColough: We define it as trying to put something back into the particular country in which we’re doing business. We try to be good citizens and hire local people, we train them, we hope that we give people a level of training or education they wouldn’t have had otherwise. We try to

There aren’t half a dozen countries In the world that have the cash IBM has

pay attention to each subsidiary’s balance of payments. In many countries it’s not practical for us to manufacture—for example, if we tried to manufacture in, say, Nigeria—because the unit production is so small, the cost of product would be prohibitive and you wouldn’t have any market. But we try to procure materials or sometimes components from some of those countries, trying to take a look at their balance of payments.

Maclean’s: Was Xerox implicated in any of the bribery or corrupation documented last year?

McColough: Ours is quite a different level of thing. I gave a little talk at our annual meeting last May in New York when I didn’t know if we had any problems and assured them we didn’t have any, but said that I would be surprised, with more than

100.000 people around the world, if we had

100.000 saints. Take Iran, for example. How do you get your stuff through the customs there? It’s a terrible problem, just a terrible problem. I’ve gone the other way

too. When the Senate was considering making all political donations an offense, I said that it was absolutely wrong for American companies through American law or otherwise to tell our Canadian company not to make political contributions. As far as I’m concerned your law allows political contributions and our Canadian board will make the decision. I think it’s absolutely wrong for American law to try and tell the Canadian board what to do or not to do. You should rely on Canadian practice. Maclean’s: Do you have any views on what’s happening in Quebec?

McColough: It’s very upsetting. Any American company will very much hesitate to make an investment in Quebec at the present time, clearly.

Maclean’s: Xerox is one of the few company brand names that has become part of the language. Is that a good or a bad thing? McColough: We watch it very carefully. We have ambivalent feelings aboutit. You like the name to be known, but you don’t want it to be misused. So we have a very active program, a legal department that advertises in certain periodicals about the improper use of Xerox to try to make it known. During the Senate Watergate hearing almost every day there was some reference to the Xerox machines and what not. We had lawyers watching the television screen all day, and as soon as they heard a misuse they’d call down to someone they knew in Washington to stop it. Maclean’s: Getting back to the environment in which you operate, why has business suddenly got such a bad name? The ethics of the profit motive haven’t substantially changed in a century.

McColough: You have to ask yourself what brought this situation about, and I know in this country particularly you could point to some of the things that were wrong—Watergate, Gulf Oil and so forth. But I think the problem is more fundamental than that. It was coming anyway. I think it really comes from the fact that people believed the myth that they were part of a small society where they controlled their own lives, their own destinies and they suddenly realized that they were a number, that if they worked for corporations, unlike 40 years ago, they are gigantic and so people really felt sort of powerless. Maclean’s: How have you attempted to democratize your company to avoid this? McColough: I think the attempt at democratization around the world is misguided, such as the co-determination in Germany, and the Bullock report in England. You can see how it works. Look at Volkswagen. For different reasons, Volkswagen went into co-determination early. They clearly should have come to the United States to manufacture their product a long time ago. But the unions wouldn’t let them; now they’ve lost their market position. And now they’re coming. So it’s wrong. I don’t believe in co-determination or employees on the board. What we’re trying to do here at Xerox is recognize the fact that intelli-

gent, educated people are the main asset of the company. We want their voice in the right way in the affairs of the company. They can’t vote on the dividend because by law that must be done by the board of directors, there’s no way around that. But we form a whole series of employee committees, for example, when there’s a promotion opportunity in a group, to recommend who should be considered. We don’t want to overlook anybody. We have a program of social service leaves where people can go off for the whole year with full pay and do something in the social area. Those people are chosen by average rank and file employees. We are trying to go that way to give people a voice and it has worked out very well.

Maclean’s: What about bigness? Shouldn’t there be limits to how large and powerful a company can grow?

McColough: No. In spite of what people say, the large, multinational companies or international companies are going to get bigger and bigger. I say that because, without that size, you aren’t going to have the resources to do the things you want to do. Unless we were very big today, unless we had the opportunities to grow outside the American market, which is pretty big in itself, we couldn’t justify the investments we put into research. We’re spending this year $280 million of our money on research. Fairly recently, we had several hundreds of millions of dollars invested in one of our new products before we got the first nickel back from anybody. That’s the economy of scale that is so essential. There are going to be some controls on size and. as long as it’s reasonable, I don’t mind. In fact I've advocated, unlike most business people in this country, reasonable rules around the world for the conduct of international and multinational companies. Rules that’ll assure people you’re not going to close your plant down in some small town in France and go to Taiwan because you can get cheaper labor, which I think is wrong. That will also enable us in the larger companies to know what the rules are so we can go by them and not be whipsawed as we are now from one country to another because every country talks out of both sides of their mouth when it comes to the larger companies. If I go to France, for example, the French may publicly be against the large multinational companies. On the other hand, when you arrive, the Minister of Industry wants to see you and he’ll say, won’t you put a new plant in France or a new research laboratory. So they really go both ways.

Maclean’s: It seems to me that all institutions, but particularly business and government, are suffering a crisis of legitimacy. McColough: Yes. It’s a real danger today. We’re talking only about business, but if you look at the public opinion polls they show an absence of trust in all institutions whether it’s the Catholic Church or the medical profession. In fact, the last poll I saw showed the highest confidence rating

for the medical profession, with almost 50% of the people stating they had confidence in the medical profession, which means that more than half of the people didn’t have any. Then you’re down from there to educational institutions; business I think was about second lowest. The only thing lower was Congress and the Presidency of the United States, which is a problem.

Maclean’s: Have you noticed any change among recent university graduates? McColough: Business is much more ac-

Government s interfere, and when things go wrong, they ‘solve’ it by more interference

ceptable now than it was five or six years ago. It’s partly because people are much more conservative. I have four kids in university now, and they’re quite different than children five or six years ago. They really look down their noses on the kids in the 1968-1969 era. They’re very much more conservative. But also, I think, they’re being pragmatic or realistic in the way they realize they can only work for the government or business—whether they like it or not, that’s the way it is. The answer basically to me, though, is that some wrong things have been done in this company and perhaps in other companies. When institutions have the power that business has, they aren’t going to be popular unless people see how they’re controlled. At IBM. for example, until they bought their own stock they held almost six billion dollars in cash. Well, how many countries in the world have six billion dollars in cash? There aren’t a half dozen countries in the world that have the cash IBM has. So it’s inevitable that the public looks at IBM with

all of their skills, people, money, technology and wants to know how it’s run. There’s no accountability. I think there really is, but people don’t see it.

Maclean: What longtime future do you see for capitalism?

McColough: I’m not really troubled today by the United States. There is a trend back to basic conservatism here and I think we will survive. But I’m deeply troubled by what I see in Europe in terms of the social direction, a real concern about whether we’ll have a capitalistic system there as it has existed in the past. Government interference kills you and it’s subtle, bit by bit by bit. And no government has ever stepped back. They don’t step back, they keep going. When you get government interference and things don’t work very well, then what they say is that the problem is we don’t have enough interference, we haven’t done enough. Now we must do some more and it goes on and on. England’s a good example. I don’t know what’s going to happen to England. They’ve killed themselves, really, because the incentive system in England has gone. Where politicians make their mistake is that they look at me at my stage in my life, in my mid-fifties and fairly well to do, and they say, well, you’re trying to preserve what you have. My life is not going to be changed no matter what happens because I’m going to keep workingno matter if I get a nickel after taxes or not. But what you have to look at is myself or other people 30 years ago, when you’re 25.1 see this very clearly in England—how options work. The choice of having a risky life with all sortsof disappointment and upset and a lot of hard work and no money or an easy life and no money. About 99% of the people are going to go the easy way. We get this problem with some of our English executives. We try to work more on the American way of life which is really fairly pressured: a lot of travel, long hours and hard work. The wives say, look you’re getting home after all that travel at seven or eight o’clock at night and our neighbors next door make £2,000 ($3,600) less than we do, but we both only have one car, neither one of us can take a vacation to the West Indies, why bother? And that sort of kills it. I have a very simple philosophy on this. I think what taxes ought to do is give people plenty of incentive to make money, to keep money during their lifetime. It’s a very short life. From a social point of view, I don’t really argue against having inheritance taxes. You can’t have 100% on death duties because if death duties were 100% I would squander everything I’ve got and just waste it. But from a social point of view, I think that death duties ought to be very heavy, otherwise you have a great concentration of wealth in certain families very quickly. And I don’t think that’s desirable. But during your own lifetime you ought to be able to really accumulate something. I’ve really had to work pretty hard and I’ve enjoyed every minute of it.c£>