Xerox Puts Out|’Five Alarm Fire’

     MANHATTAN (CN) – Shortly before the millennium, Xerox laid off thousands of employees to try to save billions of dollars, but the photocopying giant wound up with a human resources problem it described internally as a “five alarm fire.”
     Xerox executives spoke more discreetly about the “deterioration” caused by the three mass layoffs in its public disclosures, but acknowledged that the overhauls went “too far, too fast.”
     For 15 years, a union welfare fund and two other investors have tried to lead a federal class action securities lawsuit against Xerox, its former CEO Paul Allaire and ex-president Richard Thoman, over alleged discrepancies between the company’s internal and public assessments.
     After filing the case in 1999, the investors fought for years to achieve class certification, only to have a federal judge throw out the case on summary judgment last year.
     On Monday, the 2nd Circuit refused to revive the case, in a 43-page opinion outlining Xerox’s ill-fated plans:
     Launched in 1998, Xerox’s worldwide restructuring plan aimed to consolidate 56 European customer support centers into one facility. It called for 9,000 “voluntary reductions and layoffs,” expected to yield $1 billion in annual, pre-tax savings.
     Xerox’s consumer business organization, or CBO, enacted the same year, budgeted $30 million to eliminate approximately 500 positions, which would save a projected $45 million a year.
     In its first quarterly earnings after the first plan, Xerox trumpeted a two-digit increase in earnings per share that it attributed to “initial benefits from the worldwide restructuring program.”
     After Xerox reported that “500 heads were captured” in 1998, its accounting firm found “sales representatives were very unhappy” with lack of face time with their supervisors and other signs of “disruption created by the reduction in resources.”
     In early 1999, Xerox introduced a new sales force realignment plan that boded a shift from geography-based to industry-based selling; the announcement of further restructuring caused a 10 percent plummet in its stock price that day.
     Then-vice president of Xerox’s North American Strategies Group, Patrick Fulford, said later that year that his department had fallen under a “state of emergency.”
     A July 22, 1999 internal presentation depicted employees as working under “extreme duress.”
     The 2nd Circuit ruled Monday, however, that Xerox had no obligation to spell out the problems it faced in such stark terms to investors.
     “While plaintiffs may have desired more detailed or nuanced language, that is not what the law requires,” U.S. Circuit Judge Rosemary Pooler wrote for the three-judge panel.
     Her colleagues Dennis Jacobs and Christina Reiss joined her in the opinion.
     Sitting by designation, Reiss is a district judge from Vermont.
     “We hold that here, whether one referred to a problem as a ‘five alarm fire’ internally or as just causing a ‘deterioration’ as the result of ‘too much change, too fast’ publicly, the bottom line was the same: the public information reflected that the CBO Reorganization was causing problems for Xerox’s bill collection and sales force operations,” the opinion states.
     A lawyer for the plaintiff class declined to comment, and Xerox’s attorney did not reply to a request for comment before press time.

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