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Management at Xerox Corporation faced with strategic mistakes and tough economic environment resorted to creative accounting to meet financial targets and Wall Street expectations. This case presents a brief history of Xerox Corporation, followed by Xerox's corporate culture in the 1980s & 90s, and the SEC investigation. The focus of the case is the actions of an assistant treasurer that top management used to guide Xerox through tough economic times and help make financial results appear more favorable. A teaching note is included. The case may also be used for exploring strategic issues or accounting issues and the mechanics of GAAP violations.
Keywords: Xerox, Accounting Fraud, Ethical Issues, Code of Ethics, Professional Behavior
XEROX HISTORY
Xerox Corporation (Xerox) was founded in 1906 in Rochester, New York as The Haloid Company. It started making and selling photographic paper. Chester Carlson made the first xerographic image in his lab in Astoria, Queens, New York City in 1938 and was granted a patent for his electro-photography technology, which was later, changed to xerography (for the ancient Greek words for "dry and "writing"). In 1942 Carlson perfected a process for transferring electrostatic images from a photoconductive surface to paper.
In 1948 the word "Xerox" was trademarked. Haloid commercialized xerography in 1949 with the Model A copier and the Xerox Copyflo in 1956. By that time xerographic products represented 40% of sales. The company name was changed to Haloid Xerox in 1958. In 1959 the first simplified office photocopier was developed, called the Xerox 914, bringing the company major recognition. The Xerox 914 was soon beating competing technologies, such as mimeograph (A.B. Dick), thermal paper (3M), and damp copy (Kodak) (Gehani, 1998). The Xerox 914 was so popular that by the end of 1961, Xerox had almost $60 million in revenues; by 1965 revenues had grown to over $500 million.
In 1961 the company changed its name to Xerox Corporation, and its common stock was listed on the New York Stock Exchange. Xerox decided to branch out into other ventures starting in the 1960s by buying three publishing companies and a computer unit. All of these were later sold or disbanded. By 1963 Xerox had introduced the Xerox 813, which was the first desktop plain-paper copier, fulfilling Carlson's vision...