"Think Big:" Legal Lessons That Sustained an Innovation Culture at Pitney Bowes

I started my Pitney Bowes career as a staff attorney. I was hired in 1979 to provide more depth for the Legal Department in how it guided our mailing business to minimize antitrust and competition law risk. This was not a theoretical concern: the company had been served with three Justice Department Civil Investigative Demands between 1975 and 1979, and was a Defendant in a plaintiffs' antitrust suit in the Federal trial court in the Northern District of California, based in San Francisco, with a jury pool strongly biased against large corporations.

From 1969, when the last Attorney General appointed by President Lyndon Johnson filed suit against ATT to 1979, multiple suits were filed against IBM and other leaders in their markets. We were clearly operating daily in a high risk environment.

While IBM won virtually every lawsuit, IBM executives I got to know as friends and Board colleagues told me that, while IBM prevailed in the courts against both the federal government and private plaintiffs, its business leaders became more fearful and tentative to minimize the risk of either additional lawsuits, or, worse yet, an adverse judgment or verdict. The legal guidance they received was very cautious and highly directive, with one theme: don't take any actions or create any documents that could add risk to the company.

Regrettably, IBM started to face real and tough competition in every part of its business. Dell, Compaq and Apple ate away at its personal computer leadership position. Microsoft's dominance in its operating system product held IBM hostage to Microsoft's whims. Many firms chipped away at its mainframe computer business.

HP, Canon, Xerox and other firms were such ferocious competitors in IBM's printer business that IBM exited that business by 1994 through a spin-off, which became Lexmark. It would not be exaggeration to say that IBM suffered death by a thousand cuts. By 1993, it needed to recruit Lew Gerstner, whose leadership tenure was a case study in bringing a once great company back from the depths.

As for ATT, it was broken up in 1984 into multiple operational telecom providers and product producers and marketers. It did not lose the 1969 litigation, but it was clearly brought to its knees by it. I knew both ATT and regional operating company executives as well and could confidently say that ATT also was brought to its knees by the antitrust enforcers.

Pitney Bowes could have had the same outcome, but we were fortunate in two respects:

1. The third Justice Department Civil Investigative demand investigation was shut down because President Reagan's Antitrust Division Chief, William Baxter, shut down the office in 1982 leading the investigation not long after assuming his position. While we had two other CIDs, one in the 1980s and one early in the 2nd Clinton Administration in 1997, we were never really at serious risk again.
2. The Federal court case in San Francisco, Pacific Mailing Equipment et al. vs. Pitney Bowes, ended in a jury verdict in our favor. My supervisor, David O'Hearne, and Brock Gowdy of the Brubeck, Phleger & Harrison firm, did a brilliant job defending the case. The most inspired decision was to designate Bob Hoffman, a humble, highly credible and knowledgeable 40-year employee to be our company witness. In post-trial interviews, we learned that the jury did not decide the case based on its love for Pitney Bowes' practices, but its belief that Bob Hoffman was a more trustworthy and morally upright person than the plaintiff, Murray Keating. In a future blog, I will talk about how that insight shaped my thinking on postal reform advocacy.

But we still had to give marketing, sales, leasing, and product executives, managers and professionals advice daily on how to conduct their business. I was fortunate to have taken a full-year antitrust course from perhaps the most influential legal scholar on competition law in history, Professor Phillip Areeda. I was also fortunate that Areeda had published a nine-volume treatise in the 1970s mostly devoted to one topic: his advice on how to interpret Section 2 of the Sherman Antitrust Act, which prohibited "monopolization."

The prevailing view of the Justice Department and legal scholars at the time was that any firm that had the power to raise prices and exclude competition not only had a monopoly, but was violating the monopolization law. Areeda took a different view. In partnership with two other scholars, Professor Donald Turner of Harvard, with whom he co-authored the definitive textbook and Professor Herbert Hovenkamp of Penn Law School, these scholars, cited in a case against Microsoft said that the Sherman Act §2 approves behavior that reflects “competition on the merits—the superior skill, foresight and industry of which Judge Hand spoke."

I do not know what every attorney in every other similarly situated firm was counseling its clients, but I built on what Areeda, Turner and Hovemkamp were saying, in order to guide Pitney Bowes people toward a different way of thinking. When I was asked about any marketing, sales, lease or product initiative, my question was always the same: "How does this enable us to deliver superior value and benefit to our customers?" If the client could not answer this question credibly, my advice was not to do it or to help guide them to something that would deliver superior value. I consistently preached the value of innovation.

Moreover, when asked what our legal exposure would be, I answered with this question: "If the Justice Department or the FTC randomly subpoenaed a representative population of our customers, what would these customers say under oath?" Would they say we were innovative and superior in delivering value for what we were charging?"

As both the General Counsel and, eventually, the CEO, I also believed that securing patents and getting identified as one of America's most innovative companies was very important. We were in the top 200 US companies in terms of issued patents for all but one year during my CEO tenure. I set an example by being awarded 15 patents of my own.

What I did not do was to focus very much on the words people used in their written communications. My supervisor, who is 12 years older than I am, told me that when he joined the company, the business people were advised to use phrases like "we have a gratifying degree of customer acceptance," as opposed to "we are the market leader." I would guide them on how they should say things, but not to eliminate legal risk.

My problem with the phrase "market leader" was that we defined the market too narrowly, which meant that if we were to focused on maintaining or growing market share in a narrow market niche, that niche would decline or disappear. I redefined our market as the broad "mailstream solutions" market, which was a $250 billion market of which we had less than a 3% share. As CEO, my message was "Think Big" about both opportunity and risk.

The words we use mattered, but not in the way legal counsel often portray them. The words we use shape how we think about ourselves. The more I hammered away at superior value delivery, both as a legal advisor and, eventually as CEO, the more we internalized that way of thinking and the more our daily habits of action reflected that thinking.

To me, the two role models for exceptional trusted advisory services were Martin Lipton of the Wachtell, Lipton firm and Gershon Kekst, the founder and leader of Kekst & Co, a great crisis communications firm. When I asked Lipton about the secret of success for CEOs just before becoming one in 1996, he said that successful CEOs secured their relationships with their Boards of Directors. His rationale was simple and profound. "They hire you and they are the only ones who can fire you. On any issue that matters to the company, make sure you and they are fully aligned." I lived by that precept and engaged thoroughly on every important issue with our Board, whether they wanted that level of engagement or not.

When we were trying to describe a fractured relationship with the US Postal Service without getting investors to panic, Gershon Kekst told us to use language something like this in external communications: "We have the technology and products, the talent, the financial strength, and the brand to be able to thrive in any market and regulatory environment." This not only diffused the fear, but it changed the way we thought about ourselves. His words caused us to be more fearless.

I am firmly convinced that, whether my predecessor, George Harvey, or our Board explicitly recognized what I was doing as an attorney, there is no question that they saw that I had the potential to apply this cutting edge to the CEO job. I am forever grateful to Professor Areeda, whom I actually never knew, even though I was in his class for a full year, along with around 150 other students.

Great lawyers and other professional service counselors are of incalculable value to organizations that know how to use their services, especially when they are focused on value delivery, not on maximizing billable hour revenues. Leaving behind private practice and its focus on maximizing billable hour revenues from clients was one of the handful of the best decisions I ever made.