John Chambers, Cisco and its Internal Governance Systems

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Excerpts

As of 2011, Cisco had 13 members on its board (see Exhibit IV for the profile of each director). Cisco's by laws (as amended effective March 12, 2009) called for a periodical review of the appropriate size of the board which would at any time be between 8-15 directors. The majority of the directors were independent. Chambers had served as the Chairman of the board since November 2001, and Carol Bartz had served as the "lead independent director" since November 2005. The lead independent directors was required to periodically schedule or conduct separate meetings of the independent directors, and perform various other duties (at least twice a year)...

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Cisco wanted to make the transition from being just a seller of routers, switches, and other technology to being a company that was the most trusted business and technology adviser to its clients. For this, it realized it would have to make a radical change in its management structure such that the company would be well-positioned to anticipate and capture market transitions. Cisco reorganized its management structure in 2001, forming cross-functional teams to break free of the “silo culture” earlier prevalent in the company .......

Cisco had established its first three councils - Service Provider, Enterprise, and Commercial - by early 2002. Initially, the Operating Committee set the agenda for the councils, but by 2005, that role changed. In 2003, Cisco established the Business Process Operational Council, which unlike the first three councils, was not market focused but internally focused. In 2006, Cisco added two more councils - Consumer and Emerging Markets - around growing customer segments. Chambers then decided to establish boards that would report to the councils.......

Ricci claimed that in the fiscal year 2008, there was "a tenfold increase in new projects" and the company was also able to reduce operating expenses from about 38 percent at the height of the tech boom to between 35-36 percent. According to Chambers, this vindicated his decision to opt for the new management structure. The executives who had earlier jostled for resources and power were now working together with shared responsibility......

Some industry observers and analysts felt that Cisco's management structure and its collaborative approach to decision making were effective - potentially the organization of the future. With around 67,000 employees, decentralizing authority and improving communication had become a necessity as it was practically impossible for the CEO to oversee every decision of the company. Having a structure such as this helped Cisco to be flexible and put the best employee available on a given project, they said. Since the teams were cross-functional in nature, these employees collaborated without being bound to their department. Some felt that this could also strengthen employee engagement as the employees were constantly challenged by their work.......

Chambers argued that the company had arrived at its management structure after giving a lot of thought to it, continuously refining it since it was introduced in 2001. For instance, in May 2009, he told executives that he did not want them to work on more than four or five committees after some executives complained that they were overstretched...

By early 2011, criticism of Cisco's strategy and its operating governance structure had reached a crescendo. Some critics contended that Cisco had overstretched itself through its long history of acquisitions, transferring Cisco cash to other firms' shareholders, hurting Cisco's valuation, and leaving the company struggling. According to Thomson Reuters data, between 2000 and early 2011, the company had invested US$34 billion into acquisitions....

By early 2011, criticism of Cisco's strategy and its operating governance structure had reached a crescendo. Some critics contended that Cisco had overstretched itself through its long history of acquisitions, transferring Cisco cash to other firms' shareholders, hurting Cisco's valuation, and leaving the company struggling. According to Thomson Reuters data, between 2000 and early 2011, the company had invested US$34 billion into acquisitions....

Chambers was credited with championing much of Cisco's rapid growth in the 1990s. Some analysts felt that he had been great at operating Cisco as long as he had been in a growth market, but had failed as customers turned to cloud computing and greater use of mobile telephony networks. His reorganizing efforts in 2001 and 2005 had also been of little benefit. They contended that "if ever there was a need for replacing a stayed-in-the-job too long CEO it would be Cisco"...

Exhibit I: Cisco's Revenue and Profits: 1995-2010
Exhibit II: Cisco's Selected Financial Data*
Exhibit III: Break-up of Cisco's Net Sales*
Exhibit IV: Cisco's Board of Directors
Exhibit V: A Summary of Cisco's Committee Structure and Membership Information
Exhibit VI: Management Structure at Cisco
Exhibit VII:Cisco's Acquisitions (2000-2011*)
Exhibit VIII: Cisco's Stock Movement under Chambers
Exhibit IX: Cisco's Stock Movement Compared to Some of its Competitors