Cisco's Annual Shareholder Meeting (2008)

Cisco's (CSCO) annual shareholder meeting was held on November 13, 2008 at the Santa Clara Convention Center. The meeting was open to all--Cisco did not check to see if anyone was actually a shareholder. The food spread was above average--OJ, cranberry juice, bagels, fruit, and Starbucks coffee (what I call "the Convention Center special").

Cisco ran its meeting professionally, almost too much so--at times, the meeting felt like a stiff, over-starched white-collared shirt. No one was allowed to ask spontaneous questions, because all questions had to be written down and submitted to employees, who would pick and choose which ones they wanted to display to the CEO. The meeting was designed to run smoothly, and with no unexpected problems or risks. Well, you know what they say--"Man plans, God laughs."

During one of the shareholder proposals relating to China, an older Chinese shareholder stood up and demanded to be heard. He held his hand in the air continuously and would not sit down, even after a Cisco employee came up to him. He had an issue with shareholder proposals being voted on without soliciting public comments. He had a point, but his heavily-accented English made him hard to understand. To his credit, CEO John Chambers later addressed the gentleman's concerns. Mr. Chambers said, towards the end of the informal presentation, that Cisco did not modify its equipment for any customer--the equipment is the same, i.e. "no unique capabilities [are given] to any government in the world." He also made a point of walking towards the gentleman to garner his support. I've never seen a CEO make an effort to approach an audience member who appeared somewhat aggressive, and Mr. Chamber's pro-active behavior made him instantly likable. After the meeting, I saw someone from Cisco talking politely with the gentleman, who appeared to be hawking his book. This high level of corporate professionalism is much talked about, but rarely practiced.

The formal part of the meeting had two presentations, one by Harrington Investments, and another by Boston Common Asset Management. Both focused on human rights issues and transparency. Ms. Carol Malnick (of Boston Common) made very interesting points. She said that censorship would decrease Internet traffic in the long run by discouraging new Internet users and limiting the use of existing users. Cisco's growth, of course, depends on more Internet users. It basically sells products that gets computers to talk to each other over the Internet, and the more computers sold with Internet capability, the more Cisco grows. She asked Cisco not to exit certain international markets, but to be transparent. She listed several countries she felt were Internet censors, including Saudi Arabia, China, Algeria, and Syria. I thought Carol Malnick's presentation was much more effective and polished. Others agreed--only 68% voted against her proposal, while 98% voted against the Harrington proposal. After her presentation, CEO Chambers made a point to use the word, "transparent" several times while looking directly at Ms. Malnick, as if to say, "We hear you, and even though we defeated your proposal, we are working on it." This was a very gracious and conscious move by Mr. Chambers.

CEO Chambers had a video and spoken presentation. The opening slide spelled "Globalization" as "Globalisation," with an "s," indicating that a British employee had worked extensively on the presentation. Mr. Chambers talked about a "six point gameplan," which focused on general ideas, like investing in emerging markets (note: I am sick of hearing about "emerging markets" at shareholder meetings--of course companies must invest in other countries) and Web 2.0. He said that Cisco had "3,000 telepresences a week," which meant that Cisco's sales force was connecting to thousands of potential buyers domestically and worldwide, without the need for any travel. If the telepresences, like the ones you see on Star Trek, become commonly used, it will be Cisco that takes us there. Mr. Chambers acknowledged that some companies wouldn't feel the need to upgrade their technology, which would limit the roll out of newer internet products; however, he was also hopeful, saying that the "next wave of productivity" would happen, and Cisco would be at its forefront. After some more generalities of "vision, strategy, and execution," Mr. Chambers showed a moving video presentation.

This video presentation showed the effects of the devastating 2008 earthquake in the Sichuan Province of China. In a brilliant move, John Chambers traveled there immediately after the earthquake and worked with the cities to rebuild their infrastructure. Cisco donated 45 million dollars to rebuilding efforts (See News Report). The cynic in me says that Mr. Chambers is a PR genius. He knows China represents his company's best chance for growth with its 1.2 billion people. By going to China and lending a hand and funds, he hopes Cisco will be remembered down the line by the Chinese government. But Mr. Chambers has a way of winning people over. He appeared completely sincere when he spoke about his experience in China. In fact, I almost teared up after watching the video. Various pictures were shown of Mr. Chambers interacting with earthquake survivors amidst the rubble, and he joked that a young Chinese boy who was bold enough to approach him would grow up to be a Cisco salesman. Mr. Chambers also mentioned a little girl who hadn't spoken since the earthquake but who spoke again after seeing new faces arrive. The girl, of course, represented the power of the human spirit, something we all implicitly understood. At this moment in the presentation, you could have heard a pin drop. It was hard not to be emotionally affected after seeing the pictures of the two children.

Most important, Mr. Chambers called upon us to act, saying that it was an "embarrassment to us" that 3 billion people in the world live on less than three dollars a day, because we had the power to change this situation. He said that Cisco's worldwide expansion would help "700 million people in China" because Cisco brought high paying jobs and the increased likelihood of a middle class, not only in China, but all over the Middle East. His implication was clear--Cisco would help usher in a new era of worldwide progress.

The Q&A session began, with questions presented to Cisco employees on index cards, which were then typed on a large screen behind Mr. Chambers. One question asked about Cisco's 27 billion dollars in cash. This elicited a funny remark from Mr. Chambers, who said that in the current unstable market environment, "cash is king, queen and the entire royal family." He also said that before he left the company, Cisco would pay a dividend to shareholders. Paying a dividend would help stabilize Cisco's stock price, because the dividend would attract long-term investors and would prevent Cisco from using their cash in unproductive ways. (Also, paying a dividend might allow more mutual funds to buy Cisco stock.) The best question was tongue-in-cheek: "In the spirit of GM, what could make GM obsolete?" Mr. Chambers sat down to show the audience he took this question seriously and said that Cisco hadn't lost its sense of urgency. He mentioned Lucent and other companies that used to be technology high fliers and talked about Cisco's growth and its desire to continue growing.

On their way out, shareholders were treated to a Cisco-branded luggage tag holder, an interesting choice, given that Cisco's technology will probably decrease business air travel.

Overall, Cisco's meeting was run very professionally. In the future, Cisco ought to allow live, spontaneous questions and comments prior to voting on shareholder proposals. Beyond that, Cisco looks like a company well-positioned to benefit from the worldwide expansion of Internet users.

Disclosure: as of November 19, 2008, I own 6100 shares of Cisco (CSCO). I will, however, reduce my positions before the end of the year if not sooner.