Abstract

Under John T Chambers’ 16-year tenure as CEO, Cisco grew from about US$1.2 billion to over US$40 billion in revenue, and from US$410,456 to US$7.8 billion in net income. Chambers was considered a celebrity CEO, one of the most revered executives in the history of the technology industry. Yet, in 2011, many shareholders of Cisco as well as a few industry observers demanded that Chambers, who was also the Chairman of the board of directors of Cisco since November 2006, be terminated from the company. These investors and Chambers’ detractors contended that for more than a decade Chambers had failed and that Cisco’s was a dead stock – languishing since the Dotcom bubble burst. In May 2011, Cisco’s stock price was around US$17, about where it was in December 2000. They claimed that Chambers strategy and governance structure that he had put in place confused employees, slowed down decision making, led to exodus of key executives, and resulted in Cisco losing market share in its core businesses. Some even said that its management structure, based on councils and boards, was aimed at consolidating the power at the top and delaying the emergence of a successor to Chambers. In the first half of 2011, Chambers admitted to some of the mistakes and introduced changes in the strategy and also pared down the controversial management structure. But many investors and analysts were not impressed as they got increasingly frustrated with what they called an inactive board and entrenched management. In the months leading up to Cisco System, Inc.’s Annual Meeting in September 2011, there was considerable speculation over whether this would be the last Annual Meeting for Chambers. Faced with impatient investors, the decision to the taken by the board was whether to persist with Chambers as CEO in the hope that he would orchestrate a quick turnaround, or ask Chambers to step down and announce a successor? Would it be a better idea to retain Chambers as the Chairman of the board and handover the CEO reins to someone else?

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the role of the board of directors and its relationship with the CEO
• Study the internal governance system of Cisco with special emphasis on the operating governance framework
• Discuss and debate the performance of John Chambers, his strategy and emphasis on management through committees
• Understand issues related to the board’s obligations and accountability to the shareholders
• Discuss and debate the decision that the board of directors at Cisco should take with regard to John Chambers’ future in the company.

Keywords

Corporate governance, Internal Governance Systems, operating governance framework, Simons's four levers of control to support strategy implementation, Governance tools, Role of the board of directors, Board's relationship with the CEO, CEO performance evaluation and termination, board's obligations and accountability to the shareholders, Agency theory, Entrenched management, Management structure, Organizational design, Formal and Informal organizations, Linking mechanisms