Cisco Faces Human Rights Questions

Cisco Systems Inc. (Nasdaq: CSCO) is set to face some tricky questions about its activities in markets such as China and Saudi Arabia at its annual shareholders' meeting on November 15.

With criticism of Yahoo Inc. (Nasdaq: YHOO)'s behavior in China still fresh in the memory (see Moral 'Pygmies') the line-up at this Thursday's Cisco meeting includes two proposals asking the company to examine its business in repressive nations such as China and Saudi Arabia.

The topic is timely, given that Cisco just pledged more investment in China. (See Cisco Doubles Down on China.)

One proposal, from Boston Common Asset Management LLC , has been on Cisco's ballot before and attracted significant support at last year's meeting. Boston Common is asking Cisco for a report on how it could reduce the chances of its equipment being used to repress privacy or freedom of expression. "What kinds of questions are they asking when they go into these markets? Are they even asking these questions?" says Dawn Wolfe, a Boston Common social research analyst.

Boston Common's proposals attracted support from 19 percent of voters at last year's meeting. "That's a tremendous amount for a human rights proposal," Wolfe says.

Boston Common stresses that it's not looking to drive Cisco out of China, nor is it trying to set up a situation where Cisco can't do business there. "We're an investor in the company. We hold shares in the company for our clients because we feel it's going to have a strong return over time," Wolfe says.

She is hoping that the Yahoo case will have an impact. Yahoo's CEO Jerry Yang took a hammering from a Congressional committee last week over his company's part in the jailing of Chinese dissidents, and it just so happens that Yang is a director on Cisco's board.

"One thing I would do is bring a plea to Jerry Yang to have Cisco avoid the loss of stature that Yahoo is seeing right now," Wolfe says.

Not everyone thinks that Yang's experience in front of the committee will make any difference, though.

John C. Harrington, a principal at Harrington Investments Inc. , believes a Congressional dressing down isn't enough to make a difference. "I don't think it hurts [Yahoo] that much to be castigated by Congress. It's like water off a duck's back."

That's why his proposal to this week's shareholders' meeting -- one that he has also put to Yahoo and Oracle Corp. (Nasdaq: ORCL) -- calls for Cisco's board to create a Committee on Human Rights, monitoring the effects of Cisco's sales and policies worldwide.

"We're trying to elevate this discussion to the board, to the level of fiduciary duty," Harrington says.

That's not a proposal that's always met with a smile: Harrington says Oracle kicked his proposal off the proxy ballot last year.

Cisco points out that it can't control how its products are used and that it isn't tailoring routers to the particular needs of different governments. The company is recommending shareholders vote "No" on both proposals, saying Cisco's official policies are already designed to promote human rights.

Moreover, Cisco and other tech companies have argued that their efforts to spread Internet availability will, in the long run, only help the cause of freedom of expression. Harrington finds that argument "specious," though.

"This was the identical thinking -- not similar, identical -- that American corporations used in South Africa," Harrington says. "They said the best way to change Apartheid in South Africa was to modernize the economy and show them the way to democracy. Of course, just the opposite happened, because technology in South Africa strengthened the economy and strengthened the government."

Not everyone agrees on that analysis, though. The De Klerk Foundation, for instance, has pointed to general economic prosperity as one factor that helped bring Apartheid to an end.

With all the potential debate surrounding the issue, have the shareholders had much chance to talk with Cisco directly about the proposals? Boston Common has gotten Cisco's ear multiple times over the years, but rarely to the investor's satisfaction. "I think they look to portray us as a fringe issue that won't be material for the company," Wolfe says.

Harrington says Cisco did have a spokeswoman call him about his proposal, but beyond that, he hasn't discussed the issues with the company.

— Craig Matsumoto, West Coast Editor, Light Reading

Pete Baldwin 12/5/2012 | 2:58:52 PM
re: Cisco Faces Human Rights Questions I guess it comes back to the Smith & Wesson argument that Scott brought up in another thread. Does a company have an obligation to care how its products are being used?

I would like to think the answer is yes, but it's more cut-and-dry for, say, a cigarette manufacturer, where the products have one purpose with known effects. You can't say that all routers are bad or (despite what some believe) all DPI is evil.

Cisco knows full well what the potential uses of its technology are, though, and on the surface, the shareholder proposals just ask that the company acknowledge these things. In an age of carefully controlled PR, Cisco obviously doesn't want to do that.

Neither resolution is going to pass, and Cisco wouldn't have to do anything even if they did -- but I'll be curious to see how much of the vote they get this time.
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