Cisco Systems 2018

Cisco Systems 2018: Proxy Voting Recommendation

The Cisco Systems 2018 annual meeting is December 12th. To enhance long-term shareholder value, vote AGAINST directors Arway, Desroches, Grauer and Thiry, as well as pay and the auditor. Vote FOR shareholder proposals to split chair and CEO and to Deduct Impact of Stock Buybacks from Executive Pay. is an independent source for information about shareholder rights by real Main Street Investors, not sock puppets

Cisco Systems, Inc. (CSCO) designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. Most shareholders do not vote.  Reading through 80+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 22 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 50% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

Cisco Systems 2018: ISS Rating

From the Yahoo Finance profile: Cisco Systems, Inc.’s ISS Governance QualityScore as of November 1, 2018 is 1. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 1; Compensation: 1.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to the Board.

Cisco Systems 2018 Proxy Voting Guide: Board Proposals

1. Cisco Systems 2018: Directors

Egan-Jones Proxy Services recommends FOR, WITH EXCEPTION OF (1E) Roderick C. McGeary, (1F) Charles H. Robbins and (1I) Steven M. West. Re McGeary and Robbins: “According to Egan-Jones’ Proxy Guidelines a director whose tenure on the Board is 10 years or more is considered affiliated, with the exception of diverse nominees. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.”

Re West: “Egan-Jones’ Proxy Guidelines state that the Chairman of the Board should be held accountable in cases when the Company obtains the score of Needs Attention on the Cyber Security Risk Rating. We believe that cyber security should be critical for all organizations given the rise of the cyber threats and data breaches in the corporate scene, which could affect any organization’s reputation and lead to declined investor confidence. As such, Egan-Jones believes that in order to avoid risks of data breaches any cybersecurity weaknesses should be addressed aggressively in the board room, combined with the proper approach to cyber risk management, implementation of systems and controls against cybersecurity incidents and the leadership of the Chairman of the Board

Vote AGAINST McGeary, Robbins and West.

2. Cisco Systems 2018: Approval of Amendment and Restatement of the Employee Stock Purchase Plan

According to Egan-Jones: An Employee Stock Purchase Plan or (ESPP) can be an important tool increasing ownership among company employees. In the US the tax advantages of a qualified plan are compelling. Qualifying for these tax benefits requires shareholder approval of the plan as well as several other structural elements, such as a minimum of 85% of fair market value as a minimum stock price and holding of the stock for a defined period of time. Egan-Jones supports the establishment of such qualified ESPPs unless there is a compelling example of prior abuse or significant reason to expect such abuse in the future.

For me, it is not primarily the tax benefits but employee motivation. The research is compelling that employees who have a stake in their company and have open channels of participation are more motivated.

Vote FOR.

3. Cisco Systems 2018: Executive Compensation

Cisco Systems’ Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Charles H. Robbins at $21.3M. I’m using Yahoo! Finance to determine market cap ($203.6B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Cisco Systems is a large-cap company.

According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was well over that amount. Cisco Systems shares outperformed the NASDAQ over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 160 to 1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “Good” is their compensation rating for Cisco Systems. They recommend a vote of FOR for the say-on-pay item.Egan-Jones

Given above median pay and my concern for growing wealth inequality:


4. Cisco Systems 2018: Ratify Auditors

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. The Cisco Systems auditor served more than seven years. No other issues appear significant.


Cisco Systems 2018: Shareholder Proposals

5. Shareholder Proposal: Designate an Independent Chairman

This good governance proposal comes from Kenneth Steiner. We agree with Egan-Jones. There is an “inherent potential conflict, in having an Inside director serve as the Chairman of the board.”

Vote: FOR

6. Shareholder Proposal: Deduct Impact of Stock Buybacks from Executive Pay

This proposal from me (James McRitchie) is new, so most proxy advisors and have not incorporated recommendations into their formal proxy voting policies. The proposal addresses the fact that utilizing “earnings per share” (“EPS”) as a factor in determining senior executive pay provides management with an incentive to push for stock buybacks based on their own pay, instead of base on what is good for the company. This proposal seeks to deduct that potential impact from consideration.

Vote FOR.

Cisco Systems 2018 CorpGov RecommendationsProxy Insight

Proxy Democracy is still down. I seek contributions to bring it back to life. Proxy Democracy provided information on votes cast in advance of annual meetings by institutional investors at thousands of companies. If you think that is worthy of financial support, please contact me.

Proxy Insight reported on Australia’s Local Government Superannuation Scheme. Teachers voted FOR all items, including my shareholder proposal. They voted against pay, auditor an my proposal. In looking up funds on our Shareowner Action Handbook, Domini voted AGAINST directors Robbins and Sanders, as well as pay; FOR all other items, including my innovative proposal on share buybacks.

CorpGov Votes:

  1. Directors: AGAINST (1E) Roderick C. McGeary, (1F) Charles H. Robbins and (1I) Steven M. West.
  2. ESPP: FOR
  3. Executive Pay: AGAINST
  4. Auditor: AGAINST
  5. Independent Chair: FOR
  6. Deduct Impact of Stock Buybacks from Executive Pay: FOR

Cisco Systems 2018: Issues for Future Proposals

SharkRepellentLooking at for anti-shareholder provisions:  No major concerns.

Cisco Systems 2018: Mark Your Calendar

Shareholders of Cisco may submit proposals on matters appropriate for shareholder action at meetings of Cisco’s shareholders in accordance with Rule 14a-8 promulgated under the Exchange Act. For such proposals to be included in Cisco’s proxy materials relating to its 2019 Annual Meeting of Shareholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by Cisco no later than June 26, 2019. Such proposals should be delivered to Cisco Systems, Inc., Attn: Secretary, 170 West Tasman Drive, San Jose, California 95134-1706 (and we encourage you to send a copy via email to, with a copy to Cisco Systems, Inc., Attn: General Counsel at the same address.


Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” chosen by aspiration. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.


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