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Cisco Faces Down Questions on China Record

At Cisco's 2008 Annual General Meeting, two items were front and center: the company's ability to do business in a down economy and its human rights record in China.

As it turns out, the two issues are very much related.

Shareholders at the meeting brought forward two separate proposals on initiatives to improve Cisco's (NASDAQ: CSCO) human rights efforts, specifically in China, where the company does billions of dollars of business. And with much of the global the economy in a tailspin, sales in emerging markets like China are increasingly critical to the ability of many large U.S. companies to weather the downturn.

But along with other tech giants like Google, Yahoo and Microsoft, Cisco has come under fire from U.S. lawmakers and others for not taking a stronger stance against Internet censorship and human rights abuses in other countries.

Cisco, in particular, has taken heat for sales of its routers in China, which critics allege helps the Chinese government to censor Internet activity. The company has regularly maintained that it does not provide customize filtering technology to help the Chinese government lock down the country's network, and often points to its policies, codes and initiatives designed to safeguard and promote human rights.

But several shareholders pushed for more definitive signs of Cisco's dedication to the issue.

"We believe that Cisco has the potential to change the world for the better," Jack Ucciferri, of Cisco shareholder Harrington Investments, said during today's meeting. "However, we have not been living up to this promise as shareholders and as a company. While this is often perceived as a social issue, we really think it's a corporate responsibility issue."

Harrington Investments proposed that Cisco create a board committee on human rights. A second proposal from another shareholder, Boston Common Asset Management, asked that Cisco produce a clear and transparent report that identifies the efforts that the company is undertaking to ensure that its technology isn't used to stifle human rights.

In response, Cisco's management recommended that shareholders vote against both proposals, describing them as largely duplicative of existing efforts. Shareholders ultimately followed management's lead, voting 92 percent of shares against the Harrington proposal, and 68 percent against the proposal brought forth by Boston Common.

Routers for democracy?

Yet even with the failure of both proposals, Cisco said it has given plenty of signs that it has human rights on its mind.

Cisco's proxy statement (PDF format) argues that the company already invests significant time and effort ensuring that its "activities and policies promote, and are consistent with, our goals and initiatives regarding the improvement of human rights around the world."

CEO John Chambers strongly echoed that statement during today's meeting, arguing that Cisco can, in fact, change the world for the better.

[cob:Pull_Quote]"When you have more than 3 billion people in the world making less than $10 day, that should be an embarrassment to each one of us because we can change this," Chambers said. "Perhaps Cisco can change this in a way that others cannot."

Chambers noted that Cisco has made a $16 billion investment in China, which he argued is a good thing for the country's people. In his view, the ability to build trusting relationships with its citizens marks it as a step toward helping them change their lives.

"We're in central China and western China changing education, encouraging job creation, and we're putting $45 million of our own money into corporate social responsibility because we can make a difference to the people there in a way that no one else can," Chambers said.

Rather than telling the Chinese what to do, Chambers argued that the right approach is to lead by example. As a case in point, Chambers noted how the company put resources to work in helping recovery efforts in the aftermath of the recent earthquake.

"Is there anyone in this room that doesn't want us to help people in China, and to do it in a way that will also instill the loyalty of individuals in that country?" Chambers asked the audience. "This is how you change things."

Chambers argued that by investing in China, it's helping to create a middle class -- and helping to drive democracy.

Of course, Cisco's primary focus is contending with the economic slowdown. The company has described a thorough gameplan for dealing with current business conditions that Chambers discussed on Cisco's first-quarter 2009 earnings call and reiterated during today's meeting.

But Chambers also said that social responsibility can be a core part of Cisco's corporate efforts as it moves forward.

"We know it's an aspirational goal that most people would think is impossible to achieve: to be the best company in the world and the best company for the world," Chambers said. "But that's what our dream and vision are about."