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November 17, 2009

Shareowner Activists Continue to Press Cisco on Human Rights
    by Robert Kropp

An investor coalition led by Boston Common Asset Management has sought for years to engage the company on the issue of freedom of expression on the Internet, but without meaningful response has had to re-introduce shareowner proposals. -- Years before 2005, when human rights advocates found that Microsoft, Google, and Yahoo had colluded with the Chinese government in suppressing freedom of expression on the Internet, an engineer employed by Cisco Systems prepared a confidential PowerPoint presentation for Chinese security officials that highlighted ways in which its products could be used to enhance China's "Golden Shield" project.

The presentation, made in 2002, included quotes from Runsen Li, a Chinese government official, that made reference to such goals of China's information technology upgrade as ensuring the security of public Internet services and combating the Falun Gong cult and other hostiles.

In response to criticism of their collusion with China in the suppression of free expression on the Internet, Microsoft, Google, and Yahoo became participants in the Global Network Initiative (GNI), launched in 2008. The GNI lists freedom of expression and the right to privacy among its Principles, and calls for responsible corporate decision-making through governance structures that mandate accountability and transparency.

The GNI further states that "the development of collaborative strategies involving business, industry associations, civil society organizations, investors and academics will be critical to the achievement of these Principles." Cisco has thus far declined to become involved with the GNI.

The response to Cisco's involvement with Chinese security officials led to testimony before the US Senate Judiciary Human Rights Subcommittee by Mark Chandler, a Cisco Senior Vice President, in 2008.

In his testimony, Chandler said, "Cisco does not customize, or develop specialized or unique filtering capabilities, in order to enable different regimes to bock access to information."

Notwithstanding Chandler's testimony, many shareowners perceived Cisco's involvement in China's Golden Shield project, as well as its total investment of over $16 billion in China, to constitute significant human rights risks to its operations. In an effort to protect their ownership stake in the company, 17 investors representing over 24 million shares of Cisco stock, with a value of over $580 million, introduced a shareowner proposal "urging the company to adequately manage human rights related risks in its global operations," according to a press release from Boston Common Asset Management, the leader of the proposal.

The proposal won 33% of the shareowner vote at the company's annual meeting, which was held on November 12. It was the fifth year in which the proposal was introduced. spoke with Dawn Wolfe, Associate Director of ESG Research at Boston Common Asset Management, about the proposal and the history of the involvement of shareowners with Cisco on the issue of human rights.

"After five years of filing during which we're gotten very significant votes concerning transparency on human rights issues, the dialogue with Cisco has trailed off in terms on how productive it could be," Wolfe said. "Cisco contends that it comes to the issue from the hardware side, and refuses to acknowledge an exposure to these risks. We are saying that while Cisco's risks are different, it is not immune."

Wolfe continued, "We see this is a volatile issue. When Cisco says it does not customize its products to help governments perform surveillance, we don't see that it has an effective policy to combat regulatory risk. It's important that companies Cisco put some forethought into these issues. Cisco says it will work to combat privacy risks, but how is it going to do this?"

Following a similarly successful shareowner vote on the issue in 2008, John Chambers, the Chairman and Chief Executive Officer of Cisco, "indicated an interest in dialogue, and we reached out afterward," Wolfe said.

The investor coalition prepared a review of Cisco's Corporate Social Responsibility (CSR) report, and provided a number of suggestions for improving the company's human rights reporting. The review found that while the report made reference to Global Reporting Initiative (GRI) indicators for human rights reporting, meaningful discussion of the issues in the company's report was lacking.

"Cisco references human rights in telecommunications in its description of the CSR report, but there was nothing of substance there," Wolfe said. "Even though Cisco followed the GRI index in their report, but the GRI didn't even credential their report."

The investor coalition concluded its review of Cisco's CSR report with the observation that "while Cisco goes into great detail about the many potential positive impacts the company may have on human rights, the company does not acknowledge how its products and services may serve to stifle human rights in various regions where it operates."

Despite an understanding that a meeting would be held to discuss a broad range of human rights issues following the review of Cisco's CSR report, the investor coalition heard nothing from the company for months. Neither did the company adhere to an agreement that it would respond in writing to questions from the coalition by April 30, 2009.

Because of Cisco's inaction in response to the coalition's initiative, the shareowners introduced its resolution yet again, for the 2009 proxy season.

"We've restrained ourselves from saying too much publicly about Cisco, but sought dialogue instead," Wolfe said. "When we heard nothing back from the company following our CSR report review, we decided we had to go ahead with the press release in advance of this year's proxy vote. We heard nothing back from Cisco on that, either. It seems an example of poor corporate governance, that we get no response after a 33% vote in favor of our resolution."

Asked by about plans for engagement with Cisco in the future, Wolfe made reference to a shareowner proposal on executive compensation led by Christian Brothers Investment Services. "The say on pay resolution at Cisco won with 51% of the vote, although it was announced at the meeting as too close to call. The next day, it turned out that the resolution had actually won."

Wolfe said, "Advocates have been working on say on pay for many years before their success. Many years of significant votes on our proposal have been met with silence from Cisco. It seems as if the company is hoping we go away, but we won't go away so easily."

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