Cisco in Reverse

Man, I hate writing this story. An old friend of mine works at Cisco (Nasdaq: CSCO  ) , which stinks, because I'm about to stick it to the company. Oh well.

It's not as if Cisco doesn't have it coming. Yesterday, it announced that the board has named CEO John Chambers to replace John Morgridge as chairman, effective as of the company's annual shareholder meeting in November.

Here's what that means: Chambers is now, in effect, his own boss. He represents both management and shareholders. Checks and balances? What are those?

For its part, Cisco proclaims to have excellent governance. There's some truth to this. For example, its board includes nine independent directors, including Autodesk (Nasdaq: ADSK  ) executive chair Carol Bartz and Wells Fargo (NYSE: WFC  ) chairman and CEO Richard Kovacevich. Furthermore, Institutional Shareholder Services assigns Cisco a Corporate Governance Quotient better than 86.4% of the S&P 500's technology and hardware firms.

Still, management and the board should know better. Abuse of power occurs only when power is consolidated. And a bad system produces bad results as easily as a bad guy does. Fortunately, Chambers strikes me as a remarkably good guy. But that doesn't mitigate my uneasiness.

I'm most annoyed that there's no good reason for the change, other than expediency. Sure, it probably would have taken some time to find a qualified independent director. But new research says the wait may have been worth it. A study by consultant Booz Allen Hamilton shows that stocks of firms with an independent chairperson beat the market by an average of 7%. That's versus just 2% for peers that combine the CEO and chairperson role. (Booz Allen studied CEOs who left their posts in 2003, 2004, and 2005.)

There's a reason for this, Cisco. Investors -- especially those of the Foolish variety -- recognize that while good governance has a price, the cost pales next to the scars of scandal. Please listen to them before it's too late.

High tech. Biotech. Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all forMotley Fool Rule Breakers, and they've unearthed four multibagger picks as of this writing. Find out the names of these market-beaters by asking us for a 30-day all-access pass to Rule Breakers. It's free, which means all you have to lose is the prospect of richer returns.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 514068, ~/Articles/ArticleHandler.aspx, 10/24/2016 1:09:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
ADSK $71.18 Up +0.05 +0.07%
Autodesk CAPS Rating: ***
CSCO $30.15 Down -0.01 -0.03%
Cisco Systems CAPS Rating: ****
WFC $45.09 Up +0.16 +0.36%
Wells Fargo CAPS Rating: ****