Corporate Social Responsibility in High

Corporate Social Responsibility in High Technology Companies

Cisco Systems

Cisco Systems is the world leader in the development, design, manufacturing and selling of home, small business and enterprise networking, telecommunications and online security. The company's thousands of products are used for building networks that make the transmission of voice, data and video across offices, campuses, cities and continents possible. Founded in 1984 by a group of computer scientists who worked on the fundamentals of router technologies at Stanford, Cisco grew exponentially during the networking and Internet growth periods of the late 1980s and 1990s. During the 1990s specifically Cisco's Mergers and Acquisitions (M&A) Department was responsible for between 40 and 50 acquisitions per year, with only a fraction of them being publicly announced. The company's M&A activities were at one time so active that the Vice President of Business Development, who runs the M&A activity for the company is written about often in blogs and mainstream media including the article, Cisco's Connections (2006) a profile of the M&A activity and the growth-by acquisition strategy the company has had throughout the 90s. As the M&A strategies of the company has been mainly responsible for its growth, several other key announcements also led to the growth of Cisco. These include the strategic acquisitions of Grand Junction Networks and Stratacom in 1996, which gave Cisco Ethernet products that, would become the basis of interlinking companies to the Internet. The acquisition spree continued into 2001 and 2003 where Cisco began purchasing companies to p[penetrate the wireless and home networking markets, the most notable acquisition being Linksys Technologies, a wireless home networking provider. In 2005 Cisco and EMC announced plans to create enterprise storage systems that could span multiple locations globally, a technological achievement no other company has matched. Also in 2005 MCI and Cisco worked together on a series of joint marketing and development activities globally to increase bandwidth speeds for emerging markets including China.

Cisco today has grown to employ over 39,000 professionals including 6,800 in manufacturing and service, 13,900 in engineering, 14,200 in Sales and Marketing, and 4,100 in Finance and Administration. The company is organized in five business segments that are categorized by product class. These include switches, routers, advanced technologies, services and other products. Switches are the majority of revenue at 40.7%, with routers contributing 22.2% followed by Advanced Technologies at 17.8% and other products and services contributing the remaining 3.4% and 15.9%. Cisco also has organized its sales operations into the Americas Region, Europe, Middle East and Africa (EMEA), and Asia-Pacific and Japan. The company further defines its four main categories of customers as large enterprise businesses, service providers, commercial customers, and consumers.

Financial Reports and Analysis

Throughout the last five years of Cisco's financial performance, the company has gotten the reputation of looking to continue its impressive growth rates through major acquisitions. The many smaller acquisitions that fueled their leadership position in the home and enterprise wireless markets did inflate revenues, yet John Chambers, CEO of Cisco, advises that the company does not necessarily need large acquisitions to continue its growth pace. Chambers contends that the Emerging Market sector will deliver significant growth over the long-term. The latest financial results reported by Cisco show this to be the case. Figure 1, Revenue and Gross Margin Breakdown by Major Geography, shows the strength of Emerging Markets in the latest financial quarter ended September 30, 2006. For purposes of this analysis Emerging Markets is defined by Cisco as Middle Eastern and Eurasian nations.

Figure 1, Revenue and Gross Margin Breakdown by Major Geography

Cisco is finding success in emerging global markets mainly as a result of its strong distribution channels and excellent partnerships in these areas of the world. Overall performance and year over year growth is strong globally with the exception of Japan.

In evaluating their overall financial performance, Figure 2, Financial Ratio Analysis of Cisco Systems, shows why this is considered one of the best-run companies in the tech sector of the U.S. economy today. While gross margins are typically very thin in networking products in general and more specifically in the wireless markets where pricing competition is fierce, Cisco has been able to deliver a 120% Return on Investment and a consistently stable level of Return on Equity and Gross Margin. For an Income Statement Analysis of Cisco Systems please see the Appendix.

Figure 2: Financial Ratio Analysis of Cisco Systems

7/29/2006

7/30/2005

7/31/2004

7/26/2003

7/27/2002

Profitability Ratios

Return on Equity (%)

23.34

24.77

19.24

12.77

6.61

Return on Assets (%)

12.88

16.94

13.96

9.64

5.01

Return on Investment

28.62

23.74

12.94

Gross Margin

0.066

0.067

0.069

0.07

0.064

EBITDA of Revenue (%)

29.1

33.97

35.09

34.29

25.78

Operating Margin (%)

24.56

29.9

28.54

25.86

15.43

Pre-Tax Margin

26.8

32.4

31.72

26.55

14.33

Net Profit Margin (%)

19.59

23.15

19.96

18.95

10.01

Effective Tax Rate (%)

26.9

28.56

28.95

28.63

30.15

Liquidity Indicators

Quick Ratio

1.87

0.97

1.21

1.21

1.67

Current Ratio

2.27

1.37

1.65

1.62

2.08

Working Capital/Total Assets

0.33

0.1

0.16

0.14

0.24

Debt Management

Current Liabilities/Equity

0.47

0.41

0.34

0.3

0.29

Total Debt to Equity

0.26

Long-Term Debt to Assets

0.15

Asset Management

Revenues/Total Assets

0.66

0.73

0.62

0.51

0.5

Revenues/Working Capital

1.98

7.05

3.91

3.69

2.09

Internship Opportunities

In terms of hiring interns from local colleges and universities, Cisco is one of the few companies to actually post open positions in their open jobs database accessible by anyone on the Internet. Cisco Internship Positions (2006) shows twenty six positions open today, all of them paying jobs, where the interns receive a stipend, and if their performance on the job is strong enough, the chance to come back after they finish their degrees and work for Cisco full-time. Numerous senior managers and directors in the company have completed their internships and come back to work for years at Cisco, progressing through the ranks of the company. It is commonplace to find at least two or three Vice Presidents at Cisco who have had this career progression as well. The company seeks interns in San Jose, California, the Research Triangle area of North Carolina, and at smaller engineering locations throughout the world.

Social Responsibility and Corporate Citizenship

Cisco is considered to be one of the most ethically astute and well-run companies in the United States today, receiving many awards for their work on Social Responsibility Initiatives and Corporate Citizenship. The company employees well over 30 people to just manage their Corporate Citizenship Programs, which have won awards from all major cities in the Bay Area, including the economically disadvantaged areas of Oakland. Cisco Corporate Citizenship (2006) also has a report equal and scope and size as the entire corporations' annual report and details the company's major initiatives to the a world leader in the best practices of citizenship as a corporation globally. The company's code of conduct is 16 pages long and has grown as a result of the company's many mergers, acquisitions and moves into emerging markets, which are very successful according to the analysis completed earlier in this report. The Cisco Code of Business Conduct (2006) is designed to minimize the interruption and disruption Cisco would potentially make when entering a new market in an unfamiliar culture, and also strives for the highest levels of transparency and ethics possible. The fact that the ethics creed is on every employee badge at Cisco is a testament of how deeply John Chambers believes in this strategy of continually reinforcing ethical behavior. Not a single executive at Cisco has been indicted on insider trading or any other ethical lapses -- a rare feat given the rampant behavior of Enron and others in the late 90s and throughout the early 21st century

Cisco Charitable Giving Programs

Cisco leads all bay Area companies with charitable contribution programs, including a global initiative to take the lessons learned in the Bay Area and propagates them throughout the major geographies the company competes in. Cisco Community and Philanthropy (2006) shows the extent of the commitment at Cisco to these programs, as does the Cisco Grants and Donations Guidelines (2006) that also highlight how flexible it is for any nonprofit charity to gain valuable funding and support from Cisco. Cisco is considered a leader in this area and works to bring the role of charitable giving and volunteerism into their corporate governance strategies and global corporate citizenship. The overall effect of these strategies is enhance the company's reputation while serving others in the community who need support and funding to help those disadvantaged and needing assistance.

Corporate Social Responsibility at Blizzard

Executive Summary

Blizzard Entertainment is the world leader in the development, design, and selling of animated computer games, and is considered a leader in the development of new animation techniques. World of Warcraft (WoW) is one of the best-selling games of all time and has contributed to the company's growth from one of the many game developers to being the leader of the online games industry. As a result of this leadership and extremely high level of customer loyalty to WoW globally, the company has a continual need for new programming talent. There is nearly a constant influx of new technological developments in this industry as well, which only makes the task of staying current with them all the more challenging. The intent of this paper is to describe how Blizzard would be able to structure a Corporate Social Responsibility (CSR) program that would financially support programming courses for lower income children throughout inner cities and rural areas. The essence of a strong CSR program is that it enriches and provides a higher level of value and improves the quality of a person's life for the long-term. Those sponsoring CSR programs have also found reciprocal benefits from staying focused on their core strengths and working to translate associated skills into long-term value for those they seek to build up (Berens, van Riel, van Rekom, et.al.). The challenge then for creating any CSR program is to concentrate first on the skill sets to be provided, followed by defining from a logistics standpoint how they will be accomplished. The creating of value from any CSR program concentrates on measuring and evaluating the long-tern value gained by those the program is meant to serve (Berens, van Riel, van Rekom, 234-236).

Corporate Social Responsibility and Ethics

The reliance on governed compliance in the form of Sarbanes-Oxley and other forms of government-mandated ethics are a cost drain on any organization. CSR

Programs on the other hand significantly change the level of ethical behavior in organizations by concentrating on providing value over time to those that cannot pay the company back, generating a higher level of altruism as a result (Cacioppe, Forster, Fox, 681, 683.) This has the accumulative effect of raising the entire level of ethical behavior and standards on an organization. Arguably the use of CSR programs to bring a higher level of ethical behavior and standards into a company has not been quantitatively measured or defined with a highly scientific Return on Investment (ROI) yet there are studies linking the ethical behavior of superiors to those of their subordinates, and the one critical factor in defining any person's level of ethics in an organization is the ethics of their superiors (McDonald, Pak, 1996).

CSR programs then are much more critical to any organization than simply generating good Public Relations or publicity; they are in fact one of the most critical aspects of a proactive approach to defining the ethical climate in an organization. The implications of strong CSR programs over time have direct ramifications on the ethics of an organization. One need only consider Cisco and their approach to CSR programs to see how effective they can be in not only setting the best possible tone for ethics yet also enriching the surrounding community as well. For Blizzard, the development of educational program to give inner city, suburban and rural children from low-income households the opportunity to learn programming skills must begin with a community-based focus first. Then from this community-based platform, the company can create learning programs and form a Blizzard University for these children and eventual college students to grow in programming skills and knowledge. As the fields of programming, specifically Web-based programming where standards for JAVA, AJAX, PERL, Python, the language Google is programmed in, are all changing rapidly, a technologically-based CSR program is in their self-interest as well. But even more fundamental than that, Blizzard can assist its managers and their subordinates to stay focused on ethics by stressing how important supporting a CSR program is. The research of McDonald, Pak (et.al.) show that to the extent a company has a series of initiatives that force managers and their subordinates to concentrate on ethical behavior, that the effect is cumulative and has a direct bearing on the ethical choices of subordinates. Besides helping to educate the next generation of programmers and potentially also benefiting from this investment, Blizzard is re-orienting their internal culture to be more focused on altruism and what can be done for others, and accumulatively this directly impacts the ability of managers to stay in compliance to ethical guidelines as well. CSRs are not only good for communities they are also great for keeping companies focused on the values of being ethical over time. One of the companies that Blizzard needs to model from their implementation of CSR programs is Cisco who has four strategic areas of CSR programs. They have their own Cisco University yet also fund programs in the San Francisco Bay area where they are located.

Modeling Cisco's CSR Programs and Initiatives

Cisco is considered to be one of the most ethically astute and well-run companies in the United States today, receiving many awards for their work on Social Responsibility Initiatives and Corporate Citizenship. Many academicians who study the link of corporate ethics and CSR programs point to the approach Cisco uses to manage its Corporate Citizenship as the overarching initiative to keep all CSR programs in synchronization with each other. For Blizzard, this is a pragmatic consideration; creating first a Corporate Citizenship strategy that includes support for the areas of educational outreach to low-income children, Blizzard University for high school and college-age students who want to also learn about game programming, and grants and subsidies for local nonprofit organizations who need their assistance. Taking this platform-based approach and modeling it after Cisco, Blizzard stands a very good change of sustaining its performance and results achieved on CSR initiatives for the long-term.

Cisco has a specific department just for its Corporate Citizenship Programs, which have won awards from all major cities in the Bay Area, including the economically disadvantaged areas of Oakland. Cisco Corporate Citizenship (2008) also has a report equal and scope and size as the entire corporations' annual report and details the company's major initiatives to the a world leader in the best practices of citizenship as a corporation globally. The company's code of conduct is 16 pages long and has grown as a result of the company's many mergers, acquisitions and moves into emerging markets, which are very successful according to the analysis completed earlier in this report. The fact that the ethics creed is on every employee badge at Cisco is a testament of how deeply CEO John Chambers believes in this strategy of continually reinforcing ethical behavior. Not a single executive at Cisco has been indicted on insider trading or any other ethical lapses -- a rare feat given the rampant behavior of Enron and others in the late 90s and throughout the early 21st century. Given the pervasive belief in doing well by doing good within the Cisco culture, Blizzard needs to work very hard to emulate these practices in defining their educational programs for low-income children and also for high school and college students.

Blizzard Needs To Supplant Education-Based CSR Programs