(The Daily Telegraph) – Cisco Systems, the Silicon Valley networking equipment giant, allows senior executives to invest at preferred rates in customers, suppliers and partners, it has emerged.
One Cisco executive made $200,000 in 10 months after investing in an internet start-up that was buying networking gear from her team. At least 13 Cisco executives hold stakes or options in companies that do business with Cisco.
In addition, the FBI is said to be investigating $5 million in improper commissions allegedly received by former Cisco salesmen Kevin Bennett and Vincent Rotondo. The two men, who face allegations filed in a civil lawsuit in San Jose and have now left Cisco, deny wrongdoing.
That case aside, Cisco says all the investments were proper because the executives disclosed them to Cisco and disqualified themselves from decisions involving the companies in which they invested. However, Charles Elson, director of corporate governance at the University of Delaware, told the Wall Street Journal: “Any time that someone is potentially on both sides of a transaction, it’s a problem.”
Cisco is one of the success stories of the last decade. Some 2,000 of its 21,000 employees are now millionaires and chief executive John Chambers recently admitted that any employee at the firm for four years is now financially independent.
The company, which has tightened its rules to require written permission from a vice-president for any employee investment in a customer, partner or supplier, says its policies have been approved by Stanford University ethics professor Joe Grundfest.
A Cisco spokesman said: “As long as they do not pose a conflict of interest, our employees have the right to make legal, ethical investments. Retention is not a factor in our policies. Our policies are there to protect our shareholders and our customers.”