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January 19, 2011
Boston Common Divests of Cisco Systems Over Human Rights Risks
    by Robert Kropp

After years of dialogue and shareowner resolutions, weak human rights risk management and poor shareowner dialogue lead to divestment.


Since 2005, a coalition of investors led by Boston Common Asset Management has asked Cisco Systems, the network hardware manufacturer, to improve its management of human rights risks, particularly in reference to its $16 billion investment in China. Shareowner resolutions submitted since then have regularly won 30% of shareowner votes.

Last week, Boston Common announced its decision to divest of its shares in Cisco Systems, citing the company's lack of response to requests for engagement.

"Boston Common's decision to divest comes after years of campaigning Cisco for greater transparency and accountability on key human rights and business development concerns," stated Dawn Wolfe, associate director of environmental, social, and governance (ESG) research at Boston Common.

In 2002, 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" domestic security project.

In response to criticism by human rights advocates of their collusion with China in the suppression of free expression on the Internet, Microsoft, Google, and Yahoo joined the
Global Network Initiative (GNI), launched in 2008, which lists freedom of expression and the right to privacy among its Principles. Cisco Systems has declined to participate in the initiative.

In a
press release, Boston Common also revealed that "Cisco used two different methods to calculate proxy results announced at the annual meeting—one for proposals put forward by its own management and a second for proposals sponsored by Cisco shareholders which served to dilute support."

When the standard Securities and Exchange Commission (SEC) method for tallying votes is applied to Boston Common's human rights proposal, it won 34% of shareowner votes at the company's 2010 annual general meeting.

According to James McRitchie of
CorpGov.net, Cisco "reported their own proposals as a simple ratio of those voting but included not only abstentions in the ratio for proposals put forward by shareowners, but all outstanding shares."

"The deception moved support for (the) Boston Common proposal down from 34% to 19%," McRitchie continued.

"If management is reporting votes one way for their own proposals and another way for shareowner sponsored proposals, that is deceptive," stated Glyn Holton, executive director of the
United States Proxy Exchange. "It speaks volumes about management's attitude towards their own shareowners — a flashing red light. Ignore it at your peril."

Wolfe of Boston Common added, "The investor coalition will march ahead, and perhaps one day Cisco will wake-up and realize how dedicated these shareholders are to the company's success."

 

 
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