COMMENT
What about acquisitions? I mean there's been a lot of talk about acquiring Nortel Networks or something big like that.
I don't know how to do large acquisitions – which is a very nice way of saying I haven't seen any that would be successful.
Our strategy is more to use acquisitions to enter new markets. Our ideal target is about 100 people, primarily in an engineering product area, with good engineers that are just about to bring, or have just brought, a new product out.
What about this chatter about Nortel?
Nortel is a very good company... I've been wanting to partner with Nortel for five to six years. I still believe that – much like we did with IBM and with Ericsson – strategic partnership is the right way to go. Acquisitions have a much higher risk. I would argue in the industry, the hit rate on acquisitions is probably 10 per cent... To do large ones across geographies, across cultures – we don't think they have a very high probability of being successful.
Speaking of consolidation, the telecom market has been fragmented, but in the last several months there's been this move toward consolidation. There are fewer standards and architectures as a result. What do you think the impact on equipment makers might be in the US?
In the macro sense, too much competition is just as bad as too little. I think the consolidation is absolutely healthy for the US. I think the people who are more exposed are those that have a substantial amount of their IT spend coming from those companies mentioned. We have a small percentage of our IT spend coming from those companies.
Moving on to a different topic, you've been CEO for quite a while. It seems like it's becoming harder and harder today to be a chief executive. Boards are much more stringent, and then you've got Sarbanes-Oxley. What are your plans?
Well, I committed to my board within the last year that I'd be here – assuming they want me – for another three to five years. I serve at the board's pleasure, my shareholders, employees and customers. My view is that having the support of all of them is very, very key. And I think you've got to be fair with your board, if you have an intention of leaving in the next year. So, unless you are telling me something in terms that I should be thinking about succession planning, I intend to be here at Cisco.
Is there a succession plan?
Oh, there always is.
I mean, what happens after you?
You always want to make sure there's a smooth transition. People tend to think of that as individuals, I tend to think of it as an organisation evolution. Most companies do not do well after their core group of management rolls over. We are on our fourth CFO, our fifth head of engineering, our fifth head of sales... We've been able to make management transitions very smoothly in ways that other companies have not. I expect us to do the same thing for the CEO ranks. We have a very deep and very wide leadership team.
Was there any pressure for you to move on?
I've had no pressure. You've got to understand one thing about Cisco: We're trying to build a company that's not only built to last, but built to lead. Almost no one's done that consistently in IP... Most of the predictions we've made have come true in the industry. So, I'm having a good time. I think my age is about average for a CEO at a large company. I make decisions three to five years at a time.
What do you see in that three- to five-year period? Assuming you didn't throw that number out just randomly.
I've always had three- to five-year [outlooks] since I became CEO. It's kind of the working arrangement I have with the board and with my own team.
Why do you think there was so much corruption in the telecom industry? You were selling to some of these folks. Was it a surprise? Is this an issue that's getting worse?
Clearly, it was a surprise to all of us that people would do this… For those people that truly, knowingly, deliberately did things that were very, very inappropriate, I think they'll be held accountable – and firmly held accountable. What surprised me was how deep this went.
At Cisco, there's a culture of integrity. It doesn't mean we won't make mistakes. We sure as heck will, but we have a culture where people are very open. It's knowing that we expect them to do the right thing ethically and that if they see an issue, that they escalate it.
Do you think it's getting worse now, or do you think that there's more scrutiny, so people are kind of watching their backs?
Well, I think more important than that issue is that people have realized that this is wrong – not just at the top, but throughout the organisations – and needs to be held unacceptable. I think it's having a culture that just views this as unacceptable.
What non-tech CEO do you most admire?
I admire Jack Welch. It doesn't mean he was perfect, but he did an amazing job [at General Electric], and many of the things that we implement at Cisco we probably learned more from GE than others.
I admire very much statesmen like [former US Secretary of State] Colin Powell and King Abdullah of Jordan. I admire my dad. He was a stabilizing influence throughout my life. He had an ability to look out not one to two years, but five, 10, 15, 20 years, and had the courage to stay with his convictions.
