During Ciscos early years, the company had not achieved the financial position necessary to allocate financial resources
Question:
During Cisco’s early years, the company had not achieved the financial position necessary to allocate financial resources to philanthropic activities. Morgridge instilled the value of frugality, which persisted throughout the company’s development. He emphasized the necessity of profit and cash flow, asserting that the company could only contribute meaningfully to the community if it attained financial success. However, from the beginning, Morgridge made sure that employees had opportunities to give their time and intellectual capital.
Located in Menlo Park, Cisco’s first facility sat across from Costano Elementary School. The school for low-income children became an early focus of Cisco’s community involvement. Employees regularly climbed the school fence to play basketball with the children and engaged in improvement projects such as painting school buildings. Over the years, Cisco employees mentored students, and the company eventually contributed equipment and money. As Cisco achieved greater profitability, the company began making gifts in response to specific requests from the community in a largely transactional program that lacked an overall strategy. A single person in the Human Resources department handled Cisco’s community relations.
In 1993, Cisco started supporting Second Harvest Food Bank, a national nonprofit that met a basic community need by providing food to low-income people. The organization represented an opportunity for broad impact as a single point of contact with a wide distribution network. Since Cisco understood the distribution business, the company could help to leverage Second Harvest’s activities while serving all communities in which Cisco had employees. Cisco supported Second Harvest through donations of money and food, and employees helped in Second Harvest’s food sorting process as part of their team-building activities. Morgridge matched employees’ financial contributions to the organization with his personal funds.
In 1994, Cisco moved to a new campus in San Jose. By that time, the company had revenues of
$1.2 billion and 2,400 employees worldwide. Mayor Susan Hammer attended the groundbreaking ceremony for the campus and treated Cisco as an important part of the community. She asked Morgridge to contribute to City Year, a program in which young people provided a year of service to their community―a “Peace Corps for the United States.” Cisco continued to support Costano School and Second Harvest and added City Year and Wilcox High School in nearby Santa Clara to its community relations program.
THE CISCO FOUNDATION
In 1993, Cisco took a small equity position in Cascade Communications. When Ascend Communications acquired Cascade Communications in 1997, Cisco sold its position for $64 million. Morgridge decided this money would be used to create the Cisco Foundation. Two years later, Cisco added $73 million to the foundation after liquidating its investment in another company. The establishment of the foundation laid the groundwork for a long-term philanthropic effort through which the company planned to distribute 10 percent of the foundation’s endowment annually.
Establishing a Direction
Early on, the foundation’s leadership team established a matching gifts program. Under this program, the foundation matched Cisco employees’ charitable gifts up to a specified amount. The program aligned the foundation’s grantmaking with the interests of employees, important Cisco stakeholders. Establishing a strategy for addressing grant requests proved more difficult than setting up the matching gift program. The foundation began to receive a flood of requests from employees, particularly senior executives, advocating support for projects of personal interest. Without a strategic direction and a coherent way of addressing these requests, the situation became chaotic.
The corporate philanthropy (CP) team studied the areas of employee interest based on information from the matching gift program and conducted a competitive analysis, benchmarking the activities of other corporate giving programs. They found that most corporations exclusively donated cash. Cisco believed a program that utilized all the company’s resources―people, technology, and financial resources―could have a greater impact than more expensive programs that solely gave money. The team also found that many companies were driven as much by public relations as philanthropic intent. Cisco historically had not publicized its philanthropic activities, and the team felt that the foundation would benefit from developing a philanthropic strategy before increasing its communications efforts. Cisco expected to receive many solicitations once the public became aware that the company had a substantial philanthropic program.
To develop a philanthropic strategy, the CP team looked at Cisco’s impact on its core business customers. The company’s products helped customers to streamline processes, focus on their customers, and increase revenues. This same capability could be used to benefit strategic non- profit partners whose missions aligned with Cisco’s philanthropic goals. Rather than selling products to achieve a profit objective, Cisco could assist the nonprofit sector through donations to achieve a philanthropic objective. For instance, Cisco helped Second Harvest to reengineer a telephone response process. It reduced process time per call by minutes, improving efficiency and saving money.
In considering Cisco’s unique capabilities, the company’s philanthropic vision was defined as follows: “Cisco and its employees apply their economic and intellectual assets to create strong global communities.” The company’s philanthropic mission was to “develop, support, and invest in programs that leverage the Internet to contribute to lasting positive change.” Cisco focused on education, basic needs, and civic engagement. The mission could be viewed as a cycle - as basic needs, such as shelter and food, were met, this enabled improvement in education, which further empowered responsible citizenship and sustainable communities. Technology could be used by nonprofit organizations to increase efficiency and productivity in providing services that addressed these issues.
In line with this mission, the Cisco Networking Academy became one of Cisco’s most effective programs. The rapid growth of the Internet in the late 1990s and the continued growth of Cisco’s business depended upon the availability of qualified network administrators. In 1997, Cisco began to address the shortage of qualified network administrators by developing the Networking Academy, which supported schools in training students for technology careers. Cisco provided the curriculum, while schools purchased equipment at a substantial discount. As a result of the program’s initial success, Cisco expanded it to all 50 states, and then to 147 different countries by 2002.
The Networking Academy became a powerful tool for philanthropic programs. For instance, Opportunities Industrialization Center West (OICW), a training program for welfare recipients, collaborated with other organizations that provided childcare, workplace wardrobes for the poor, and assistance with resume writing. Programs to train OICW clients for high-paying technology jobs could make a significant impact on their lives and also provide a source of trained workers for companies and nonprofits. In 2000, Cisco designed a total program package to meet the needs of OICW’s clientele. The company donated equipment to OICW, designed an intensive six-month certification program, trained staff, gave technical support, and provided an employee to teach for the first two years. To expand the program further, OICW and Cisco partnered with Sun Microsystems. The resulting Cisco/Sun Academy utilized the resources of both companies and significantly affected the community.
When Cisco’s business declined in 2001, the company reduced its workforce. As part of this reduction, the company created a Community Fellowship program that gave employees an incentive to work for a nonprofit for one year. Under the program, employees received one-third of their Cisco salary, as well as Cisco benefits and vesting, for the year that they worked for the nonprofit organization. Cisco also created an employee leadership program through which high- potential employees worked on specific projects at select nonprofit organizations for several weeks to months.
Providing Order to the Philanthropic Program
As of 2002, Cisco’s philanthropic efforts were organized into three groups. First, Cisco had a Community Investment Fund (CIF) that had existed before the foundation was established, with
$1 million per year available for charitable spending. This group provided product donations, services, program development, and some funding for international programs. Global Partnerships, the second group, oversaw the Cisco Community Fellowships and relationships with the United Nations and other multilateral organizations, as well as relationships with organizations such as Habitat for Humanity. The Cisco Foundation constituted the third group.
With the formation of the Cisco Foundation, the visibility of Cisco’s philanthropic activity increased dramatically, both within the company and among the general public. However, the CP team still did not have guidelines for addressing the large number of resulting requests for money. Cisco received many philanthropic requests that were typical for major corporations but inconsistent with Cisco’s philanthropic focus. To gain some control of the overall effort, the CP team decided to approve all contributions that had the Cisco name attached, enabling the team to begin to provide order to the company’s philanthropy.
For example, Cisco had many strategic relationships with universities. The CP team decided that the appropriate business units would cover the costs of university donations when the donations were considered a cost of doing business. The foundation would only make university grants as matches to employee contributions. With rare exceptions, it also stopped supporting the special interests of top executives through charity balls and other special events. The CP team believed this common corporate practice was difficult to justify since it did not align with the company’s strategic direction.
As Cisco grew, the media often profiled the company and its leaders, Morgridge and Chambers. This enhanced public profile led to many requests for help from the general public. In one interview, Chambers described his problems with dyslexia, resulting in many solicitations from organizations interested in learning disabilities. Cisco subsequently partnered with the National Center for Learning Disabilities (NCLD) to streamline its process for reviewing these requests, referring them to NCLD for assessment.
CP also funded employee team-building programs such as employee participation in Habitat for Humanity projects. Cisco occasionally sponsored sporting events, a portion of which often went to charity. These events gave salespeople a chance to network and create goodwill for Cisco.
THE FUTURE
By late 2002, the Cisco Foundation had $103.8 million in assets, down from $132.2 million the previous year due to its high giving level in 2002 and investment losses resulting from the 2001- 2002 recession and stock market collapse. The foundation’s giving for the fiscal year ending July 31, 2002 was $11.4 million, of which $2.8 million was for the employee matching program; $2.8 million for grants to education, shelter, and community service organizations in communities near major Cisco facilities; and $5.8 million for national invitation grants.
As director of corporate philanthropy, Yoo actively worked with Cisco’s country managers and philanthropic partners worldwide, encouraging local leaders to create civic councils that would develop philanthropic programs with their own strategies and leadership. Cisco valued local autonomy, and Yoo believed it was important for each country office to be seen as a local company, rather than as a small outpost of an American firm. This perception would give the local manager greater access to community leaders. In her travels, Yoo tried to build relationships and convey the culture that Morgridge, Chambers, and other senior executives had established by their personal involvement with philanthropic activities.
From Cisco System’s inception, philanthropy had constituted an important part of the company’s history and culture. The company’s philanthropic program had grown in scope and scale from limited community service activities to a major global enterprise focused on critical societal needs. This effort leveraged all aspects of the company’s resources: money, technology, and employee talent. As the program continued to develop, Yoo and Cisco’s management wanted to make sure that CP utilized the company’s core strengths and its resources well, and that the philanthropic effort was maximizing its intended impact. As the responsible executive, Yoo needed a way to evaluate the program’s effectiveness in order to justify its long-term value to shareholders and other external constituencies. As Cisco’s global presence continued to grow, the Corporate Philanthropy team would also face the question of how to facilitate greater knowledge sharing and communication among the company’s varied country offices while continuing to respect each unit’s autonomy.
1. How did the evolution of Cisco’s philanthropy program leverage the company’s growing resources to make a social impact and provide value to Cisco’s external constituencies?
2. How was Cisco’s philanthropy aligned with its business objectives? How was this evidenced?
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy