John Chambers: Is America's best leader an investor's nightmare?

Halloween is over and now trick-or-treats for Cisco shareholders maybe over too.

By Brad Reese on Mon, 11/02/09 - 5:27am.

Cisco CEO John Chambers was recently named one of America's Best Leaders, today however, The New York Times in a scathing article (at least in my opinion), is questioning whether Cisco shareholders will ever see a return on their investment.

According to the Times story:

Cisco’s Run of Spending

Breakingviews.com correspondent - Robert Cyran criticized the eternal ebullience of Chambers:

"Mr. Chambers, who once claimed Cisco could increase sales by 50 percent a year over the long run. They’ve since grown 7 percent annually."

Cyran then lashed out at Chambers' management reorganization:

"Cisco has 59 standing boards and councils. This seems like a recipe for endless meetings, management confusion and reduced accountability."

He also cast doubt on Cisco's acquisition strategy:

"If Cisco follows the acquisition machine model, the difficulty in running the company smoothly while mounting ever-larger deals will become increasingly evident."

Cisco's stock repurchases were questioned:

"The other pillar of Cisco’s strategy, stock repurchases, hasn’t rewarded shareholders either. Returning excess cash from operations to shareholders should increase a stock price. Unfortunately, in Cisco’s case, the practice hasn’t measured up to theory. Cisco has spent close to $60 billion on stock buybacks since the start of its 2002 fiscal year. That’s about three-quarters of cash flow from operations. So why haven’t shareholders benefited?"

Finally, Cyran blasted the options compensation of Chambers and his cohorts:

"Part of the blame, however, lies in Cisco’s generous use of options as compensation. Mr. Chambers was one of the loudest voices in Silicon Valley against forcing companies to show the cost of these grants. When Cisco spends cash to mop up the resulting shares, management gets the benefit over shareholders."

However, I believe the very first paragraph of The Times article was the real stunner:

"Cisco, the computer networking giant, has spent the last decade acquiring rivals and buying back stock. It’s time to acknowledge that this strategy isn’t working. Investors who bought Cisco’s shares a decade ago have received no return on their investment."

What's your take, is John Chambers - America's best leader an investor's nightmare?

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