Cisco Rewards Employees For Best-Ever Profit By Firing Them

Pop quiz: You're the CEO of a major multinational company. You just completed a fiscal year in which you made $10 billion in profit. You managed to buy back nearly $3 billion in stock and paid out more than that in dividends as well. Profits were up 18% in the most recent quarter and you see revenue rising by a small amount in the next 3 months. It's a bit less than you had hoped, but you're still telling Wall Street you'll be within one penny per share of where they expected on earnings and within 2% of the revenue target. Oh, and you still have $50 billion in cash on the balance sheet. So what do you do? If you answered, declare victory, double down on your prior-stated commitments to your people and promise to pursue new growth opportunities with your war chest, you wouldn't be Cisco boss John Chambers. Instead, he's laying off 5% of Cisco's workforce or 4000 people.

Of course, layoffs aren't new at Cisco, which pink-slipped 6500 people in 2011. That was more than $20 billion in profits ago. Here's what Chambers had to say just a few months before that layoff: "What do you want Cisco to be?  ...  a place that puts people, customers and communities at the core of its values.  That’s Cisco, no excuses. Thank you for being part of Cisco.  You have my commitment, my respect and my appreciation."

Three months later, he dumped 10% of those people in the face of two somewhat shaky quarters. This time? How about 8 straight up quarters? Cisco calls most of them records. In other words, things are great. Unless, of course, you're in the 5% who is about to be fired. You have Chambers' commitment, Cisco employee, so long as that commitment doesn't get in the way of making 51 cents per share next quarter instead of 49. In that case, pack up your desk, take your severance and good luck. Just know that Chambers respects and appreciates you. After all, he said so in that 2011 blog post.

Cisco is a once-great success story that, like Microsoft , hasn't created any equity value since 1999. It has burned through $79 billion buying back its own shares since then and pays out a decent dividend, but the company is yet another object lesson in how to take near monopoly profits and manage to turn them into remarkably little over a very long time. (The news of the layoff sent shares down by about 8% as well.) That said, since the global economy emerged from the recession of 2007-08, Cisco has become a solid profit generator again and many of its competitors from a decade ago are nothing but historical footnotes.

Given that it's been incapable of generating the kind of growth that excites investors, though, it could try to be the kind of place that excites employees. While that's a long game, the competition for talent in Silicon Valley is fierce. Any hope of restoring Cisco to its former glory would rest on recruiting and retaining some of the best and brightest.

That won't likely be much of a worry for Chambers anytime soon, though. He's too busy trying to make next quarter's number.

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