Cisco's Stately Succession

As John Chambers becomes chairman, he's stepping down as president, paving the way for the no-fuss appointment of a successor

Cisco Systems (CSCO) is one of the rare companies able to weather shifting corporate fortunes with minimal corner-office controversy. It's had nothing like Steve Jobs' famous ouster and subsequent return to Apple Computer (AAPL), or Carly Fiorina's drama-filled rise and fall at Hewlett-Packard (HPQ). And now, Cisco may have taken the first step toward another boringly smooth transition.

On June 8, the company said longtime CEO and President John T. Chambers had been named chairman in a unanimous vote by the board of the networking powerhouse. Company spokespeople say Chambers recently promised the board he would remain CEO for another three years to five years.

Still, Chambers is dropping the president's title as of Nov. 15. The company is mum on whether another will be appointed in his place. "As part of ongoing leadership development at Cisco, we groom multiple candidates for all leadership positions," says spokeswoman Penelope Bruce. "The role of president will be reviewed over time."


  Should a replacement be named, that person will be the odds-on favorite to take on the CEO role when Chambers retires. Many Cisco-watchers think the most likely future president of Cisco is Charles H. "Charlie" Giancarlo. An engineer who came to the company in the early 1990s, in recent years he's overseen the development of many of Cisco's new growth initiatives, including computer security and home networking.

Giancarlo championed Cisco's acquisition of Scientific Atlanta last year. While many feared the deal would hurt Cisco's standing with investors because the set-top box maker has much lower profit margins, investors cheered the deal because of the growth opportunities it would create. Cisco shares, now at $19.90, are little changed from early 2002, despite the company's enviable profit margins.

Clearly, Giancarlo's star has risen in recent years. In 2003, Giancarlo almost departed to become CEO of chip maker Broadcom (BRCM). When the move was announced on cable business shows early one October morning, Giancarlo got a call almost immediately from Chambers, who left a voicemail saying: "Well, Charlie, I guess we have something to talk about when we get into the office today," Giancarlo later told BusinessWeek.

Since then, Giancarlo championed Cisco's first move into the fast-growing consumer market with the acquisition of home-router maker Linksys. Then, in July 2004, he was made Cisco's chief technology officer, with oversight for all of Cisco's product development efforts. "Charlie has been John Chambers' right-hand man for a while now," says Pacific Growth Equities analyst Erik Suppiger. "In most of the areas where he's been the general, Cisco has done quite well."


  There are other candidates for the job, to be sure. Michelangelo "Mike" Volpi runs the company's massive router business, which brings in most sales. Then there's Rob Lloyd, who was promoted from president of Cisco's Europe unit to become senior vice-president of U.S. and Canada operations in July 2005.

Of course, there’s always a chance Cisco's pattern of smooth succession planning could hit a rocky patch. The company instituted a mandatory retirement age of 70 for directors last year. That paved the way for the departure of two of Cisco's most influential board members, Don Valentine, an original Cisco funder and a venture capitalist with Sequoia Capital, and Cisco's longtime chairman, John P. Morgridge, who will be replaced by Chambers. The resulting board has plenty on the agenda -- for starters, getting Cisco's growth and shares out of the doldrums.

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