The Morning Risk Report: Cisco’s Reputation Worries: Death by 6,000 Cuts?

Cisco Systems Inc.’s plan to shed 6,000 people may take a toll on its reputation. Reporting on an interview with John Chambers, the company’s chief executive officer,The Wall Street Journal wrote: “Shedding employees in declining businesses will allow the company to add needed skills in units that are growing.“

There’s the rub. Laura Berry, executive director of the investor group Interfaith Center on Corporate Responsibility, said: “Someone as sophisticated as John Chambers saying we are laying off 6,000 people to do a skill swap, that certainly doesn’t sound like the kind of thoughtful approach one would expect from a company that wants to be viewed as a leader in corporate social responsibility.” Deb Nelson, executive director of Social Venture Network, a national organization of businesses committed to social responsibility, said: “Cisco announcing it will lay off 6,000 employees to make room for different kinds of skills is a classic example of a single-bottom-line decision, because their key goal is to generate higher profits for shareholders, not to benefit all their stakeholders.”

That could be costly. David J. Flanagan, a professor of strategic management at Western Michigan University who has studied the relationship between layoffs and reputation risk, said: “Our study finds that, on average, layoffs hurt a firm’s reputation and this can hurt it financially over time making it harder to get good employees and even tarnishing the firm’s image with customers. Even though Cisco is a large company with rich history it could very well take a negative hit to its reputation.“ Asked whether the company would support its employees in an effort to re-skill, a Cisco spokesman emailed that the company is investing in “areas of growth like security, data center, cloud, software and more,” adding “we cannot repurpose a salesperson from China (down 20+% this quarter) to Germany (up 16% this quarter).” He wrote: “Employees impacted will receive a competitive severance package and outplacement assistance based on local practices,” and also, “I would like to point out that we are recognized globally as leaders in corporate social responsibility.”

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