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Why are 2 senior Kohlberg Kravis Roberts & Co advisors sitting on Cisco's Board of Directors?
Tue, 9/27/11 - 11:59pm    View comments

Kohlberg Kravis Roberts & Co

Earlier this week, The Wall Street Journal's Market Watch listed the 12 members of Cisco's Board of Directors as one of America's Most Dysfunctional Boards.

However, I've got to ask:

Arun SarinWhy are 2 senior Kohlberg Kravis Roberts & Co advisors (Arun Sarin and Michael Capellas) sitting on Cisco's Board of Directors?

I mean, isn't that a conflict of interest?

For example, Kohlberg senior advisor and Cisco director Arun Sarin sits on the Board of Directors of the Kohlberg Kravis Roberts & Co portfolio company, Aricent Group, and according to its website:

Aricent Achieves Cisco Learning Solutions Partner Status

And according to Cisco's 2010 Proxy Statement (page 9):

"Mr. Sarin is a member of the board of directors of Aricent Inc., a communications-focused technology and services company. Cisco has procured technology licenses and services from Aricent and made related payments representing approximately 5% of Aricent's annual revenues."

Additionally, Kohlberg senior advisor Arun Sarin sits on Cisco's Audit Committee which in my opinion is a scary thought based on Sarin's past.

How so?

Well, the Seattle Times uncovered in March 2005 that while Arun Sarin was the CEO of InfoSpace, he reported $46 million in pro-forma profits for 2000, when by U.S. Securities and Exchange Commission accounting standards, InfoSpace had actually lost -$282 million.

Michael CapellasFinally, senior Kohlberg Kravis Roberts & Co advisor Michael Cappellas is the Chairman of both Cisco's Acquisition as well as Cisco's Finance Committees.

Two good questions to ask Cisco Board Director and Committee Chairman Capellas:

  1. Do any of Cisco's billions in cash, cash equivalents and investments have holdings in Kohlberg Kravis Roberts & Co funds, securities or portfolio companies?
  2. Does Kohlberg Kravis Roberts & Co have any investments or holdings in Cisco related entities?
Michael Capellas is also the Chairman of Cisco investment, VCE.

Note: Curiously, out of 12 Cisco Board Directors, the 2 directors who are senior Kohlberg Kravis Roberts & Co advisers (i.e. Arun Sarin and Michael Capellas) received the 2 highest amounts of total director compensation according to Cisco's 2010 proxy statement (page 17).

Cisco shareholders should be asking themselves:

Who commands the allegiance of Kohlberg senior advisors and Cisco board directors' Arun Sarin and Michael Capellas, the partners of Kohlberg Kravis Roberts & Co or Cisco shareholders?

I mean, it wasn't too long ago that we learned Cisco made $2.4 million in payments (17% of the software company's total 2009 revenue) whose Chairman at the time was the wife of Cisco EVP and Chief Financial Officer - Frank Calderoni.

Related stories:

Why Cisco's Board of Directors should be replaced

The recently fired Carol Bartz appears to have violated Cisco's lead independent director 1-year term of service

Boardroom dangers of Silicon Valley's insularity

The sordid tale of Cisco's new board director Arun Sarin and disgraced Wall Street analyst Henry Blodget

What's your take?

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