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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

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:

Why 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.

Finally, 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?

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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