Chapter 15 • Management Control-Related Ethical Issues

Appendix 3 Accounting for auditing problems – recent large settlements paid by auditors

Settlement amount
Auditor Company audited Year Allegations ($ millions)

Ernst & Young Cendant 1999 Inflated revenue, understated expenses $335

Ernst & Young Informix 1999 Inflated revenue $34

Arthur Anderson Waste 1998 Overstated assets and other accounting $75
Management problems

Coopers & Centennial 1998 Bogus sales $20

Lybrand* Technologies

*Now part of PwC.

Source: The Wall Street Journal (January 18, 2001), p. C1.

This case was prepared by Professors Kenneth A. Merchant, Wim A. Van der Stede, and research assistant Xiaoling (Clara)
Chen. The case was revised with the help of Professor Martine Cools.
Copyright © by Kenneth A. Merchant and Wim A. Van der Stede.

CASE STUDY
Ethics@Cisco

A strong commitment to ethics is critical to our long- tion, advancement and sharing of best practices in
term success as a company. The message for each business ethics and corporate social responsibility.
Copyright © 2017. Pearson Education Limited. All rights reserved.

employee is clear: any success that is not achieved ethi- The Ethisphere website explained that the WME
cally is no success at all. At Cisco, we hold ourselves to designation “recognizes companies that truly go
the highest ethical standards, and we will not tolerate
beyond making statements about doing business
anything less.
“ethically” and translate those words into action.”
—John Chambers, CEO, Cisco Systems, Inc.1
Similarly, Cisco’s program was named in both 2009
Cisco Systems, Inc. (Cisco), a large, multinational and 2010 by Corporate Secretary magazine as the
networking technology company headquartered in “The Best Overall Governance, Compliance and Eth-
San Jose, California, won multiple awards for its ics Program” in the large-capitalizationcompany
ethics program, known internally as Ethics@Cisco. category.
For example, as it had each year since 2008, Cisco Phil Roush (Vice President – Governance, Risk and
was honored in 2012 as one of the World’s Most Ethi- Controls) explained that Cisco’s ethics program
cal (WME) companies by the Ethisphere Institute,
… not only demonstrates the Company’s effort to
an international think-tank dedicated to the crea-
be a good corporate citizen, it also provides a com-
petitive advantage. It signals to potential custom-
ers how seriously we take ethical conduct, and it
translates into how Cisco approaches all of our
1
http://www.cisco.com/web/about/citizenship/ethics/index.html internal and external interactions.

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Merchant, K., & Van, D. S. W. (2017). Management control systems 4th edition : Performance measurement, evaluation and incentives. Retrieved from http://ebookcentral.proquest.com
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 Ethics@Cisco

Company background The company, however, faced some quite unique

and difficult challenges in attaining its compliance and
Cisco was the world leader in networking technology ethics goals. Cisco was a large company with a rela-
for the Internet. The company designed, manufac- tively young workforce with many different cultural
tured, and marketed a broad range of Internet Protocol norms and languages. Cisco continued to grow rapidly,
(IP)-based networking and other related products and and much of the company’s growth came from acquisi-
services primarily to customers in the communications tions. Since 2000, Cisco had acquired 105 companies,
and information technology industries located around all of which had to be assimilated into Cisco’s culture
the world. The company’s diverse product portfolio and processes. As a hi-tech firm operating in a dynamic
included storage, web conferencing, routing, digital environment, the company had a “freewheeling spirit”
video, wireless, switching, and voice technology. Cisco that sometimes needs to be reined in. Perhaps not sur-
had a significant market share in each of its product prising for a networking company, 85% of Cisco’s work-
categories. The company distributed and sold its prod- force worked “virtually,” regularly working from home
ucts through a large network of channel partners and or on the road. And much of the Cisco business was sold
resellers. through channel partners in over 180 countries who
Cisco was founded in 1984 by a married couple, two were regularly presented with a wide variety of gift
scientists from Stanford who invented the multi-proto- giving and receiving conundrums on a regular basis.
col router so they could send messages to each other The partners also presented a challenge in that their
from separate office buildings. Ever since then, the actions were more difficult to monitor than were those
company’s focus had been “connecting lives.” The com- of employees.
pany’s stock became publicly traded on February 16, The three core elements of the Ethics@Cisco pro-
1990. gram were (1) a Code of Business Conduct (COBC);
Cisco’s growth was rapid. In fiscal year 2011 (ended (2) an extensive employee awareness, training and
July 31, 2011), the Company had annual revenues certification program; and (3) internal investigations.
exceeding $43 billion (see Exhibit 1), and it employed These are described below.
approximately 65,000 people in almost 500 different Cisco’s ethics program was over 15 years old. Previ-
offices in over 165 countries. Cisco spent over $5 billion – ously the program was administered by the Human
roughly 13% of its revenue – on R&D. Its workforce was Resources (HR) department. In 2005, a dedicated,
highly educated: one-third of the employees were engi- three-person Ethics Office assumed responsibility for
neers, and another onethird were in sales. this function. In 2012, this office was composed of sen-
The Cisco culture emphasized open communication, ior manager Jeremy Wilson, program manager Joel
innovation, and trust. Phil Roush explained, Mark, and marketing communications manager Ruth
Copyright © 2017. Pearson Education Limited. All rights reserved.

When I joined Cisco, many executives indicated Savolaine. The Ethics Office’s mandate was to drive
that this is a company that is built for speed and awareness of Cisco’s ethics policies.
that we have a high-trust environment. John Cham- In its early years, the Ethics Office reported to
bers [CEO] often refers to the employees as being Human Resources. In 2008, it became part of Govern-
part of the Cisco family. But in a family of 65,000 ance, Risk and Controls, which reported to the Finance
co-workers you’re going to have some issues arise. department. In August 2012, the Ethics Office was
You better have some rules, and some accountabil- moved to become part of a new centralized Compliance
ity, that help facilitate the speed and high-trust department reporting to Cisco’s General Counsel.
environment. Proper governance processes can According to Cisco’s benchmarking studies, this latest
actually assist a company in moving more rapidly. reporting structure was consistent with best practices
across publicly held companies. The General Counsel
had the oversight on driving the ethics programs and
policies.
Ethics@Cisco
The Ethics@Cisco program was designed to ensure
The Code of Business Conduct
that all Cisco employees adhere to a very high standard
of business and professional conduct. Cisco had only The cornerstone of the Ethics@Cisco program was a
one ethics policy that was applied globally. Code of Business Conduct (COBC). 2 The COBC was

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 Chapter 15 • Management Control-Related Ethical Issues

designed to help every Cisco employee understand how In 2012, the Ethics Office team brought the COBC
to make ethical decisions that were consistent with the onto an online portal and made it into an interactive
company’s values as well as with applicable laws and eBook, with pages that appeared to turn, intuitive pop-
regulations. The core company values underlying the ups, embedded videos, and purposeful animation.
COBC were integrity, respect, open communication, Employees were able to ask questions and engage in a
social responsibility, diversity, and empowerment. two-way dialogue with experts on the ethics team.
Among the specific topics covered in the COBC were They could also disclose gifts and potential conflicts of
sharing concerns, respecting others, using resources interest using an online reporting tool. The team hoped
responsibly, avoiding conflicts of interest, understand- that with these changes employees would view the
ing gift and entertainment policies, protecting Cisco COBC as a practical reference tool that could be used
assets, following the law, and adhering to internal whenever they faced an ethical issue.
financial and accounting policies. The COBC included
some specific policies, such as the requirement of pre-
Ethics awareness, training,
approvals for the giving and receiving of gifts valued at
and certifications
US$100 or more, but it also included many more gen-
eral decision-making principles. The wording in the Cisco used many methods to help ensure that all
COBC was mostly general, but it was supported by employees (and partners and agents) were aware of,
detailed policies in some areas of activity. The COBC and understood, the COBC. These included electronic
was published in English and 12 other languages. display boards, websites, a management portal, a dis-
To make the COBC easily understandable, with low cussion forum, and various forms of training.
use of jargon, the key principles necessary to demon- Most companies’ ethics training is live, but most all
strate the company’s commitment to integrity were of Cisco’s training was done online, due to the compa-
summarized in the COBC in ten “I statements” (see ny’s highly virtual workforce. Annually, employees
Exhibit 2). were required to go through interactive training that
The COBC also included an ethics decision tree that took about 20 minutes. They answered ethics questions
was designed to help employees think through difficult using the COBC as a reference and received instant
ethical issues (see Exhibit 3). The decision tree helped feedback if they answered assessment questions incor-
employees find laws and policies that might apply in rectly. The training also included two brief videos that
the situation they are facing and to ask important ques- used humor to communicate two key messages: (1) the
tions and/or seek guidance from managers, the Ethics COBC is robust and easy to use, and (2) there are sev-
Office, or the legal department before they take action. eral ways to get ethics assistance at Cisco. These videos
Financial employees had an additional Code of Con- were shown with subtitles for employees whose native
Copyright © 2017. Pearson Education Limited. All rights reserved.

duct that included more specific financial reporting language was not English.
guidelines and a requirement to be a role model of ethi- In 2012, the videos received positive employee feed-
cal behavior (see Exhibit 4). back, with 87% of employees reporting that the videos
Prior to 2007, the COBC was a static document writ- enhanced or somewhat enhanced their understanding
ten in legal terms that could be challenging for a non- of the COBC and the resources available to them. One
lawyer to understand and apply to real life situations. of the training videos, an ethical-mindset video aimed
Between 2009 and 2011, the ethics team completely at new managers, won a Gold Medal in 2011 from the
overhauled the document with the goal of bringing the New York Festivals International TV & Film Awards® in
COBC “to life.” They shortened it, made it more reada- the category Internal Use Training Videos.
ble, and added more color and graphics. They replaced On request, the Ethics Office developed targeted,
legal jargon with text written at a more elementary job-specific training for individual business units. For
reading level. They also included practical “what if” example, a five-minute anti-bribery video was pro-
examples to make the COBC more relevant to the issues duced specifically for employees who interacted with
employees faced every day (see Exhibit 5). government officials. Other targeted training videos
focused on conflicts of interest, ethics for sales associ-
2
ates, new hires, new managers, antitrust, and anticor-
The complete document is shown at http://files.shareholder.com/
downloads/CSCO/2047645290x0x563236/f8c558b8-11dd-4f32- ruption. These topic- and role-specific videos were very
89cd-7b9da77895d1/Cisco_Code_of_Business_Conduct_FY12.pdf targeted and short, because it was known that most

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 Ethics@Cisco

people’s attention spans are short, and resistance to employee fraud. These investigators had backgrounds
training increases sharply after about 10 minutes. The in accounting, auditing, and law enforcement. The
videos explained where additional information could cases they investigated ranged from expense fraud to
be found. The Ethics Office also ran special awareness deal manipulation, diversion, and corruption.
campaigns, such as an end-of year campaign reiterat- Approximately 100 investigation cases were open in
ing the company’s gift policies. a typical quarter, but on average only about 10% of
Annually, all Cisco employees were required to certify those cases were actionable. Many cases were initiated
that they had reviewed, understood, and agreed to abide in the employee online incident reporting tool. Some
by the COBC. Certification was a condition of employ- reports were malicious, such as occurred when vendors
ment, and failure to sign the certification document pro- “threw mud at each other.” Sometimes reports were
vided grounds for corrective action, up to and including valid, but they were not supported with strong enough
termination of employment where permissible by law. evidence to warrant disciplinary action. In those
Before 2009, the COBC certification was not manda- instances, the internal investigations personnel
tory. In 2009, however, the ethics team obtained a attempted to get more details from the whistle-blower.
mandate from the Audit Committee to have all employ- Even if they were not able to prove wrongdoing, they
ees sign the certification annually going forward. Per- could use the incident to evaluate and perhaps improve
sonnel in the Ethics Office and department managers internal controls. Many cases were identified as a result
used Ethics Connect, a proprietary tool that provided of Sarbanes-Oxley (SOX) control testing. For example,
instruction, created records of employees who had one expense audit uncovered a $200,000 expense
signed the COBC and agreed to abide by it, and sent tar- fraud scheme that was successfully investigated. An
geted email messages to those who had not yet fulfilled employee had found a way to log in as her boss to
their certification obligation. After a five-week cam- approve her own expense reimbursements.
paign ending in early June, COBC certifications were When Internal Investigations were able to substanti-
received from 100% of Cisco employees. ate that there had been an infraction of the COBC or
Initially there was some resistance to the certifica- local laws, employees were disciplined. If theft was
tion requirement, not because the content of the COBC involved, Internal Investigations made an attempt to
was objectionable, but because the idea of something obtain voluntary restitution from the employee rather
being mandatory was a cultural shift. This was one of than involving outside law enforcement. Depending on
Cisco’s first global mandates. Jeremy Wilson (Ethics the infraction, employees could be terminated or
Office manager) explained that, “The last one percent receive verbal and written warnings. In order to avoid
(600–700 people) created a bit of a challenge as they unfair termination lawsuits in the United States, Cisco
were not familiar with the process.” employees were only terminated if they violated a spe-
Copyright © 2017. Pearson Education Limited. All rights reserved.

Tone from the top also played a large part in driving cific, published policy. Written warnings provided use-
ethical behavior. Prat Bhatt (Corporate Controller) ful documentation should a second infraction be
reflected, committed. In other countries it could be even more dif-
ficult to legally terminate employees because of strong
Training has a positive impact, but the effects are
labor protection laws. Typically, very few employees
short-lived. Some people think that training is a
were terminated for policy violations or other improper
check-the-box exercise that everyone has to do. Con-
actions. All incidences of fraud were reported to the
trols and processes can be circumvented. If you don’t
Audit Committee, even if the infraction was committed
have the tone and culture to support ethics, with pub-
by someone below the Vice President level.
lic hangings for wrong-doing and recognition for
doing the right things, the rest is superficial. What I’ve
found unique about Cisco is the culture and the tone, Sarbanes-Oxley compliance
which is set from all the way at the top with the CEO.
Cisco relied on strong SOX compliance teams to ensure
ethical behavior in some important areas of activity,
Internal investigations
including financial reporting, antitrust, bribery, and
A 24-person Internal Investigation group also reported insider trading. Kristin White headed a team of 18 pro-
to the Compliance department. Sixteen members of the fessionals responsible for financial and business pro-
group were investigators responsible for investigating cess controls, reporting to Prat Bhatt (Corporate

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 Chapter 15 • Management Control-Related Ethical Issues

Controller). The Information Technology (IT) organi- Board of Directors, an anonymous online incident
zation owned its own SOX controls and had its own reporting tool, or a multilingual telephone hotline.
18-member team, reporting to the Chief Information More than 84% of reports and questions came through
Officer (CIO) of IT/Risk Management. These teams email or online sources, with more than 60% being
were responsible for understanding the US SOX handled by the Ethics Office directly.
requirements and SOX-like requirements in other The number of ethics calls made at Cisco had been
countries, and they strove to maintain consistent con- fairly stable at approximately 100–150 calls per quarter.
trols internationally. These teams partnered heavily, The total number of calls was aligned with those at other
and monitored the effectiveness of almost 1,000 key hi-tech companies, at less than 1% of the workforce size.
controls. In addition to performing standard SOX Of the calls made, more raised questions (60%) than
duties, the SOX compliance teams made sure that con- allegations (40%). The top five call categories were:
trols were in place in companies that Cisco acquired, in
1. Policy Issues (policy interpretation/application)
new project venture areas, and in international expan-
sion initiatives. 2. Employee Relations (harassment, intimidation, dis-
According to Kristin, working on SOX was reward- crimination)
ing at Cisco because of the company’s strong ethics. 3. Conflicts of Interest – general
“Cisco has embraced SOX compliance,” she explained. 4. Conflicts of Interest – gifts
“It’s part of the DNA of the company, and it is highly vis-
5. Conflicts of Interest – personal relationships
ible.” According to Kristin, John Chambers, the CEO of
Cisco, took controls very seriously. He was committed Financial reporting breaches were alleged less than
to spending quality time reviewing the information once per year.
and processes to ensure accuracy and adequacy of their The ethical issues raised tended to spike around
public reporting, and he expected his senior managers times of training, annual certification, and special
to highlight issues and let him know if they had any events. For example, Cisco was the technology sponsor
concerns. of the 2012 London Olympics, so Cisco employees
fielded many requests for tickets or special event
access, and questions arose. After the ethics team intro-
Operation of the System
duced a video showing an employee reporting a second
The Ethics@Cisco system encouraged employees who job, there was a 700% increase in disclosures of outside
were unsure as to how to act in any circumstance to jobs. Cisco had also developed an online disclosure tool
escalate questions to higher levels of management to automate the exception-approval process.
without fear of repercussion. Difficult ethical questions The COBC made it very clear that retaliation against
were often escalated all the way to the General Coun-
Copyright © 2017. Pearson Education Limited. All rights reserved.

whistle-blowers would not be tolerated. The culture at

sel. Van Dang (Senior Vice President, Regulatory and Cisco also supported open discussion, as evidenced by
Compliance), explained: the fact that 82% of people who reported ethics violations
or asked ethics questions chose to identify themselves.
There is an escalation process. People opinion
Cisco was trying to automate some portions of the
shop. If they don’t get the answer they like and they
control processes. For example, they were considering
don’t agree, they go up the chain and appeal to
flagging some forms of reimbursements for an auto-
higher levels of management because lower level
matic review.
managers are less likely to take risks. In some com-
panies if you escalate you lose your job, but not at
Cisco. It’s a very open company. Employees can go An example: gift acceptances
directly to a higher-level manager.
Most of the guidelines in the COBC were derived from
If employees did not want to get talk with someone Cisco’s values. It was not possible to provide specific
in the management hierarchy to get advice on an ethi- rules for every type of situation that might be encoun-
cal issue and/or to report a potential problem, they had tered. The guidelines needed to be interpreted and
several other options. They could correspond with per- applied to the specific situations faced. Acceptable
sonnel in the Ethics Office or use an email alias that behaviors in areas presenting frequent or serious risks
sent a message directly to the Audit Committee of the were spelled out in more detail.

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 Ethics@Cisco

For example, employees’ accepting gifts from understanding of the process and to implement a uni-
suppliers was a common risk area. It was known that form approach.
in the past some employees had not reported gifts
they had received, and some had even sold them on Evidence of effectiveness
eBay.
Annually, Cisco conducted an internal survey of all
The gift-acceptance guidelines explained in the
65,000+ employees to get feedback on key aspects of
COBC were:
the Company’s culture. Results from the 2012 survey
● Have no obligation or expectations (stated or reflected well on the ethics program (see Exhibit 6).
implied) Among other things, on this survey 91% of the employ-
● Be made openly ees reported that they were confident that Cisco took
ethical business concerns seriously.
● Have reasonable value, defined as less than US$100
Overall, there was a strong sense of pride in Cisco’s
per source per year
ethics program. Phil Roush observed:
● Conform to the giver/reviewer’s rules
It starts with the well-defined “tone at the top” on
● Be appropriate, legal and accurately documented.
the expectations of ethical conduct of Cisco’s
Any exception had to be approved in writing by the Eth- employee base. From those expectations, it cas-
ics Office. Some gifts could require approvals from a cades out to all of the Company on our approach to
Vice President in the relevant organization or a Human business and how we deal with the inevitable ques-
Resources (HR) manager. tions and unique situations that arise when you do
With inquiries about gift acceptances, there were business in over 100 countries.
three plausible answers: (1) acceptable, (2) unaccepta- We still have opportunities to raise awareness
ble (the gift must be returned), or (3) the gift may be across a very diverse and geographically dispersed
accepted, but the employee must turn it over to Cisco for population. Plus, there are always new questions
public display or donation. Those approving the requests and concerns that do come up, for example how to
tried to adhere to the COBC guidelines while also trying consistently address the various forms of social
to allow for reasonable special circumstances. media that are prevalent today. We want our
The multiple channels for grants of exceptions made employees to embrace the new technology that is
ethics feedback easily accessible, but could occasion- available, but do it in a way that does not expose
ally cause confusion. In one instance, a supplier gave a the Company to negative consequences.
watch to 200 people in the same department. Only six If we do meet with the SEC [U.S. Securities and
of those 200 employees asked permission to accept the Exchange Commission] or the DOJ [U.S. Depart-
Copyright © 2017. Pearson Education Limited. All rights reserved.

gift, but because some asked the Ethics Office, some ment of Justice], and they inquire about Cisco’s
asked HR, and some asked the Vice President in their Ethics program – we feel that there are many proof
own organization, they received three different points of how seriously we take the expectations
answers. When these discrepancies were discovered, on ethical behavior. No company will likely be per-
follow-up meetings were held to provide a better fect, but I am confident Cisco has a strong process.

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 Chapter 15 • Management Control-Related Ethical Issues

Exhibit 1 Cisco Systems, Inc., income statements (2010–2012)

FY 2012 Year Ended FY2011 Year Ended FY2010 Year Ended

(In millions, except per-share amounts) July 28, 2012 July 30, 2011 July 31, 2010

NET SALES:
Product $ 36,326 $ 34,526 $ 32,420
Service 9,735 8,692 7,620
Total net sales 46,061 43,218 40,040

COST OF SALES:
Product (a), (b) & (d) 14,505 13,647 11,620
Service (a) 3,347 3,035 2,777
Total cost of sales (a), (b) & (d) 17,852 16,682 14,397
GROSS MARGIN (a), (b) & (d) 28,209 26,536 25,643

OPERATING EXPENSES:
Research and development (a) & (c) 5,488 5,823 5,273
Sales and marketing (a) & (c) 9,647 9,812 8,782
General and administrative (a) & (c) 2,322 1,908 1,933
Amortization of purchased intagible assets (b) 383 520 491
Restructuring and other charges (d) 304 799
Total operating expenses (a)-(d) 18,144 18,862 16,479
OPERATING INCOME (a) - (d) 10,065 7,674 9,164
Interest income 650 641 635
Interest expense (596) (628) (623)
Other income (loss), net 40 138 239
Interest and other income, net 94 151 251
INCOME BEFORE PROVISION 10,159 7,825 9,415
FOR INCOME TAXES (a) - (d)
Provision for income taxes (e) 2,118 1,335 1,648
NET INCOME (a) - (e) $ 8,041 $ 6,490 $ 7,767
Net income per share:
Basic (a) - (e) $ 1.50 $ 1.17 $ 1.36
Diluted (a) - (e) $ 1.49 $ 1.17 $ 1.33
Shares used in pre-share calculation:
Copyright © 2017. Pearson Education Limited. All rights reserved.

Basic 5,370 5,529 5,732

Diluted 5,404 5,563 5,848
Cash dividends declared per common share $ 0.28 $ 0.12

Exhibit 2 Ten “I” statements in the Code of Business Conduct

Cisco “DNA” • I am ethical

• I know the Code

Values/Integrity • I share my concerns

• I respect others

Four Core Ethics Areas • I use resources responsibly

• I avoid conflicts of interest
• I understand policies related to gifts and entertainment
• I protect what is ours

Foundational • I follow the law

• I am accurate and ethical with our finances

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 Ethics@Cisco

Exhibit 3 Ethics decision tree

Not sure?
Check Cisco Policy Not sure?
Central for more Check the Ethics
information. Talk to your Office website Not sure?
Not sure? manager, your Human or contact Talk to your manager the
Contact the Resources representative, your manager Legal Department or
Legal Department or the Legal Department or Ethics Office the Ethics Office for
for guidance for guidance. for guidance. guidance.

? ? ? ?
Could this
Does this
Does this adversely
reflect Cisco
Is it legal? Yes comply with Yes Yes affect com- Yes
values and
Cisco policy? pany stake-
culture?
holders? The action may
have serious
consequences
No No No No do not do it

The action may The action may The action may

have serious have serious have serious Would I feel
consequences consequences consequences concerned if
do not do it do not do it do not do it ? this appeared
in a news
Yes
Not sure? headline? The action may
Talk to your have serious
manager the consequences
Legal Depatment, No do not do it
or the Ethics Office
for guidance.
Could this
adversely
? affect Cisco if
all employees
Yes
Not sure?
did it ? The action may
Talk to your
have serious
Copyright © 2017. Pearson Education Limited. All rights reserved.

manager the
consequences
Legal Depatment,
No do not do it
or the Ethics Office
for guidance.
The decision
to move forward
appears appropriate.

Source: Cisco Code of Business Conduct

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 Chapter 15 • Management Control-Related Ethical Issues

Exhibit 4 Special ethical obligations for employees with financial reporting responsibilities (revised Feb 2012)

All employees have an obligation to abide by the Cisco Code of Business Conduct (COBC), which includes adhering to
all internal financial and accounting policies. There are also special ethical obligations that apply to employees with
financial reporting responsibilities.
Our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Finance Department employees must adhere to
the following principles and also foster a culture throughout the company that helps to ensure the fair and timely report-
ing of Cisco’s financial results and condition. Because of their special role, the CEO, CFO and all members of the Cisco
Finance Department are bound by the following Financial Officer Code of Ethics, and each agrees that he or she will, in
his or her capacity as an employee of Cisco:

Integrity and Compliance

1. Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relation-
ships
2. Provide information that is accurate, complete, objective, relevant, timely, and understandable to help ensure full, fair,
accurate, timely, and understandable disclosure in reports and documents that Cisco files with, or submits to, gov-
ernmental agencies and in other public communications
3. Comply with the rules and regulations of federal, state, provincial, and local governments, and of other appropriate
private and public regulatory agencies
4. Act in good faith, responsibly, and with due care, competence, and diligence, without misrepresenting material facts
or allowing his or her independent judgment to be subordinated

Protecting Information and Assets

5. Respect the confidentiality of information acquired in the course of doing his or her work, except when authorized or
otherwise legally obligated to disclose information; confidential information acquired in the course of his or her work
will not be used for personal advantage
6. Achieve responsible use of and control over all assets and resources employed by or entrusted to Cisco

Personal Accountability and Serving as a Role Model

7. Share knowledge and maintain skills important and relevant to stakeholders’ needs
8. Proactively promote and be an example of ethical behavior as a responsible partner among peers, in the work envi-
ronment and the community
9. Promptly report to the Vice President of Governance, Risk, and Controls (GRC) and/or the Chairman of the Audit
Committee any conduct that he or she believes to be a violation of law or business ethics or of any provision of the
Copyright © 2017. Pearson Education Limited. All rights reserved.

COBC, including transactions or relationships that reasonably could be expected to give rise to such a conflict. (Note:
It is against Cisco policy to retaliate against an employee for good-faith reporting of any potential or actual Code
violations.)

Violations
Violations of the Financial Officer Code of Ethics are serious. A violation, including a failure to report potential violations
by others, will be viewed as a severe disciplinary matter and may result in personnel action, including termination of
employment.

Stakeholder and Public Reporting

If anyone believes that a violation of the Financial Officer Code of Ethics has occurred, please contact Cisco Legal, the
Ethics Office, or the Audit Committee of the Board of Directors.
The Financial Officer Code of Ethics is complementary to the Cisco Code of Business Conduct and does not replace
responsibilities all employees have under the Cisco Code of Business Conduct and Cisco policies.

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Merchant, K., & Van, D. S. W. (2017). Management control systems 4th edition : Performance measurement, evaluation and incentives. Retrieved from http://ebookcentral.proquest.com
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 Ethics@Cisco

Exhibit 5 Examples provided in the COBC

What If…
What if my manager is exerting pressure to “make the numbers work?”
Your responsibility is to be honest and accurate. If you feel pressured to do otherwise, contact the Ethics Office, Legal or
Human Resources. You may also contact the Audit Committee of our Board of Directors. If you feel uncomfortable going
through internal channels, you can call the multilingual Cisco Ethics Line anytime, night or day, worldwide.
What if I am asked to book a deal without a purchase order?
All deals must be accompanied by a purchase order from a customer. These sales records ensure that our finances are
accurate and protect the company from fraud. Refer to the Global Bookings Policy for the required elements of a pur-
chase order.
What if I am asked to create a deal to sell a product or service to a reseller who I know is not authorized to receive it,
or for purposes other than for which a specific discount was given for competitive reasons?
This could result in product diversion to the “grey market” causing damage to Cisco’s legitimate resellers and possible
service abuse. If you believe that product/service is being sold outside the approved deal, contact Brand Protection and
the Ethics Office.
What if I am asked to structure a deal where the customer can choose only high discounted products?
Such a situation is called “cherry picking” and is not allowed. This can also result in discount leakage and potential prod-
uct diversion. Refer to your Finance controller or the Ethics Office if you believe you are being asked to structure a deal
in this way.

Source: Cisco Code of Business Conduct

Exhibit 6 Results of pulse survey

Q: I have confidence
Q: I can voice my Q: I know where to Cisco takes ethical Q: My mgt team sets a
# of Employee opinion without go to report ethics business concerns good example of values,
Year Respondents fear of retaliation concern or question seriously culture and COBC
Copyright © 2017. Pearson Education Limited. All rights reserved.

2012 53,306 78% 87% 91% 84%

2011 55,158 75% 83% 90% 81%

2010 50,490 72% 83% 91% 81%

2009 47,245 65% 79% 92% 84%

This case was prepared by Research Assistant Michelle Spaulding and Professors Kenneth A. Merchant, Leslie Porter, and Lori
Smith.
Copyright © by Kenneth A. Merchant, Leslie Porter and Lori Smith.

717
Merchant, K., & Van, D. S. W. (2017). Management control systems 4th edition : Performance measurement, evaluation and incentives. Retrieved from http://ebookcentral.proquest.com
Created from bilibrary on 2019-03-08 07:36:29.