Why Cisco CEO John Chambers Loves Canada
Cisco Systems CEO John Chambers apparently likes the way they do things up north. On a day when his company reported earnings that slightly beat the expectations of analysts and sent Cisco shares up by more than 7 percent in after-hours trading, Chambers said Cisco may take a good portion — about 82 percent — of its $45-billion-and-growing pile of cash to Canada.
Canada? Right. Canada. Recall that Chambers has long been a vocal critic of a U.S. policy that taxes corporate profits at 35 percent. Because of this policy, and because companies have a fiduciary responsibility to their shareholders to use their cash in the least-costly manner possible, companies like Cisco, Apple, Microsoft, and others have tended to leave what cash they generate invested outside the U.S. until such time as they can repatriate it at a lower tax rate.
Chambers took this argument to mainstream American TV viewers in an interview with CBS News correspondent Lesley Stahl on “60 Minutes” last year. Chambers told Stahl that without a lower rate, Cisco would be forced to invest more resources overseas, acquire more non-U.S. companies, and so on.
And he’s done what he said. For just one example, look at NDS, the Israeli video technology company for which it paid $5 billion earlier this year.
Yesterday, Chambers made a point of singing the praises of Canada, where he says Cisco will be taking more of its $45 billion in cash for the purpose of making investments in the coming year. First he said it to Maria Bartiromo on CNBC (see video below), and then on Cisco’s earnings conference call with analysts. And then he said it to me.
Here he is saying it to Bartiromo, but with a new twist: Cisco may take some of its bankroll to Canada, which he called “the easiest place in the world to do business. … We need to learn from them.”
Later on, Chambers repeated similar sentiment on Cisco’s conference call. Answering a question from Goldman Sachs analyst Simona Jankowski about the business environment in the face of the fiscal cliff circus that has everyone in Washington all riled up, Chambers quickly pivoted to U.S. tax policy.
I personally think the fiscal cliff, we’re going to work through that probably with little bit of saber-rattling on both sides. We’re looking more towards the tax policy and if the government is able to instill the confidence in business that allows and ready to invest.
If I would look at one model, we have to look at very carefully around the world it’s Canada, the easiest place to do business. It doesn’t matter which party is in power, even their provinces, their states. When the national government, Prime Minister Harper gets it the leaders in Ottawa will get it, they drive down through and make it very easy do business there. And you’re going to see us grow our business there as well as invest overall.
I asked Chambers about his sudden love of all things Canadian in a brief interview last night. “They have a great education system, and a predictable tax system,” he said.
It’s true: Canada has lowered its federal corporate tax rate to 15 percent, soundly beating the 35 percent rate in the U.S., which is now the world’s highest. Even President Obama is on board with the idea that that rate should be cut. But Chambers has $45 billion burning a hole in his pocket. And from all indications, business is looking up after a few tough years.
So here’s the second of my quarterly song selections, the additional song I promised yesterday: “Blame Canada,” from the “South Park” movie. Naturally.