John Morgridge, MBA '57
BY JENNIFER REESE
In 1988, venture capitalist Don Valentine was looking for someone to head up a small company he had invested in. The founders of this promising little firm had a great product-- routers that would connect different types of computer networks -- but they weren't the kind of powerhouse managers who were going to make the venture worth Valentine's while. Valentine played in the big leagues. He was, after all, one of the earliest investors in Apple and Oracle. At around the same time, John Morgridge, then 55, was looking to leave his job as president of Grid Systems, a struggling maker of portable computers. A headhunter put him in touch with Valentine. The stupendous match between Cisco Systems and the ceo who built it into a billion-dollar company was arranged by a headhunter.
Although its origins are prosaic as corporate marriages go, this has been an incredibly happy one. Morgridge, winner of this year's Ernest C. Arbuckle Award, took Cisco public in 1990, and since then the stock has risen 66-fold. Today, the company owns more than 50 percent of the exploding worldwide market for internetworking technology.
| For all his econ-omizing ways, Morgridge is no Scrooge. He's an exceptionally generous person. I'd like someone like him for a next- door neighbor."
-- John Chambers, Cisco CEO |
"Spectacular" is how Valentine describes Morgridge's tenure as CEO, which ended last year. He credits Morgridge, who now serves as the firm's chairman, with listening carefully to customers, keeping a sharp eye on costs, and breaking through all the barriers the company encountered in its first decade. "John also has a personal ingredient I consider very important," says Valentine, "the ability to be outrageous."
Particularly when it comes to speaking his mind, which he did over lunch in the crowded Cisco cafeteria last December. Topics ranged from his legendary frugality to education ("if politicians think they're going to drop education in the laps of corporations, they're crazier than hell") to Cisco's colorful history. "Don't ask him something if you don't want to hear the answer," advised John Chambers, who succeeded Morgridge as CEO last year. "John's a Midwesterner: What you see is what you get."
Morgridge grew up in a suburb of Milwaukee, a "child of the Depression," he says. He graduated from the University of Wisconsin in 1955 and from the GSB in 1957. After three years in the Air Force, he signed on as a sales representative with Honeywell Information Systems. "Salesmen usually end up being president of the company," says Morgridge, "so if you want to be president, it's not a bad place to start."
But Honeywell may have been a bad place to begin, Morgridge says. He quickly developed a profound dislike for the pie-in-the-sky planning common to many American firms. "Every year at Honeywell there was an ambitious new five-year plan," says Morgridge, a pragmatist to his very core. "We never made the first year of the plan. It was an exercise in something, but I'm not sure what."
He stayed at Honeywell until 1980, then moved to Stratus Computers, where he served as marketing vice president. In 1986 he was hired as president of Grid. "It was dreadful," says Morgridge. "Companies have personalities. Have you ever met someone for whom, no matter how they live, life is always trouble? That was Grid. Every day I'd come home and my wife would say, 'What happened today?' And something had always happened. A supplier crapped out. The government put a 100 percent duty on flat plasma screens. It was endless."
In 1988 Tandy purchased Grid, and Valentine offered Morgridge the top job at Cisco. Morgridge was convinced that the next big opportunity in the computer industry was going to be tying systems together, and he thought Cisco had the right idea. But he didn't want to hook up with another lost cause.
"I got a list of customers," says Morgridge. "It wasn't a long list: a dozen names. I called them all and got through to eight. I asked three questions: Are you currently using the Cisco product? Do you like it? And are you going to buy more? All eight answered yes to all three questions." And Morgridge took the job. "It seemed like a logical decision," he says.
Logical, yes, but not without its problems. "This was a cottage industry that was populated by friends of the founders," recalls Morgridge. "And while many were enthusiastic, most had no particular competency in the area they were working in, including the founders. So, in those early days it was kind of like joining a family. And families are not always open and receptive."
The founders of the company, Len Bosack and Sandy Lerner, were an interesting pair. Bosack had worked in Stanford's computer science department and Lerner had run the computers for the GSB. The two systems were unable to communicate with each other -- until Bosack invented a device that linked them. He and Lerner borrowed against their credit cards and started a company.
If the founders and Morgridge agreed on little else, they agreed on one fundamental goal: that the company should go public. And the day it did -- February 17, 1990 -- the stock jumped 24 percent. Nine months later, Lerner and Bosack left the company and sold off their holdings, valued by then at $170 million.
"I was already quite wealthy when I took the job," says Morgridge. "I was in a position where if I were fired or had to walk, I could do it. I was ready to take it on. I had over 50 years of training for the job. And, believe me, I needed every year."
Morgridge tried to build a culture that avoided the problems he'd encountered at firms he'd worked for in the past. First of all, he never instituted unrealistic five-year plans, like those he'd grown up with at Honeywell. "At Cisco we build a one-year plan with 80 to 90 percent assurance we'll meet or exceed our goals, so it's not a stretch," says Morgridge. "Then we modify the plan, because we're conservative."
The result: Cisco sets goals it has a good chance of attaining, directs all of its energies and resources toward attaining them, and more often than not succeeds. "One of the things I've learned is don't start things you don't want to continue. They're really hard to stop. For a company to reshape without a lot of animosity and low morale you have to have a catastrophe. Minus that, it's very hard."
As an illustration, Morgridge brings up what he calls the "soda pop issue." Since its early days, Cisco had provided free beverages to its employees. A few years ago, as Morgridge recalls, "We tried to reduce from maybe 50 flavors to a couple of dozen." Cisco employees were outraged: A perk -- however insignificant -- was being scaled back. Says Morgridge: "It shut the place down."
Offering a wide array of free beverages is an anomaly at Cisco. In the interest of running a lean company, Morgridge almost never allowed employees to get used to any perk he might later want to take away. No one at Cisco flies first class, and top executive officers -- the CEO included -- work in spartan 12-by-12 offices.
"John is the only president we've ever financed who is cheaper than I am," says Valentine. "And I am very cheap. One of the things I was warned about when we were doing reference checks on him a long time ago was that when you have dinner with him, don't let him choose the wine. I've always carefully heeded that advice."
Morgridge, who is proud of his reputation for thrift, has been able to establish an economical culture at Cisco in large part because he believes frugality begins at the top. "You can't have double standards," says Morgridge, who regularly topped lists of the lowest paid CEOs. "Someone flies first class, no one else does; he gets a suite, no one else does. You can run the company that way, but don't expect employees to be excited about it. Particularly now, because companies are so much flatter. The positive impact of the electronic world is that you can create a worldwide culture; the negative is, when we tried to make do with 24 flavors of pop, it lasted one week, and there was all this e-mail about second-class citizenship and 'how come we can't have Snapple?' There's very little that's not known."
Morgridge's penny-pinching has helped ensure that there are more and more pennies to distribute in the way of earnings, which has driven up the stock. This has benefited everyone who works at Cisco: Every employee has stock options. Of course, Morgridge has profited more than most. His stake in the company is valued at around $450 million. And, if his predictions about the company are correct, Cisco's stock -- and his net worth -- should continue to soar.
"It became quite clear two years ago that we were going to wire the world," says Morgridge. "Don Valentine makes the point that there are three factors you have to consider when you're investing: market, market, market. And if you want a huge success, he's absolutely right. There are very few companies that have arrived at a billion dollars in sales in such a short period of time and have the opportunity of equal or greater growth in the next five years. This company does."
With that kind of prosperity, the company is starting to reach out to the community. For all his economizing ways, Morgridge is no Scrooge: Cisco has a growing reputation for philanthropy, which is rare in Silicon Valley. "The only place he's not frugal is in his charitable contributions," says Chambers. "He's an exceptionally kind, generous person. I'd like someone like him for a next-door neighbor."
Last Christmas, led by Morgridge, Cisco raised almost a million pounds of food for Silicon Valley's Second Harvest Food Bank. But true to the company's conservative culture, it started with a modest goal of 250,000 pounds and ended up with a million. Morgridge matched the company's contribution with $51,500 from his own pocket. "Individuals and institutions that are uniquely blessed have an obligation to contribute," he says.
He is also passionate about education. In 1991, he walked across the street from the company's Menlo Park headquarters (Cisco has since moved to San Jose) to a cash-strapped East Palo Alto school. Cisco proceeded to adopt the school and has provided it with hundreds of thousands of dollars worth of equipment and time. "I don't know how anyone here in Silicon Valley cannot sense that education is fundamental to its success," says Morgridge, who also chairs a committee that tries to get businesses involved in supporting community colleges. He is concerned about the decline in government funding for education, including support for college and universities. "We hire a few high school graduates, but it's a very few," says Morgridge, "And who's doing the basic research?"
Which brings us to the latest chapter: his retirement, at the age of 61. On the very long list of things he'd like to do now that he has time: teach school. "The basic reason I retired, and I planned this quite a while ago, is I believe it's important to cycle management and boards of directors on a regular basis. Ernie Arbuckle said ten years; I won't argue whether that's right or wrong, but in most circumstances, it had better not be any longer than that," says Morgridge. "There are a lot of chief executives who have done their companies a great disservice by staying too long." Moreover, when a CEO stays too long, he or she stands a greater chance of being abruptly deposed. "Then the whole thing falls into the tank while you sweep up and restart," says Morgridge. "Much better to say, look, I'm stepping out of here on a given date, and I therefore have the responsibility of getting a replacement by that date. Then the transition is seamless and the company doesn't get excited."
But it's not just for the good of Cisco that he retired. "The CEO of a company is a unique asset that ought to be employed 24 hours a day," says Morgridge. "I didn't want that job. I want to be able to do things without feeling I have to be in an office at 7:30 every morning. I want to bicycle around Lake Michigan. Or learn to shoot a shotgun better or play golf. Or be on the board of something other than a company. Or teach school." True to form, Morgridge has set modest goals for his retirement. But if history is any guide, he'll reach his goals quickly -- and then raise the bar.
What you see is what you get with John Morgridge, MBA '57, the chief executive who took Cisco Systems from $5.4 million in sales to $1.2 billion in seven years.
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