Leadership and Stock Price Surge: Hardly Any Link!

Cisco Breaches $40 Barrier!

It is not uncommon for business leaders to claim the performance of their company equities is the least of their priorities as their focus is on innovation, market success and all it takes for a fillip to the corporate bottomline.

They have their emphasis right even if investors feel shortchanged. They should not have to worry about why the stock prices of their companies are lagging far behind those of new-generation companies.

Wealth for Philanthropy

Stock market fortunes may have made Bill Gates the world’s richest man (a position he ceded this week to Amazon boss Jeff Bezos).

As market capitalisation determines the wealth of the super-rich, fluctuations keep this list inconstant. What is significant, though, is that the Microsoft founder and several other philanthropists are focused on using their money for meaningful, social causes.

Manipulation by Analysts

Sometimes leadership may have little to do with surging (or falling) stock prices, as market swings are often the result of projections (to me, that is manipulation) by analysts.

During my five-year stay with Cisco (2005-2010), its share price was hovering around $16. Stock options and the Employee Stock Purchase Plan were among the benefits the staff enjoyed. So, they had reason to hope for a market climb.

Cisco did not have its sights set on a booming market. Informally, nonetheless, there was talk of a $40 target. While there was optimism among the staff, it was nowhere near that mark for long.

It was only this week that the stock finally breached the $40 barrier. After hitting the magic number a few days during intra-day trading, yesterday it closed at $40.10.

Cisco’s revenue growth has been dismal, so it can trigger talk of the stock looking overvalued. Its fundamentals are intact with billions of dollars in cash reserves.

Once Close to Becoming World’s First Trillion-Dollar Company

There was a time when I thought it may soon become a penny stock. It is to be noted that Cisco was once well-positioned to become the world’s first trillion-dollar company, hitting $82 during the millennium year.

About 18 years later, no company has reached that milestone yet though Amazon and Apple have been coming close.

Until last year Cisco was helmed by John Chambers, a visionary leader who took the company to phenomenal heights. He presided over it during the days of the market bust as well.

Quarter after quarter, it was exceeding forecasts but downward guidance prevented any climb in the stock price.

Plus, Cisco did not have the practice of paying dividends. Why will investors buy the stock when there are neither capital gains nor dividends to benefit from? They did start to pay dividends a few years ago, leading to a steady climb in the share price.

Elusive Target Under Visionary Leader

I find it interesting that the target proved very elusive when it was steered by a forward-looking, inspiring leader.

I don’t think its current CEO of Cisco, handpicked by Mr Chambers, is anywhere near the calibre of his predecessor. Still, the company has been having a rollicking run in the market, trading at a price that is the highest in 17 years.

To me, visionary leadership has nothing to do with how it fares in the stock market. Leaders with a strategic vision put a company on the pedestal with ground-breaking technologies and sound profitability.

Some marketing spin and market dynamics take companies where investors, institutional or retail, want them to be!

G Joslin Vethakumar



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