Cisco Systems, Inc. (CSCO) Earnings Call Transcript & Summary

Hello, everyone. Welcome to Cisco's webinar with Jefferies on Corporate Purpose and Sustainable Business Driver. I'm Heather, your Webex host for today's event. On today's panel, we have Fran Katsoudas, Executive Vice President and Chief People, Policy & Purpose Officer at Cisco; and Mary de Wysocki, Cisco's Chief Sustainability Officer. From Jefferies, we have George Notter, communications, infrastructure sector analyst; and Aniket, Global Head of Sustainability and Transition Strategy. In a moment, I will turn the session over to our speakers. So before doing so, obviously housekeeping notes to cover. This meeting will be recorded. [Operator Instructions] And with that, let's get started. I will hand it over to the Jefferies team. Thank you so much.

Hi, everybody. This is George Notter from Jefferies. I cover the communications technology sector here. And we're really pleased to be doing this call with Fran and Mary. Heather just gave their titles, Fran as the Chief People, Policy & Purpose Officer at Cisco. Mary is the Chief Sustainability Officer at Cisco. We did a call about 1.5 years ago with Fran, kind of talking about people and strategy inside companies. I thought it was really terrific. And so we're coming back around to do another shot at this. And my co-host, Aniket Shah, who is Head of Sustainability & Transition Strategy at Jefferies, is going to kind of run the show here. So Aniket, I'll hand it over to you to introduce the call, go through the agenda and get started.

Excellent. George, thank you very much, and greetings, everyone. This is a particular delight for us at Jefferies to be hosting this call with Cisco. Our team has been writing about the importance of human capital, corporate culture and sustainability from a business strategy perspective for many years now, but Cisco embodies this. And they embody it in the way they actually run their company and the performance that comes from running a business that puts people and culture and sustainability at the core business strategy. Very practically speaking, we've been writing for now 3 years about how companies that rank at the top of the Best Companies to Work For list often outperform the broader index. And once again, Cisco has performed as #1 on the 100 Best Companies to Work For list. And so it's just really a great pleasure for us to hear from the people who are in charge of this agenda and of this topic inside of Cisco and really understand how is it that they translate sustainability and purpose and people into real business strategy. So thank you both so much for your leadership and for spending some time with Jefferies clients. We -- I'll hand it over to you now for a presentation, and then we'll go to Q&A. [Operator Instructions] And with that, over to you, and thank you so much again for doing this.

Thank you so much, Aniket. Thank you, George. We're thrilled to be able to do this. And just up top, I would say, we really look forward to the questions and to make this as meaningful as a conversation as we can. I think I would start, Aniket, where you just touched upon because as we go through this work on purpose, what I would say is we do view this as fully integrated with our business strategy. We do view the work around purpose, and I think what some may term as ESG as truly integrated, but also critical for us as a company to drive a level of resilience, to drive a differentiated level of employee engagement and ultimately growth for the company. What I hope you see as we go through is one, I think we're continuing to learn. And I think there's so much that's changing in this space that as we navigate through, we have to rely significantly on data and insights that really guide us on what things we continue or what things we pause. The other thing that I would say is that we are absolutely committed to taking the strength of Cisco and ensuring that they serve as the base of where we invest. And as you know, in the space that we play in, my goodness, we get requests I think all day long for Cisco to do different projects or programs or investments. And the key question that we ask is against the backdrop of Cisco and our technology, our services and our people, where can we have the biggest impact? Do you want to add anything to that?

No, I think that's really the power to me of inventing purpose is really taking the technology, the expertise, the practice, but the [ ultimate ] alchemy of those together and then also thinking about, quite frankly, where we live, work and create, it really comes together. I think as you really think about purpose and how it not only to me drive engagement trend as you talked about the talent, but it also drives really differentiated innovation as well.

It does. And when you think about that innovation and where it goes, there's something really critical for our customers. In new markets, in new areas, they are going to make bets based on trust. And I think a lot of the work that we're doing also has impact on trust. So why don't we go ahead and jump on in? And we'll do our best to leave a nice chunk of time for questions as well, but we look forward to seeing them as they come in. So first, I thought we would start with our purpose as a company. So our purpose is to power an inclusive future for all. And we've had this purpose since 2020. What is really unique, I think, is that when we launched this purpose, we could see our people truly rally around this question around how do we power an inclusive future? How does our technology address issues like the digital divide, the social divide? How do we ensure that in everything that we're doing from a technology perspective, we're thinking about the planet as another example. And so this really frames who we are and how we show up as a company. The next slide here, you're going to see a ton of words, and I apologize for that, and I won't go through all of it. But this talks a little bit to our charter. So we have an organization that I have the privilege of leading together with amazing leaders like Mary, people, policy and purpose. And the way that we view our role is that we are architecting this work for Cisco, and we work together across every organization. You'll see this quite a bit as Mary starts to talk about sustainability. We work so closely with our engineering teams. And what we're trying to do as a company is drive these solutions that are meaningful for the world, for the communities and for our business. And we don't believe that there is a decision point here. We actually think that you can do both. And that sometimes projects that we walk into really impacting a community around the digital divide actually drives a tremendous amount of business for us as well. We also feel that a part of our differentiation and resilience, of course, has to be our people. And the more engaged our people are in our business strategy and our purpose, the more that we see them take the initiative on work -- bodies of work that I think inspire in many cases and drive the level of engagement and curiosity that make us better. And at the end of the day, we know that the strength and the success of our community and our people really impact the world. And one of the biggest examples of this, of course, is sustainability as well.

I think what's so fascinating, even when you just debate what is the future of work and the boring of not only just like today, where we all are, is what it looks like as well.

Absolutely. And that's a really perfect example of where our technology intersects with our people, programs and philosophy in a way that I think not only supports Cisco but our customers. And we'll talk a little bit more about some of the engagement that we've had with customers, especially on hybrid work. So if we go ahead and move forward, what I'd love to show you now is all of that sounds good, but the results, I think, are critical. And I won't go through this. This is actually part of our purpose report as well. But what I want to highlight here is just a few things. The first thing that you'll see is that right now around the world, we're #1 Great Place to Work in 16 countries. And when we view this, we view this as the success of our leadership team because in those 16 countries, we have leaders that are truly representing our business strategy and the work in the communities. And so this is something that we're incredibly proud of. You'll see also, which I think is fascinating, 85% of our employees are participating today giving back to the community. And I always mention this because I think there are 2 or 3 key elements of this. The first is when your people are so active in the communities, we believe that, that is an element of self-care. It's a way that people really feel connected in this world right now where there's so much isolation. We also think it's a way for people to have perspective in the world and what's really going on. And the last thing is that it drives a level of passion and creativity, which we then know we see from an innovation perspective as a company as well. And we'll go into more of these stats, but I would just say that, again, the data, really getting clear with what we pay attention to is critical.

And Fran, you used the word trust before, how critical it is for us to really bolster that trust not only within our employees, our customers and suppliers. And so when you see the data in front of you, it's not just claims, it's measurable results. I think that really helps us not only understand and help us ensure that we're -- our journey is on the right path to drive that inclusive future, but also that we have evidence to really understand what's working and not.

Yes. And I would just say to you that we have a lot more data and evidence today than we did a year ago. And I know a year from now, we'll feel that we have even more. And so that's really important to us as we move forward as well. So now we're going to go ahead and pivot. And what we'd like to do is to talk about some of the solutions that we think really differentiate our offerings for our customers, for countries and for the planet. And I think that's a great lead-in to talking about our Digital Impact Office. So it was probably about, I think, 6 or 7 years ago that we started our Country Digital Acceleration team. And when we did, what we were trying to do is really partner with governments on their digital agenda. And I would tell you that over the last 3 or 4 years, what we've seen with those projects is that so many of the countries around the world and the states and the cities here in the U.S. are focused on what we would consider purpose work. So they're focused on workforce development. They're focused on the digital divide. As one example, we work with the City of L.A., and we looked at a map of the city. And you would expect in L.A. that every single person has digital access and connection. And we could see neighborhoods where there are truly these digital deserts. This is the type of work that we address through CDA. And so what we find is that it's a really beautiful example of where we can set up pilot projects to address these issues, which then become huge business opportunities for Cisco. And I would call your attention to the fact that today, this year, for every dollar that we invest in one of these projects, we're actually getting $22 back. And so it has become more and more powerful, that ROI has grown over the years. And what we have done recently is we brought this body of work and our Networking Academy together because when you focus on these digital projects, people are always at the center of the work.

Yes. And to me one of the things that's most fascinating about the Digital Impact Office in our Country Digital Acceleration is really what does partnership look like, the co-investment, the co-innovation, really bringing our expertise and our points of view together, I think that -- and knowing that early stage is where the most needed investment is. You might have a great idea, but you need those early investors to take that idea to pilot.

That's exactly right. And what's been interesting is that the Digital Impact Office now is not just a government play. We actually have some very strategic projects now with our customers. And to Mary's point, what they really appreciate is the forward investment from Cisco so that we can stand something up. There's something really cool with these projects, which are that they move rather quickly as well. And so we can show a prototype quickly. And again, it's something that inspires our team. I'm going to very quickly hit on just a couple of examples here. So 2 of the projects that we've worked on over the past year, one is around connected justice. This is in Egypt, where they are trying to be much more efficient in helping people get to trial and not have to wait. And so they're moving a lot of their trials online, and this is something that we've worked with them on. You'll see that there was a 25x return on investment. This is something that is viewed as being really positive for the citizens as well. There's a rail project here that you'll see that has actually a very significant return. This was in the U.K. This is work that we did, really focused on safety and security. Two weeks ago, I happened to be in Raleigh, North Carolina, hosting Nigerian ministers that are looking at how they can address the digital divide across Nigeria. And as an example, they plan to invest $2 billion in broadband investments to really connect people that with this connection and with education have a shot at a very different life and a different set of careers, which is good for the local economy. These are the types of projects that are meaningful and that we're a part of around the world.

Fran, you talked about like how do we close that digital divide? And sometimes, I think people think about well, they have Internet access, but it actually is the services, the programs, the capability, the insights, the intelligence. It's what you do on top of that, that I think really creates the value.

Yes. Something that was so interesting was after the meeting that we had with the Nigerian team, our Cisco team was just sitting in the office for a moment. And they said, "Wow," like in this project, we have the ability to impact millions, which I think is incredibly meaningful as well. Why don't we go ahead and pivot to another solution that I think is top of mind around the world?

Sure. I think when we think about powering an inclusive future for all, we can't have that future, that inclusive future without a healthy planet. And we've all experienced 2023. It was the warmest year ever. I think we've all experienced weird weather. But it's also one of the things that we hear from our customers is help us on our sustainability journey. And when we think about really collaboration and what we can come together, I think we can actually create not just a sustainable future but one that we call regenerative. And regenerative really is kind of moving beyond that do no harm line, one where we're building the capacity of our social and environmental systems to heal and thrive. And there are really 3 key priorities here. One is how do we accelerate the transition to cleaner energy? Not only have we been on our own journey since 2005, but our products and solutions really create a critical transition piece as well. For that clean future, that clean energy future, one of the most important pieces is having a smart, modern secure grid as well. I'll give you one great example of where we're really partnering with an Italian multinational energy company. And we work with them to really co-innovate once again in really 3 areas. One is how do we digitize the grid, connecting the grid with thousands, quite frankly, 55,000 servers and routers, which provided the intelligence in a secure way, understanding the flow of energy. But we also navigated the kind of connection between OT and IT in a very circular way. So as we design their network, we design it to reduce energy, reduce space, reduce maintenance. And ultimately, what this allowed this energy organization to do was increase the use of renewables, increasing in a very decentralized way the use of solar, wind, biothermal energy. This is the future. I think as we think about what also needs to be done is how do we continue to invest in circular models. And so I grew up in an age where it was a very linear model, where you would take something, you'd make it, you use it, you dispose of it. Circular economy is an economic model that really is designing out waste, thinking about multiple life cycles, critical to actually achieve what we're hoping for in that climate future. And then lastly, I think we've also experienced the last few years, and Fran used this word as well, resiliency. We are only as resilient as the societies, the economies, the communities that we operate in. And as we kind of move to this, not only digital but low-carbon economy, both kind of digital and green, how do we help build the skill? How do we help that community adapt to this new reality? And we know technology play a critical role in not only providing insights, more information about shifting and changing weather, but how do we really support the kind of the biodiversity as well. One of the key things is like, well, how do we know we're making progress? Part of it is by being super clear about where we need to go and reporting out, Fran, as you mentioned, a purpose report in the ESG hub. So we're so proud of our commitment to be net zero across our value chain by 2040. And it's validated by an organization called SBTi, the Science Based Targets initiative. That's important. It's based on climate [ science ]. This is what we need to do. I'll give you another interesting announcement we just made recently is investing in a Spanish renewable energy company called IGNIS. And what it's going to allow us to do is add new capacity, new renewable capacity to the grid. It will provide 60,000 megawatts of solar energy. It's going to allow us to match like 100% of our electricity use across Europe. But what's important is where it's happening. It's actually taking place in a critical part where Spain has identified for digital transformation in a rural part of Spain, the Aragón region. So it's not only going to create new solar capacity, but jobs and innovation really driving that inclusive future. I think one of the critical elements is we even design our products to talk a little bit about how we inspire our engineers is really thinking about designing what we call circular principles into how we think about our products. Are they as energy efficient as possible? Are they really modular? Are we designing out waste? How are we thinking about reducing waste in packaging and others? A critical part that we're hearing from our customers as well. Also thinking about what we're hearing from our customers in terms of really wanting us to take their product back, make sure it's going to its next best life. And then, of course, really thinking about once again that early-stage investment through our Cisco Foundation, making a commitment to investing both nature based as well as technology solutions that will help us create that net zero future, absorbing not only carbon from the atmosphere, protecting the biodiversity, regenerative agriculture, but it's helping that transition.

So it's funny because as I listen to you, two thoughts. The first is, I hope you can all feel Mary's passion. And what I want to say is that as we do this work, we're not working on a checklist of things that we have to do from an ESG perspective. We are working on bodies of work that we believe are also critical to our customers. So last year, we looked at our top 100 customers that are part of our advisory board. And what we found was that every single customer had a commitment from a sustainability perspective or a net zero perspective. And it allows us to understand that as we do this work, we can then share and learn together with our customers, which I think is so important as well.

And you also kind of talked a bit about kind of good for the world, good for our business. There are now so many growing examples. One that comes to my mind is a data center upgrade with one of the largest financial services organization. Not only were we able to provide the newest solution, increased bandwidth and capability, but the amount of energy reduction as well as space is tremendous. So I think it's connecting the dots in terms of not only how our products can help achieve their sustainability goals, but quite frankly, their business goals as well.

Agree. So why don't we go ahead? We're going to go ahead and just pivot here for a moment. And the next area that we want to look at when we think about our charter is how do we engender the trust, how do we integrate purpose to really drive growth and resiliency? A big part of that, of course, is through our employee base. And so I wanted to just share a couple of stats here as well. And again, these are all within the purpose report. But first, I would just call you to the middle of the slide. So 81% of our employees believe that their leader knows them well. This is something that's incredibly important. When we look at our data as a company, leader attention is absolutely linked to overall retention. As we were going through the Great Resignation, what we could see was that we were approximately 10% lower than the rest of the technology industry. So when the technology industry was at 22% attrition, we were at 11%. And when it came down to -- I think it was like 12%, we were in the low digits. And so we are always a lot lower. We believe that it's the leader attention and the focus that we've put on teams that allow us to be there. And again, I think we all know that when you have high attrition, the costs associated with that, the business impact that is associated with losing people is significant. And so this, for us, is a huge cost driver as well. And then this next slide is kind of fun because I think it just showcases some of the amazing people that we have at Cisco. And one of the things that we believe in, and George and Aniket, we've talked about this a little bit before, which is this concept of a Conscious Culture. We believe that every single person in the company owns the culture. And when you feel like you own something, you treat it a lot differently. And so what you see here are some great projects where we have individuals leading the way and great ideas that they bring forward. The first is Praveen, who works in supply chain. And he's doing amazing work around circular design, and a lot of what he's built is being leveraged more broadly. And like Mary, you can see his passion in his work as well. The middle example is giving back opportunity. So it was probably about 6 or 7 years ago that we started working with Covenant House. We have raised $10 million for Covenant House. When I say we, that is largely our employees. Every year, our employees sleep out and sleep outside as a way to just demonstrate the empathy and understanding around what unhoused teens are going through. This is something that was not corporate developed. This is something that an individual had a great idea. And we had almost 1,000 people sleep out this year. And then the last thing that you'll see here, and I think this is really cool, and there's so much more that is coming. But we ran a hackathon in the people and purpose space. And we asked our people like, what could be automated or changed from an AI perspective? And there were 6 winners of this hackathon, all of which are amazing ideas. What we see is a great opportunity to really intersect AI with recruitment, with performance. The project that you see here mentioned is really around how we can use a people data bot to get leaders the insights that they need to make great decisions.

I think what you kind of see across the board is not only living examples of our culture, but also how critical, I think, purpose is to really create the inspiration. One of the key things that I always grapple with is we are thinking about what will the next products be, how do we design the most secure, the most modern, the most energy efficient? It's really asking sometimes with challenges as well as going how can you not only solve this engineering challenge but do it in a way that's environmentally friendly as well? I know most of our early career candidates friends, where do they go first? They go to the purpose report to understand, well, what is it we do and how, quite frankly, real is it?

Okay. So will you share the stat around how the views of the purpose report have grown?

It's fascinating, and this is where we started our first, I think, kind of corporate citizen report since 2005, but we're seeing 100%-fold increase in people looking at the report, downloading it. And what we also found is people want to understand even more deeply. So one of the things by creating a hub, ESG hub that's searchable, you're really able to go deep. What is the strategy? Let me understand historically, let me see the progress, where are we going and all of those use cases that I think really brings it to life. So we are seeing often our most important stakeholders. [ I still think about ] our early and current talent, our investors, our customers and suppliers and especially with our customers, because we're looking for ways that we can connect the dots in our expertise, our focus on values to really change communities.

Yes. So two quick points here. So the first is that our recruiters tell us that people have looked at our purpose report before their first interview with Cisco, which is wonderful. And to your point, get to some of the talent that maybe is coming right out of college and have some very specific thoughts and needs around where they work. The second point is that we find now that our sales team use the purpose report as a way to have strategic conversations with our customers. And so what they'll do is they'll look at the purpose report of their customer, they'll look at ours, and they'll find an area where we actually have a lot of maybe healthy passion together as companies. And they'll use that to drive a very different dialogue with their customers as well.

And I think that's one area, especially in the sustainability space. When you think about carbon accounting, and you all may not be living and breathing it as much as I do, but the way carbon accounting is set up, is identified our interdependency across our entire value chain. So quite frankly, we need to move together. And the way we do that is share methodologies, practices, learnings. And the faster we do it, the faster we get the climate future, the inclusive future we need.

Why don't we go ahead and take a look quickly at what purpose looks like in the workplace. And it's kind of cool to have this conversation here. So we're in our New York office, which we started rebuilding right at the time of the pandemic. And what we did was we started first with sustainability and technology. And so this office has all of our tech around Power over Ethernet, our smart spaces, and a very thoughtful consideration of the employee experience. Something that I would say is I'm always surprised in some ways around how important the office is to your employees and to your customers. And I think it signals so much about your brand and what you care for. And so what we've done around the world and real estate, by the way, is part of the people, policy and purpose organization. It's really strategic for us to think about sustainability and people as we think about our real estate. And so we get really clear around where should we be. As we try to build the most innovative talent in the world, how do we actually look at diverse talent and how do we ensure that we are there? How do we ensure that when we are present in a city, we're actually embedded in the community where our networking academies are right there as well that we have engagement with the students and that we can showcase how our technology is being used.

If we use a terminology, I'm not sure everyone might know, Power over the Ethernet. Basically, you just imagine, right, you've got a wire that traditionally, we're able to send data and voice. And now we're able to also send a little bit of energy as well. What that allows us to do is create not only a lot of information coming back, occupancy, but it also can control things like lighting and our blinds and providing a ton of information. So as we dug in pre retrofit to post retrofit, we were able to reduce our energy consumption by 36%. And I think that's one of the other pieces that as I was thinking about technology driving efficiency, but what it also did here, I think, is really create the ability for us to bring our customers in to talk about what does work look like for them? What does collaboration look like for them and how technology can work for us?

Absolutely. So why don't we go ahead and pivot to this last piece? And then we look forward to questions and thoughts. And so everything that we've talked about really comes together for us around how we can positively impact the world, including the most vulnerable and underserved. And I'll touch on just a couple more examples here. One of the things that we did in South Africa is we opened something called an EDGE center. And an EDGE center was focused on conversations we've been having with the government around job creation. As many of you probably know, in South Africa, the unemployment rate is somewhere between 30% to 40%, and it's worse for young adults. And I think all of us know that when a country has that level of unemployment, it carries a tremendous amount of risk as well. An EDGE center was created for us to actually build kind of the next generation of Cisco partners that could sell our technology but most importantly, build new careers and talent. And so we created these EDGE centers that are just ceiling to floor full of technology. New entrepreneurs could use this space as their office. They could host customers. We mentored and trained them around how to become a Cisco partner. And as a result of this, hundreds of jobs have been created. We have one partner in particular where when I met him in 2018, he had 2 employees. And now he has over 200 employees. He's done so well that he now has this great business that he's running. And there are so many stories like that, that have come out of the EDGE center. And so it's another great example of how we can partner based on a need, bring our technology, our broader ecosystem. And there's definitely a win-win there for us as well.

I think one of the most interesting things that I see through, Fran, the people, purpose and policy organization is starting to knit together as we really think and take a very community-centric lens. So our Networking Academy building those skills, but now you layer on the EDGE center where you're really not only taking the skills but nurturing entrepreneurs. That creates real impact.

Absolutely. And since that time, we've opened up 7 EDGE centers. I would say they're all a little bit different based on the needs. We have one in Cape Town that's focused on female entrepreneurs. We have one in Nigeria. We'll open another one here shortly. And so this is some of the work that we're doing. I think Expo City in Dubai is just another example of a smart city. And this is a good example of how our secure networking technology came together with a vision for a city and for opportunity as well. And so as we wrap here, I would just say that we believe that we succeed when our purpose really drives that securely connected world for all. And again, it's truly embedded in everything that we do from a business, from a people, from a purpose perspective. And with that, Aniket, we'll hand it to you for questions or thoughts.

Great. Thank you so much for such a comprehensive presentation and for the dialogue between the two of you, which I think we all really enjoyed. It seems like you are working very closely together and enjoy what you do, which is such a -- which can be felt through the Webex. [Operator Instructions] I've been managing all the questions that have come in on my other screen here. So I'm going to go through a few of them just to start, and then we can take it from there. So the first question is -- has to do with this 100 Best Companies to Work For award, which not just in the U.S., I must say I didn't realize it was in so many different countries. Last time we were together, one of the points that you made was that one of the reasons that the company has done so well in this is this 2-way conversation, very transparent discussions between managers and their employees around where they are, what needs to get better, et cetera, et cetera. So it's a very transparent and open environment. Can you just give us a few more minutes about how it is that you have skyrocketed and then remain at the top of these rankings? What is it -- what actually explains your low retention rate and you being such a magnet of talent in the space?

So first, I would say, I do think it is about our leaders. I think we recognize that the experience that you have on your team is, in many cases, how you see the company. And so we've invested a lot as a company on how do we build best teams. Something that I'm sure I shared last time is that we started this effort with data. We went out to leaders and we asked them, identify for us the best teams that you have within your organization. And they've identified about 100 teams. And then we ran kind of a sample of a control group, and we looked at the differences between the teams. And what we could see on the teams that were the most productive, the most engaged is that they were inclusive, that their leaders were paying attention, that in many cases, the members of the team felt that on a day-to-day basis, they were playing to their strengths. That's something that we know is incredibly important to innovation as well. And so that was the start of how we really started to shift the dialogue around the expectations that we have with leaders. And then I think you overlay some of the practices that we have around open and transparent conversations. And so on a monthly basis, we bring all of our 80,000 employees together. And I will tell you that the chat and the questions that are asked demonstrate that our employees feel confident challenging our leadership, bringing issues forward. And again, for a technology company or a company that wants innovation, you need that. Because in the same way that someone is willing to say, "Hey, Fran, I don't think this program makes any sense." They're also going to say, "Hey, this customer needs something, and I have an idea around how to address it." And so I think for us as leaders, sometimes it's hard because you're getting these really hard questions or these challenging questions. But I do think this is a part of why we are where we are.

I think it also kind of comes back to how we create, we embody the culture. I think creating that open and transparent to ask questions on the newest Silicon One chip and how we've designed it, all the way to how do we show up in the communities, I think it creates that especially to me, in a growing hybrid land, it creates that sense of community. And I think the ability -- it's fascinating having, I think back many, many decades ago, where the only time you might see your executive is if you went to a physical place. The ability to see your executive monthly and ask questions directly is very powerful.

And to see them at home, yes.

Yes.

That was something we learned because when you see someone in their home environment, you learn a lot about them. Even before this call, we chatted about where each of us were and why. And it drives a little bit of a different dialogue versus kind of the -- maybe the static office conversation as well, which is meaningful.

Yes. Great. Okay. That's very helpful. The questions come in. What is the impact of artificial intelligence, both in terms of purpose and opportunity but also in how you're thinking about the changes to people's work, to employees' work?

So I'll start with the opportunity and then move to people. This is an area that I will say we're really excited about. And so when we think about AI, what we know is that our technology is going to be central to AI infrastructure. And we know that AI is going to demand more of the network. And I think when people think about networking, they think about Cisco. We know that Ethernet networking, especially with some of the partnerships with NVIDIA as an example, this is incredibly meaningful for us. And so there's that element, which is like a direct intersection with our technology and how we'll support our customers in managing workloads. But then I think you have a couple of other areas. So one is this intersection of GenAI and AI across the portfolio and everything we do. And I think a lot of people know that when you're on a Webex call, there is AI in the background that removes all of the nonhuman sounds. And so if you have a vacuum cleaner going, the person you're talking to is not going to hear that, if there's a dog barking. All of these things have happened. That's a fun use case of how AI kind of has cut across our technology in the past. And we know that there's a lot more to come. And we hope and believe that as we move into GenAI, we're going to introduce a level of simplicity for our customers in an area that I think has been complex for a very long time. As it relates to our people, we do believe that GenAI will increase the opportunities that we have. We also know that we have to be careful because we are at a place right now where every few years, we're having to really rethink and look at the skills that we need. I think we have to do a better job on just staying on top of that and making sure that our employees have the skills of the future as well. That's something that's just a huge area of focus for us. But we think it's opportunistic. We know we just did a readiness index with our -- with the IT leaders around the world. And what it told us was that 97% feel an urgency to have a plan in this space, and 14% say that they have it. And so I think that's a great opportunity for us as well.

One of the things that I always grapple with is some research out there that talks about like from a sustainability perspective, IT, the IT sector is responsible for maybe 2% to 4% of carbon emissions. But if you deploy technology solutions, it is the opportunity to reduce our global emissions by 15% by 2030. I think you add on generative AI, the efficiencies, the modeling, that can be even greater. So I think as we think about deploying it responsibly and mindfully, it can have a tremendous impact.

Great. A question has come in about the -- you mentioned the data, the evidence that you use as core drivers of the strategy. Can you talk about that process in a little bit more detail? What does that actually mean in practice? And then relatedly, just a question from me. When you discussed these country digital accelerators, you had -- you mentioned that for every dollar that you invested, you had $22 in returns. Can you just explain that data point in a little bit more detail? What do you actually mean by that? How do you calculate that and so on and so forth?

Why don't I start there, and I mean if we can do the data together, if that works. So when we work with a government agency or a customer, we start first with a workshop to address the biggest challenges that they have. As an example, yesterday at the Governors Summit, we were talking with a lot of the governors about transportation projects that they have. And we were talking about how do you modernize some of the infrastructure. That's a great example of a problem statement that would drive us to have a workshop session. And from that, we pick a project that Cisco is willing to invest in building a pilot that the government could look at. And so we invest in that pilot. We use, by the way, not just Cisco tech but any tech that's required to stand up the solution, and then we present that back to the government. And if they are interested and they're open to walk away as well, then they can actually buy the technology and we support them in rolling it out. That purchasing of that solution is where we get to 22x the pilot that we create, if that makes sense.

Got it. Makes a lot of sense.

And then as we think about measuring what does impact look like, I think you really have to be clear about the kind of impact that you're looking for. So for example, Networking Academy, around for 25 years. What was really important is really [ what it takes ] to develop employable skills. So you really think about not only, yes, we need to track are they registering our course. But can you see them progress through that learning pathway? Are they getting certified? And quite frankly, we follow them all the way to employment. On the social side, again, it's like what kind of changes are we looking for, using in the nonprofit space, often this concept of a theory of change. If we do this, we expect this to happen. In environment, it's so important that the claims we make are as trusted as every technology claim as well. So one of the things that we've incorporated is a process that every environmental claim, for example, I mentioned a 36% reduction of energy here in our New York City PENN 1 office. That's validated by the subject matter expert, the chief sustainable office, legal and finance and then making it very transparent in our purpose and ESG hub. So at the end of the day, I think what data is, is it gives us that insight in terms of are we on track? Is it a leading indicator that we keep going? Or do we need to pivot? I think it's also super critical when we talk about CDA or the Country Digital Acceleration because for us to really create the maximum, that is about not just the pilot, but it's driving further adoption and scale. And it's that evidence that, to me, I see really creating an accelerated adoption.

I'll add two quick things to that. So the first is that we've had to learn a little bit too because in the sustainability space, you have to be so thoughtful with the claims that you put out there, the measurement. I do think it makes us better. But to Mary's point, everything that we put forward, we're triple checking, engaging finance, engaging legal, ensuring that we have a structure that's lasting and how we do that. I'll give you one other quick example. We invested $350 million in social justice efforts right after the murder of George Floyd. And a lot of those efforts were about how we could use our own technology to modernize the tech from an HBCU perspective. And so we are working with -- I'm guessing about 70% of the HBCUs right now across the U.S. and in particular, helping them quite a bit from a security perspective so that they can actually then qualify for some of the government dollars. While it was not our intent, what we have found is that we are doing so much more business with these HBCUs that we just hadn't planned on. And so it's another good example of how we show up to do some of the right work, and then there's a huge business opportunity as well.

That's very clear and that's very helpful. A question has just come in via email about the involvement of the Board in this strategy. Can you walk us through how the Board is involved? What is their committee structures around these kinds of topics and just their involvement on this broader element of your business?

Happy to. And it's evolved, and I think it's probably evolved for many companies. And so it was probably about 1.5 years ago that we -- that the Board launched a new committee, and that's the Environmental, Social, Public Policy Committee. And what it allowed the Board to do is to have a subset of the Board going a lot deeper in everything that we've been talking about today. And as you would imagine, there's other topics like around regulations, some of the changes from an EU data perspective that we come together and discuss together with the Board. And so what we do is we spent quite a bit of time with the ESPP committee, and then we take the content from the committee and we have regular readouts to the full Board. And Mary, I think you have been presenting at least twice a year to the full Board on sustainability. Typically, we frame that in the broader purpose work as well. And so I think it's -- we spent quite a bit of time. I think how we spend our time will continue to evolve because now we've established a baseline. And probably common language that we received from the Board and the reverse, that really helps us get to some of the more critical issues as well.

That's helpful. I think it's the single most important aspect of this topic is Board buy-in and Board focus on it because then it'll drive compensation, and it will drive what the CEO and the management team thinks is important and so on and so forth. So that's really helpful to hear about that evolution of the Board structure and focus on that. Sorry, a question has come in. Let me just ask it here. Given the changing and complex nature of sustainability regulatory environment, can you just talk to us about how you see the importance of leveraging digital systems? How can these systems help companies better understand their own businesses and their reporting requirements? And just to add to this, this is such a pain in the, you know what, for so many corporates, the alphabet soup of regulatory and reporting requirements. And it's changing by the minute and so on and so forth. How does Cisco fall -- how do -- where do you play in that whole game?

We've been kind of on this journey for almost 2, 2.5 years as we started seeing, right, voluntary and financial reports coming together. And so one of the first things we started doing is looking at, for example, our climate data and really understanding and building out the practices that you would with financial data, the control, the auditability. But over a year, maybe 1.5 years ago, one of the key things that we recognized was how do we start digitizing that? So we came together as a company creating a sustainability data foundation. What is the strategy? What's the taxonomy? Building out that database with your product carbon footprint, that allows us now to take that information. And depending upon what we need it for, whether for own reporting, our own engineering teams, APIs into dashboards, whether it's the CX Cloud and others, it's so critical that you not only -- I think great dashboards, but at the end of the day, how accurate is the data? Do you have the controls in place? So we're well on our journey there. It also is going to allow us to do our modeling as we anticipate where and how the world is going to shift and change over the next 15, 20 years. I think one of the most important things that we're hearing from our customers is this is what they're looking for is help us understand because [indiscernible] interdependency. Our biggest footprint is the electricity that is required to power our products in the field. So our customers are asking us. We're often their #1 vendor or supplier and how are we measuring it. What is that embedded carbon all the way back to capturing the mineral to the manufacturing to logistics? So we're well on our way here. I think this is what's important is building that data foundation that will allow us to support full-stack observability or CX Cloud, the dashboards or other areas that really puts the control in our customers' hands, where they understand the ability, for example, just with Webex Office Hours is saying, hey, we can actually turn things or put things in that trial to actually conserve energy. So well on our way. I do think this is an area that we all as customers, partners, suppliers need to really collaborate on because at the end of the day, the information is only as good as the accuracy of that data.

Great. We have a couple of minutes left, so I'm going to take the moderator role and ask the final question. We have many, many investors on the line, folks who represent basically every major investment firm in the world. They're on the line because they're interested in Cisco, and they're also interested in analyzing companies from this vantage point of human capital and corporate purpose, these intangibles of a business that we all think matter a great deal. If there's one or two things that you want this community to know about your approach, that they'll take with them as they go back to their bosses and to their CIOs and say, "This is what really differentiates Cisco on purpose and sustainability." What would those issues be? And are there anything that -- are there any things that you would like them to focus on over the next 6 to 12 months as they're following Cisco so that they can ask you about it a year from now when we have this conversation again?

So I would say that the biggest takeaway, I think, in everything that we've talked about is that this is not a body of work that sits on the side. I think years ago, CSR was something that sat on the side, and you would do it when you could. This is truly integrated into our business, and we do think it differentiates our performance as a company. And I would say that front and center for us is the ability to continue to innovate and to continue to have a culture that is pushing forward and especially in some of the areas like AI and cybersecurity. And so what I would say from a follow-up perspective is that the conversation that I think we really look forward to having is how does AI intersect with purpose? How does purpose intersect with cybersecurity? And how in the work that we're doing can we actually drive difference for our customers and the communities as well?

That's great. And I'll just say that your willingness and interest to do calls like this is, to me, the best indication of how real this is for Cisco and for your corporate leadership. You would be amazed or maybe you wouldn't be amazed that many of your peers at top-tier companies aren't so interested and eager to have this kind of conversation. And it just shows that you really do consider this a core asset of the business that you want investors to know about and to appreciate and to have honest dialogue with. So I just wanted to say on behalf of George, myself and Jefferies and our clients, we just so appreciate your time for this discussion. I'm sure folks on the line will have follow-ups. And if they do, please reach out to either the Jefferies team, and we can facilitate it or directly to the Cisco team. And we look forward to more and more discussions like this in the future.

Thank you so much.

Thank you.