Microsoft strong-arms hardware makers into social responsibility

After years of failing to get Microsoft to adopt a formal environmental sustainability policy, shareholders seem to have won: Microsoft will now insist its hardware suppliers comply with the company's social responsibility requirements.

Hardware makers will be asked to go beyond good environmental behavior and adopt Microsoft's full code of conduct. These cover legal compliance, business ethics, labor and human rights standards, respect for intellectual property and environmental protection. Two years ago, Microsoft was booted off the Nasdaq Sustainability Index "due to inadequate disclosure of quantitative environmental metrics," according to Microsoft. For the past two shareholder meetings, activist investors have been trying to get Microsoft to take board-level action to improve its sustainability track record.

While Microsoft's new effort "is generally headed in the right direction," environmental activists question how much impact it will really have, says Casey Harrell, an environmental analyst at Greenpeace International.

Specifically, select hardware vendors in Microsoft's supply chain will be asked to file reports and submit to audits. The results will be published in Microsoft's annual Citizenship Report. Microsoft didn't name names but said this policy will affect a dozen of its key vendors and contract hardware manufacturers. Microsoft is also asking that suppliers publicize their own results.

Could Dell be one of those suppliers? One of the policies in Microsoft's code of conduct is: "If applicable, identify the chemicals or other materials being released that pose a threat to the environment and manage them appropriately to ensure their safe handling, movement, storage, use, recycling or reuse, and disposal."

Greenpeace has been after Dell for years to cut the dangerous chemicals out of its electronics manufacturing. It won a concession from Dell earlier this year, when the company agreed to use more environmentally friendly packaging, and has been working with Dell to eliminate toxic PVC plastic and brominated flame retardants (BFR) from its products. A report card on Dell's progress is due out later this year and Harrell says it now expects Dell to push out more PVC/BFR-reduced and PVC/BFR-free models.

In its press release, Microsoft credited the new policy to shareholder John C. Liu, the New York City Comptroller working on behalf of the New York City Pension Funds, with about $120 billion of assets under management.

For the past two years, shareholder activist John Harrington, of the socially responsible investment firm Harrington Investments, has submitted shareholder proposals asking for a board-level committee on environmentally sustainability. Both years, Microsoft's board recommended a "no" vote to shareholders. The board explains that it is already the responsibility of Microsoft's Governance and Nominating Committee to "review Microsoft's policies and programs that relate to corporate responsibility, which specifically includes environmental sustainability," according to statements included in the annual proxy statement. Ergo, a separate board-level committee isn't needed. Microsoft pointed to accomplishments like its "Generation 4" data centers, which drastically cut power consumption.

Last year's shareholder resolution did not pass. With today's news, it is unlikely that shareholders will ignore the board's "no" recommendation and vote in favor. Microsoft's shareholder meeting will be held next month.

Note that Greenpeace gave Microsoft a "C" on its Clean Cloud Report Card in April ]. While Harrell is encouraged by Microsoft's new efforts, she's not convinced.

"In general, more data is good -- especially if this is cross-referenced with other audits. This reporting work becomes much more useful if Microsoft is to actually require its suppliers to adhere to more stringent standards than the law allows," she says adding that specific, high standards are necessary "if Microsoft wants to be game changing." As an example, she points to an announcement by Sprint on Wednesday in which it, too, is now requiring better reporting from hardware suppliers, and also wants them to set goals for reducing emissions.

The rules that Microsoft will push at its supply chain go far beyond environmental standards. Microsoft also wants ethical business practices and regulatory compliance. For instance, in the section of legal and regulatory compliance, Microsoft insists that its companies follow trade laws, do not engage in antitrust behavior (has Microsoft learned its lesson there?) and "Do not participate in bribes or kickbacks of any kind." This is interesting coming from a company that caused worldwide scandal in 2007 for allegedly bullying and bribing members of the International Standards Organization to fast-track acceptance of Office OpenXML.

The company goes on to list unacceptable business practices such as insider trading, and offers a commendable list of no-no's in labor practices, including forbidding vendors to engage in discrimination in its hiring practices, child labor or abuse.

"Microsoft has taken an important step to promote sustainability and transparency among its global suppliers," Liu said in the press release. "If more firms showed such leadership it would hold more suppliers accountable for protecting human and workers' rights, and reduce the legal and reputational risks that companies and their shareholders face."

Apple and Foxconn, we're looking at you.

Bort is the editor of Network World's Microsoft Subnet and Open Source Subnet communities. She writes the Microsoft Update and Source Seeker blogs. Follow Bort on Twitter @Julie188.

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