NEXT MONTH at the Convention Center in Seattle, Microsoft will convene its annual shareholders meeting. And as if company executives didn't have enough to do

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Storming the Gates

Microsoft faces its first political challenge from shareholders.

NEXT MONTH at the Convention Center in Seattle, Microsoft will convene its annual shareholders meeting. And as if company executives didn't have enough to do explaining why Microsoft stock has lost over 50 percent of its value this year, they will also, for the first time in company history, have to contend with a pair of rabble-rousing proposals from their stockholders.

A Boston-based organization called Responsible Wealth has recruited several Microsoft shareholders to put up a measure that's intended to rein in Microsoft's massive growth in political donations. "Microsoft has gone from hardly participating [in the political arena] to being the second largest corporate contributor of soft money," observes Scott Klinger of Responsible Wealth. So far this year, according to the Center for Responsive Politics, Microsoft has handed out $1.8 million to the national political parties—second in generosity only to AT&T, which has given twice as much. Microsoft and its employees have handed out another $1.5 million in "hard" dollars to individual candidates. (See "Software, soft money, and Libertarians," SW, 9/28/00.)

Responsible Wealth's proposal, which will be voted on by shareholders through the mail and at the November 9 meeting, would require Microsoft to issue a report to its stockholders detailing all it political donations and lobbying expenses—federal, state, and local. Says Klinger: "We want to make shareholders aware of what the company is doing, ask some questions about why the company is doing it, and what the return is on this investment."

Microsoft opposes the proposal, saying, "It is in the best interest of the shareholders for the company to support the electoral process." The company points out that campaign finance laws already require it to publicly disclose virtually all its political spending.

But Klinger says these disclosures are made in "fifty different places." And he points out that Microsoft publishes other supplementary reports to shareholders, such as one on the company's charitable giving.

Klinger knows that this measure won't pass. Such "social action" proposals never do, since most corporate shares are held not by individuals but by institutional investors—such as mutual funds, retirement accounts, insurance companies, etc.—who can be counted on to side with management.

But the objective isn't to win so much as to raise the consciousness of stockholders and the public, thereby pressuring the company into changing its policies. "In the long run we hope to get them to reduce their political spending," says Rosemary Faulkner, a 60-year-old Manhattanite and longtime Microsoft shareholder, who has sponsored the resolution. "I think it's wrong for big money to have so much influence over our government."

HUMAN RIGHTS GROUPS have also targeted Microsoft. A California-based socially responsible investment firm has put up a proposal asking Microsoft to abide by the so-called China Labor and Human Rights Principles. Jeans-maker Levi Straus, toy-maker Mattel, and shoe-maker Reebok have already signed on to these guidelines, which prohibit such things as child labor, prison labor, environmental despoliation, and the suppression of unions.

Microsoft has no manufacturing facilities in China, but it does have a research center in Beijing, with about 150 employees, as well as a large sales and marketing operation. And while no one is accusing the company of mistreating its own workers, John Harrington of Harrington Investments in Napa, California, believes that Microsoft should take a stand on what is appropriate corporate conduct in the country.

He notes that Microsoft was among the many American companies who lobbied heavily, and successfully, to get Congress to establish Permanent Normal Trade Relations with China this year. That took away the leverage that human rights groups used to have over China, as Congress and the White House annually took up the trade status issue. "Human rights groups used to have some impact on the Chinese government through Congress," says Harrington. "That will no longer be the case."

Now, Harrington says, since companies like Microsoft "spent a tremendous amount of money to get access to China's human and natural resources, they have an obligation. We would like to see those companies voice their concerns directly and be a force for democratic change."

Harrington, whose firm has over 100,000 Microsoft shares, says his group tried several times to contact Microsoft on the China issue before finally resorting to the shareholder resolution. He, together with the International Labor Rights Federation of Amnesty International, and a group called Global Exchange, which was heavily involved in the WTO protests, have recruited several tech companies to join a "working group" on China, and they plan to submit a similar shareholder proposal to other tech companies next year.

For its part, Microsoft contends that some of the China principles are "vague and overbroad" and would require action that is "beyond the company's ability to effectuate." And the company says it already has a policy in place that ensures "compliance with the laws of the numerous countries in which the company operates."

Of course, compliance with the laws of China isn't likely to give much comfort to Harrington, who notes, "China is an extremely repressive authoritarian government that will arrest and torture people at will."

But with Microsoft already struggling to stay on top of the the Internet, the Justice Department, and interactive TV, it seems unlikely the company will have much extra time for overhauling campaign finance practices, let alone bringing political change in China.

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