Microsoft most widely held stock by socially responsible mutual funds

While researching my latest story, Investing for Change, I was surprised to learn that Microsoft is the most widely held stock by socially responsible investment (SRI) funds, especially given what I'd learned reporting on Microsoft's corporate citizenship in my last article, Citizen Microsoft (story, follow-up).

According to environmental author Paul Hawken's recent report on the SRI industry:

The most widely held corporate investment in SRI mutual funds is Microsoft, a company known for its ruthless, take-no-prisoners management tactics, a company that was indicted by the U.S. Justice Department for violating of the Sherman Antitrust Act, fined by the European Union for violating the law for its competitive practices, and sued by twenty State Attorneys General for numerous charges including antitrust. President Steve Ballmer was quoted by one of his executives as calling sustainability and green buildings "expensive nonsense." Microsoft's operating systems and software are legendary for their security lapses and poor quality. In the software industry itself, Microsoft is almost universally loathed, not for its size (which understandably engenders envy), but for its scorched-earth tactics that competitors describe as dirty, unethical, and dishonest. And finally, Microsoft has yet to issue a substantive report on corporate social responsibility or the environment except for an online document called the Citizenship Report, which contains commonplace language about integrity, honesty, recycling, community involvement, etc. Without doubt, the institutions that receive gifts from Microsoft are grateful, even when the gifts are intended to imbed Microsoft software and operating systems in schools and other institutions. (The contributions of the Gates Foundation are a function of the Gates family, not Microsoft.)

The Calvert Social Index evaluation of Microsoft says that, "Aside from its legal troubles, the company has a number of exemplary practices," and goes on to other issues such as workplace issues, international operations and human rights, and community relations." The Calvert report is emblematic of the SRI evaluation methodology, which this paper will later address. Essentially, the company's business model and ethos is completely or partially ignored while the internal practices, the kinds of things that can be reported upon in questionnaires, are analyzed and graded.

You can get a sense for the type of screening done from the public summary for Microsoft on the Domini 400 Social Index.

As I wrote in Investing for Change:

When I asked about this of Geoffrey Ashton, vice president of marketing at SRI firm Calvert, he said, “We have our issues with Microsoft, as well. Let me also lay it all out here and tell you every company that we own is a compromise—there is no such thing as a perfect company. Does not exist.

Says Domini: “We made a decision when we started the Domini Social Index that we would keep ourselves in the better half of the Standard & Poors 500. We eliminate half of the S&P by policy. International oil is most likely never going to get there for us. Nuclear power is never going to get there. Military is never going to get there. And then you’re down to which is the better fast-food chain,” she says with a bit of resigned laughter.”

So, essentially, the SRI industry props up Microsoft's stock price simply because its a best half of class performer. And because it's a bellwether ala no one ever got fired for packing their mutual fund with Microsoft, IBM, etc.

To many technologists, Microsoft's unethical attacks on the open source community are some of its worst behaviors - yet this doesn't seem to register on the SRI radar. It's disappointing that the benefits of open source technology on society - and Microsoft's relentless unethical attacks on it - aren't weighed more carefully.

This doesn't mean you shouldn't invest in SRI mutual funds, just be ready to complain loudly to fund managers that Microsoft is a bad actor that should be sold off.

I haven't done the math - measuring the holdings from prospectus of all the major SRI firms (Calvert, Domini, Pax, Parnissus, etc.) - but I expect it would be 7 to 15 percent of Microsoft's overall market capitalization. In other words, SRI divestment of Microsoft could make a noticeable impact on the company's stock.

Comments

[Maarten]

Jeff, how do you estimate the 7-15% of Msft market cap? At an intuitive glance, it seems insanely high.

As of mid 2004, Domini's Social Index fund owned $84 million of MSFT stock, with current market cap at $284 billion, so that's about 1/40th of a percent of MSFT market cap. Domini is one of the bigger funds out there, no?

[Clem Stanyon]

Dear Jeff,
After reading your article in the Jan 26 edition of Seattle Weekly, I wondered how many readers thought the same thing as I: if you want to facilitate the change you advocate, listing a handful of SRI funds and the like will hardly go the distance. Moreover, I suspect that the group to which you will be most effective in appealing is the “<50,000” investors, who I am sure are the majority of individual investors who are also likely to change their investment strategies: young, concerned and mostly clueless, as you were once, yourself.
So, how about applying the skills I presume you gained from your experience with the behemoth, which allow you the title of “technologist”, to put together an investment database, along the lines of a dating agency: one which allows young professionals like myself to find our own preferred type of fund, by matching profiles to preferences.

Regards,

CAS

FUCK!!!!!!!!

[Brian]

Jeff,

That quote from Hawken is a bunch of bull. While there are plenty of Microsoft-haters out there, there are also plenty of Microsoft users as well (and some people are both). As a .NET developer, I can attest to the fact that "almost universally hated" is a gross exaggeration.