Follow up to Citizen Microsoft

This is a follow up note to my recent Seattle Weekly article, Citizen Microsoft, which highlighted Microsoft's tax avoidance in Washington state and its unethical attacks on the open source community.

Background

After my June article, Microsoft’s Sacred Cash Cow, a number of my Microsoft friends spoke of how unhappy they were working there. I realized that I’d missed one of Microsoft’s greatest challenges – maintaining employee morale. As products slipped, benefits cut, raises shrunk and gender imbalances grew, Microsoft seemed to be discounting the happiness of its most important contributors.

After seeing The Corporation, a documentary about the rising power and abuse of power by corporations, I pitched the article to the Seattle Weekly framed as a question: “What type of citizen is Microsoft?” and I began investigating.

As I learned more about the magnitude of Microsoft’s Washington state tax avoidance coupled with its manipulation of the Legislature and taxpayers with regards to piracy and education, I became more upset than I expected.

Since working with Microsoft public relations for Sacred Cow had been very difficult, I invited CEO Steve Ballmer to respond directly to my concerns about the company’s behavior. While Ballmer did not respond, Microsoft public relations granted me four interviews including one with Senior Vice President and Corporate Counsel Brad Smith.

The folks at the Seattle Weekly were incredibly supportive of my efforts as I am primarily a technologist and am just beginning to write professionally. Their help and emphasis on investigative rigor and accuracy was invaluable.

While I was initially concerned that their decision to depict Gates as the 800 pound gorilla on the cover might belie the serious tone of the article, it was helpful in getting Seattleites to pick up the paper, read the article – and ultimately helped get the article on Slashdot.

Other Microsoft Behavior

While I believe in retrospect that we should have shortened the article (it ran at nearly 6,000 words), there were several issues concerning Microsoft that had to be left out:

• Microsoft routinely tells Seattle’s mainstream media that it pays nearly $500 million in taxes - but this figure is misleading because it combines the taxes paid by Microsoft, its employees and even the companies and employees that benefit from Microsoft’s presence in the state. Microsoft’s own tax payments may be just a fraction of this figure. So, the $55 million it avoided in taxes last year by recording licensing revenue in Reno, Nev. may be a significant share of its tax bill.

• According to Citizens for Tax Justice, Microsoft paid no federal income tax in 1999. For 1999 and 2000, it paid 1.8 percent on $21.9 billion in revenue. It accomplished this by deducting the heightened value of stock options granted to employees. Seattle Weekly's Rick Anderson addressed concerns related to Microsoft’s massive federal lobbying efforts in How to Excel in D.C. just prior to the publication of Citizen Microsoft.

• In 2002, Amnesty International cited Microsoft and several other technology companies for knowingly selling software to China that was being used to censor the Internet and jail (even execute) dissidents.

• Microsoft’s diversity record is very poor. Of 109 top executives listed on their Web site, there is not one African American male (although there are two African American women). Only 15.6 percent of its executives are people of color. On its ten-member board of directors, there is only one woman and one person of color (an African American male). 75 percent of company employees are male. Most women employees I spoke to are very unhappy with work-life balance issues at the company. Several expressed concerns for opportunities for promotion, equal pay and protection from harassment.

• Microsoft has taken an extremely aggressive approach to acquiring patents. It’s hired Marshall Phelps from retirement – he previously helped IBM build revenue from patent licensing to nearly one third of its revenue. The Electronic Frontier Foundation’s Jason Schultz told me that Microsoft is essentially able to manipulate the patent system by filing thousands of patents. It costs Microsoft very little to file the patent applications – and nearly 90 percent are eventually granted in some form. Many of these patents may be invalid e.g. Microsoft began charging fees for digital camera and flash media manufacturers to use their FAT file system patent which was recently overturned by the patent office. Furthermore, Microsoft is excluding the open source community from licensing its patents. It tried to hamper Linux developers from providing file and printer sharing interoperability with Windows by adding restrictive language to specifications for these generally public interfaces known as SAMBA.

• Microsoft’s funding and support of anti-consumer lobbying groups such as the Business Software Alliance and the Recording Industry Association of America. E.g. The BSA recently held a contest for kids to name the mascot of a campaign called Play It Safe in Cyberspace, which “teaches tech-savvy kids about cyber ethics” as the industry defines them.

• Microsoft talks about the money its employees give to non-profit organizations as if it came from the corporate coffers. E.g. “Last year alone, Microsoft contributed more than US$40 million in cash…to nearly 5,000 nonprofit organizations.” Employees gave approximately half the cash as part of Microsoft’s annual giving campaign.

Impact and Feedback

Feedback from the article was mostly positive. I thought the most interesting comment (and my favorite) was posted on Linux Today:

Every few months I see or hear a news piece that's astonishingly out of place in today's media, and this article is another proud member of that category. If you read about halfway through the article, or skim to the end, you'll see why: the author is independently wealthy (having worked for Microsoft himself), so even if Microsoft "convinces" the newspaper to drop his articles, he'll still be doing just fine. It's unfortunate that the only people who can afford to do tough journalism these days seem to be millionaires and the unemployed.

Another Microsoft employee wrote:

I learned a lot from the background research you did in order to give compelling voice to the uneasiness that many of us feel with some of Microsoft's practices.  As someone who has benefited in several ways from working at MS, and who appreciates much that the company has accomplished, I nevertheless hope that Microsoft finds a way to follow your suggestions and to "cede control of government back to the people."

As with Sacred Cow, negative feedback primarily targeted me for biting the hand that fed me – in other words – writing bad things about the company that helped me become financially independent and be able to work for a non-profit organization. I think the best response to this is a comment I received from the earlier article: “Unconditional loyalty is more appropriately exercised with friends and families rather than with corporations.”

Other Microsoft employees felt my criticism of Microsoft was common of all corporations:

I think your criticisms of Microsoft are valid but as both of us know the problem is systemic.  For example, Google may be the next Ben and Jerry’s but I doubt it.  As Google matures they will succumb to the same competitive behavior that Oracle, Sun, Microsoft, etc. practice.

While I agree, I think Citizen Microsoft served an important role in informing Seattle and greater-Washington readers that while Microsoft was encouraging voters to increase sales taxes to pay for education, it was simultaneously legally evading hundreds of millions of dollars in taxes. It’s also important for residents to hear a dissenting voice on the issue of the state’s competitiveness and its strategy of providing tax breaks to corporations. Ultimately, the impact of this article will be determined the next time the legislature considers new corporate tax breaks or tax reform.

One Microsoft employee asked me why I discounted the impact of the Gates Foundation’s philanthropy on the state:

In fact I found it interesting that you highlight tax savings of $148M over the past four years that MSFT achieved by recognizing revenue in Nevada and focus on the injustice of that to the local community and then later you acknowledge that the Gates Foundation has given $1 Billion to Pacific Northwest charities and yet that seems to be discounted somehow.

If Gates can afford to give away $1 billion to the region, why can’t Microsoft afford to pay its entire tax bill? As philosopher Mark Kingwell told me, when philanthropists choose to use tax shelters to reduce their tax burden but then give some of it back to charities, they are doing an end-run around the public will. And besides, what Gates does with his own money should be analyzed separately from what Microsoft does with its money.

Organizing Against Corporations

Many readers expressed an interest in hearing more about the underlying issues with regard to competitiveness, tax breaks and corporate power in general. At the suggestion of Richard Grossman of POCLAD who I interviewed for the story, I have recently attended a workshop on the history of democracy and the evolution of corporate power and hope to write about this experience in the future.

Tools

I used the $39.99 Griffin iTalk with my Apple iPod to record most of my interviews. For phone interviews, I added a mono adapter and a $15.99 Radio Shack Mini-Recorder Control. The iTalk works fantastically in both configurations. Recordings end up in iTunes at basic speech quality but very small file sizes. The iTalk even did a good job recording one interview in a noisy coffee shop. The next time I record interviews, I’ll be sure to transcribe them afterwards – or pay to have them transcribed. Listening to audio to get quotes later was very time consuming.

At risk of sounding overly amateurish, I am a Google-journalist. I have a full time day job at Groundspring – as such almost all of my research is done on Google initially. Therefore, if Google doesn’t index an item – I’m likely to miss it. But with Google, I was able to dig up a lot of information that I might have otherwise missed.

I am also glad to share my research about Microsoft with other journalists. Please feel free to contact me if you would like more information, links, data, etc.

Links

• Citizen Microsoft : Letters to Seattle Weekly : Slashdot Comments

• Microsoft’s Sacred Cash Cow : Follow Up : Letters to Seattle Weekly : Slashdot Comments

Comments

"Only 15.6 percent of its executives are people of color."

Yet, according to the 2000 Census, http://www.census.gov/population/cen2000/phc-t1/tab01.pdf, 11.4% are "Black or African American", 0.8% are "American Indian or Alaska Native", and 4.7% are "Some other race", and 1.9% list "Two or more races". That's 14.1% if we exclude some other race. With your lack of specificity in "People of Color", only some portion of that 4.7% would be included.

One must really wonder about "investigative rigor and accuracy".

[Jeff]

You left out Asian, Indian, and other global minorities. Microsoft is a worldwide company - it's executive leadership diversity has a lot of catching up to do.

[J.]

Can you validate a rumor that:-

"Microsoft Foundation is just a sorting house for many companies with funds for philantropic use, and, that MS itself contributes very little to the Foundation?""

[Jeff]

J, not sure what you mean by Microsoft Foundation? I don't know of a foundation in the name of the company - haven't researched one anyway. Generally, the company bundles its own corporate gifts with gifts it organizes from its employees when it talks about the money it grants non-profits.

[Karim]

Guys, you keep forgetting that Microsoft's business policy is very simple: Lie, Cheat, Steal, and if need be .....kill. Its quite straightforward in that respect (quite unlike M$ themselves). They are money grubbing _________ (you know what to place there)
i mean come on what justifies the obscene license fees?? dude and to the guy who brought up the issue of the Gates Foundations donations to charity... Dude are you smokin Crack?? first they steal your money (500 Pounds in the UK for office suite if i m correct), then they donate THAT money to charity.. you seem to have neglected that to get the funds they rob you BLIND!!! my god all you idiots who think gates is nice, and that MS really cares abt consumers... What are you on, and where can I get sum??

[ski4burgers]

Check out my blog for refutations of your ridiculous claims.

[ski4burgers]

correction to previous URL

[Paul Irwin]

i have a black roommate and he agrees with me... neither of us have ever heard of a black computer programmer to our knowledge in our 20-some-odd years of existence. i'm not saying there aren't any, but to expect there to be a significant amount in a company of mainly computer programmers is quite preposterous. computer programming is typically a white male dork controlled industry. i'm not trying to be a bigot, but rather a realist. would you criticize a jewish temple because of lack of diversity? or how about the NAACP for not enough white members? the computer programming field generally doesn't have that many african americans. engineering, however, does, but microsoft is mainly a software company. and considering about 75% of the company is software (i'd guess), it being 75% white for the WHOLE COMPANY is not a bad figure. i think 25% diversity is very good for a software company. unless you want to go out and convince a few thousand african americans to get computer science degrees.

suck it

[Naim]

I am sure you have made your best effort to give accurate information, and I am sure it is accurate. No doubt, Microsoft has done unethical things, however, I think it is also important that you acknowledge that the problem is far more widespread than Microsoft. Its the entire system thats unethical. I can not hope to understand just how bad it is, but I know enough. To illustrate my point I will compare MS to another large company. Theres a guy from Down Under, called R Murdoch. Over his life he has managed to seriosly take over the world, and control a lot of the information that reaches our TV sets, newspapers, etc ,etc. He also loves to dodge tax, infact he has really mastered the art. Now, which is worse, a company that dodges a fraction of the tax compared to the other; a company that places adds in Messenger or the company that loves to hate the East and push for war every day?
See, sure Microsoft isnt perfect, but its just a player in a game with no rules. If you dont like the game, talk to the ref.

[mcse certification]

Well every company has unhappy employees. Microsoft has over millions of employees so no wonder why they kept on hiring