2011 Microsoft Citizenship Report: Responsible Sourcing

What We're Doing

Holding our suppliers accountable

• Strengthened our Vendor Code of Conduct: We require all of our suppliers to follow our Vendor Code of Conduct. As we committed to in our FY2010 Citizenship Report, Microsoft significantly strengthened our Vendor Code of Conduct in FY2011. This was our first major update to the code in three years and gave us the opportunity to address emerging issues of concern. Changes included:
  • More stringent provisions on anti-corruption, customer security and privacy, and human rights.
  • A limit of 60 hours of work per week, even if local law allows more.
  • An explicit prohibition of discrimination against union members.

  We communicated the changes in the code to our global supply base. The new code went into effect as of the beginning of FY2012.

• Monitoring priority suppliers based on risk and compliance records: All of the final assemblers of our hardware and all high-and medium-risk suppliers have undergone human rights pre-contracting and ongoing screening. In FY2011 about 80 significant suppliers underwent human rights risk assessment and monitoring. Overall, monitoring found no instances of child labor or forced labor. It did find six non-conformances to our non-discrimination policies. Of these, three were escalated to senior management and were placed on restricted status (meaning that they could not be awarded any new Microsoft business). A corrective action plan was reviewed and approved in all six cases.
• Conducting supply-chain-wide third-party anticorruption assessments: We conducted third-party risk assessments of our entire database of vendors to screen for corruption risk factors and found we had a risk rate of about half the industry average. We also identified about 100 vendors out of our more than 60,000 suppliers that were not sufficiently implementing anticorruption practices; we either ended those relationships or took corrective action.
• Training suppliers: We engaged and trained our direct material suppliers on the Vendor Code of Conduct to ensure compliance, particularly with the human rights standards.
• Initiated a new grievance process: We collaborated with the Fair Labor Association and Clear Voice Hotline to give workers in our supply chain access 24 hours a day, 7 days a week, to a hotline that allows anonymous reporting of grievances and issues of concern.

Keeping conflict minerals out of our supply chain

• Adhering to new regulations: In FY2011 the United States passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires companies to disclose whether their products use minerals from conflict zones, such as the Democratic Republic of the Congo. We are working with our suppliers to trace the source of all minerals used in our products that could potentially come from conflict zones. We proactively encourage responsible sourcing of minerals and collaborate with industry peers, such as the Electronics Industry Citizenship Coalition, to help the entire industry’s supply chain be free of conflict minerals.
• Staying “on track”: Our efforts to prevent conflict minerals from entering our supply chain were ranked against other electronics companies in December 2010 by the Enough Project, and Microsoft was rated as “on track.” We will continue to work with our industry peers to stay on track.

Reducing the environmental impact of our supply chain

• Setting environmental standards: We address environmental issues with our suppliers in many ways, from measuring the greenhouse gas emissions of our Tier 1 contract hardware manufacturers and requiring that the computers we buy meet the Gold level requirements of the Electronic Product Environmental Assessment Tool (EPEAT) to seeking more locally sourced and organic food for our cafeterias.
• Implementing environmental purchasing initiatives: In FY2011, our environmental purchasing initiatives included:
  • Purchasing enough wind energy in Europe to cover 100 percent of our Dublin data center’s power use.
  • Signing a contract with a supplier to increase the use of post-consumer recycled printing paper at our Puget Sound facilities from 35 percent to 100 percent. Unfortunately, in the months after the contract was signed, the supplier company closed. We are exploring other options.

Diversifying our supply chain

In FY2011 we spent more than US$1 billion with suppliers that are woman-owned, minority-owned, or veteran-owned. This puts us among the top 15 companies worldwide in supplier diversity spending.

What's Next

Our priorities for FY2012 include:

• Continuing education and training on our updated Vendor Code of Conduct.
• Developing new policies and practices to ensure that the Vendor Code of Conduct is consistently applied across business units. This includes compliance among service providers as well as contract manufacturers.
• Working with all suppliers to identify and verify conflict-free minerals.
• Continuing to increase the transparency of our supplier auditing processes on labor and human rights issues.
• Further evaluating and enhancing our supply chain policies.