In June of this year, shareholder advocacy group As You Sow filed a shareholder resolution at Microsoft (MSFT), asking the software and hardware giant to improve public access to device repairability.
In its resolution, As You Sow pointed out that by 2040, the production and use of electronics including devices like personal computers, laptops, monitors, smartphones, and tablets will make up 14% of total global carbon emissions. “Microsoft actively restricts consumer access to device repairability, undermining sustainability commitments by failing to recognize a fundamental principle of electronics sustainability: that overall device environmental impact is principally determined by the length of its useful lifetime” the resolution noted.
Yesterday, Microsoft has agreed to increase consumers’ options to repair their devices by the end of 2022, and in response, As You Sow withdrew the shareholder resolution.
“After filing in June, the company reached out to us shortly thereafter to begin negotiations. We had several conversations over the next three months- over Zoom and email - until we signed this withdrawal agreement,” said Kelly McBee, waste program coordinator at As You Sow.
In exchange for As You Sow’s withdrawal of its shareholder resolution, Microsoft has agreed to three things:
- Complete a third-party study evaluating the environmental and social impacts associated with increased consumer access to repair and determine new mechanisms to increase access to repair, including for Surface devices and Xbox consoles;
- Expand the availability of certain parts and repair documentation beyond Microsoft’s Authorized Service Provider network; and
- Initiate new mechanisms to enable and facilitate local repair options for consumers.
McBee points out that this is not a legally binding agreement, but it is precatory. “However, should Microsoft fail to comply, it would be damaging to Microsoft's credibility and reputation and reflect poorly on the company's responsibility to its investors. It would also provide grounds for As You Sow - or other investors - to refile next year,” she said. You can find a primer on proxy voting here.
Why is the Issue Important?
As You Sow explained that repairability is a key tenet of a circular economy, and by disrupting the traditional 'take, make, and dispose' product model, new resource extraction is minimized, and existing resources are kept in perpetual use. Extending device lifespan through repair can help mitigate the upstream mining and refining toxins and emissions and downstream landfill pollution.
The resolution also noted that Microsoft’s competitors Dell and HP have begun to get ahead of such issues by complementing their authorized repair services with the provision of some instructions, parts, and tools to independent repair shops, while Microsoft has received substantial negative publicity for its products being more difficult to repair than those of these competitors.
In a Zoom conversation prior to As you Sow deciding to file, Microsoft communicated that it did not think improving the repairability of its devices would improve its overall product sustainability, nor did it consider increasing repairability as a strategy to meeting its climate goals, McBee said. “After we filed and there was significant press coverage, the company changed its tune on repair and was willing to discuss ways they could improve. The company was concerned about consumer safety repairing devices at home, and about the quality of repairs that could be done at independent shops versus authorized repair shops. The new (third party) study should take these concerns into account and determine what new parts and documentation can safely and effectively be made available,” she added.
“The right to repair is part of a broader cultural movement pushing back at the environmental impacts of escalating consumption. It also aims to reclaim individual agency in an increasingly digitalized world. It’s a young movement, but it’s gaining regulatory traction in several jurisdictions via consumer rights laws taking aim at ‘built-in obsolescence.’ These laws could require that manufacturers not only allow consumers to repair their own products but that they design their products with an eye to repairability. Companies that continue to force consumers into a throwaway relationship with their products could face a costly backlash,” said Jackie Cook, Morningstar’s director of stewardship research.
Microsoft Stock is Undervalued
At present the Microsoft stock is undervalued, trading below our fair value estimates of US$325. Morningstar equity analyst Dan Romanoff thinks that since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader. “In our view, Microsoft has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft has accelerated the transition from a traditional perpetual license model to a subscription model. The company has also embraced the open-source movement. Finally, Microsoft exited the low-growth, low-margin mobile handset business and is driving Gaming to be more cloud-based. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins,” he says.
“Microsoft is also shifting its traditional on-premises products to become cloud-based SaaS solutions. Critical applications include LinkedIn, Office 365, and Dynamics 365. Like any transition, the initial move is painful, as both revenue and margins drop. However, Microsoft is now on the back end of that where revenue have accelerated and are more predictable, and margins are increasing. Office 365 retains its virtual monopoly in office productivity software, which we do not expect to change in the foreseeable future. We believe that customers will continue to drive the transition from on-premises to cloud solutions, and revenue growth will remain robust with margins continuing to improve for the next several years,” he says.
