MSFT: A Social Conscience holding?
Some funds feel guilt over owning Microsoft: Stake in 'monopoly' would violate ideals
By Jerry Morgan
Newsday
Is Monopoly just a board game, or is it an investing screen that socially responsible mutual funds should use to decide whether to keep their Microsoft stock?
It is a painful decision for some because Microsoft had been the poster child for socially responsible funds and considered a good corporate citizen, at least until last year, when a federal judge found the company guilty of monopolistic practices and ordered it broken up.
At that time, some fund companies said that unless Microsoft were broken up, they would sell their shares, with great reluctance.
Peter Kinder is president of KLD, a Cambridge, Mass., social-investment research firm that makes the call on the Social Investment Index, which is used for the $1.2 billion Domini Social Equity Fund.
Now that an appeals court has ruled Microsoft illegally maintained a monopoly, Kinder said his company, considered the bellwether social-investment research firm, would decide whether to keep or sell the stock by the end of the quarter.
"This is a very difficult call, and a lot of people in the company are conflicted," he said.
Microsoft is the largest holding in the Domini fund at 5.4 percent as of March 31, according to the fund's Web site.
It also is 6.1 percent of Citizens Funds' $487 million Core Growth Fund, 3.7 percent of the $331 million Calvert Social Investment Fund and 4.1 percent of the $23 million Social Investment Index Fund.
Social-investment firms use various filters to screen out companies that profit from alcohol, tobacco, nuclear power, gambling, pornography or military weapons, to name a few.
But there is no screen for a monopoly, which is considered a matter for government regulation.
There has been serious soul-searching over whether to sell the stock because of the monopolistic practices found by two federal courts, but the bottom line, for some fund managers, is whether the monopoly harms consumers.
Kinder said whether Microsoft had harmed the consumer was a "very difficult call ... you could argue both ways."
Julie Gorte, senior technology analyst for Calvert Funds in Baltimore, who has devoted months of research to the Microsoft court transcripts, said she recommended keeping Microsoft because consumers had not been harmed.
Gorte added that Microsoft's monopoly on operating systems "was gained legally."
"I have looked deeply into the issue, and found that from a technical viewpoint it is logical to marry the Internet browser and the operating system," she said, "and it would have been stupid to ignore that.
"If it was the kind of antitrust decision that is pretty cut-and-dried for socially responsible funds, like two drug companies conspiring to keep a generic drug off the market, that would have been different."
There are other matters to consider.
Steve Scheuth, spokesman for the Social Investment Forum, a trade group, said that since Domini had held Microsoft since 1990, and because it is such a large part of other funds, selling Microsoft could result in huge capital-gains distributions to shareholders.
Katherine Hickey, a mutual-fund analyst for Morningstar, the Chicago fund-rating firm, said fund managers were "pretty conflicted about this, but it seemed graver last year when the stock prices were getting hurt. That was a time to sell it, but it is taking a lot of research to figure out what to do."
A recent decision by Microsoft to change how it licenses its Windows operating system to computer makers, allowing them to remove access to its Web browser and make other alterations, could make that decision a little easier.
"It is a very smart move by Microsoft and a good idea for them to make the appeals court look smart," Kinder said.
Gorte added: "It is the first smart move Microsoft has made politically in the last five years, and it will make the manufacturers feel a little less bullied, but it really doesn't change their competitive position much." |
