Like many long-term Microsoft (MSFT ) employees, Jeff Koertzen toyed with the idea of leaving the company. But the event that prompted the human-resources manager to bolt for good was not a get-rich opportunity at a promising tech startup. Rather, it was the software giant's withdrawal of support for gay rights legislation in the state of Washington in mid-April after criticism from a local evangelical preacher. "This stupid move affected my decision," says Koertzen, a gay, six-year Microsoft employee who submitted his resignation on May 4. "I decided that now was time to go."
Plenty of co-workers shared his outrage. Idealistic techies who believed that Microsoft was more than just an ordinary profit-driven company, that it stood for a set of progressive values, were crestfallen. "One of the reasons I came to Microsoft is because of its very strong stance on human rights," complained Robert Scoble, on his popular employee blog, Scobleizer, a few days after the company's position became public. By May 10 an internal petition urging the company to support the anti-discrimination bill had 1,741 signatures -- compared with 197 for a petition asking it to remain neutral.
All the pressure forced Chairman Bill Gates and CEO Steven Ballmer to do something quite rare: backtrack. On May 6, the company announced that it would support the legislation when it comes up in the next session (it failed by one vote). The decision followed a dramatic period of soul-searching at Microsoft.
Employees up and down the corporate hierarchy explored profound -- and rarely examined -- questions about the role of companies in contemporary America. "When should a public company take a position on a broader social issue, and when should it not?" Ballmer asked in a companywide e-mail sent out on Apr. 22.
That's a question a lot more CEOs will likely be asking themselves. As the culture wars escalate, activists across the political spectrum are increasingly targeting Corporate America. Gay rights groups pressured Home Depot (HD ) to add domestic partner benefits in September.
But most of the outcry has been coming from the other camp. For instance, the American Family Assn. (AFA) in Tupelo, Miss., launched a letter-writing campaign against Kraft Foods (KFT ) on May 9 for supporting the Gay Olympics and is planning a boycott later this month against a yet-to-be identified larger company for courting gay customers. "Eventually corporations are going to learn -- some the hard way -- that these kinds of issues are divisive [and] that they'd be better served by just getting back to running the business," says AFA Chairman Donald Wildmon, the religious leader who has taken the most aggressive stance against companies that offend conservative values.
How to respond to pressure groups such as AFA is a vexing problem for managers. Some governance experts agree with Reverend Wildmon, an ordained United Methodist minister. While business obviously has to weigh in on economic issues such as trade, environmental regulation, and tort reform, the case for engagement decreases as you move into gay marriage, abortion, the death penalty, and other purely social controversies, says University of Delaware corporate governance expert Charles Elson. "The company is in business to compound the investment of shareholders," says Elson. "When somebody buys a share in a company, they are not buying a share in a social position."
But the equation may be more complex. Some companies, argues Bradley Googins, director of the Center for Corporate Community Relations at Boston College, have customers, employees, and other stakeholders who share strongly felt views on social issues. Microsoft has liberal attitudes toward issues such as domestic partner benefits. ServiceMaster (SVM ), parent of Terminix and TruGreen ChemLawn, by contrast, declares that a "core objective" is that employees of the Downers Grove (Ill.) company "honor God in all they do."
It may make sense for these types of companies, Googins says, to take sides on divisive cultural issues. "This is corporate citizenship in the 21st century," says Googins. "The only way companies can respond to this climate is to return to the core values of who they are and what they stand for."
FLOOD OF E-MAIL.
While the experts debate these imponderables, CEOs are being caught by surprise in the cultural cross fire. Certainly, Microsoft did not anticipate a brouhaha when it withdrew its support from the Washington legislation, which would have prohibited discrimination on the basis of sexual orientation. "They told me they thought it wouldn't be a big deal," says state representative Ed Murray, who authored the bill.
That turned out to be a major miscalculation. After a local alternative newspaper revealed the company's decision, employees inundated Ballmer with hundreds of e-mails. Members of GLEAM, the gay, lesbian, bisexual, and transgender employees' group at Microsoft, sent its own letter to Ballmer on Apr. 29, saying the decision "shook our trust in executive management, and has left us feeling abandoned, depressed, and embarrassed for Microsoft."
Ballmer, who was in Brussels trying to negotiate a settlement of the company's antitrust dispute with new European Union competition commissioner Neelie Kroes at the height of the controversy, had to devote hours to managing the crisis. He declined to speak to BusinessWeek. But company sources say he responded the way he always does when faced with thorny problems: by "wallowing," as he likes to put it, in the issue.
UPPING THE ANTE.
The CEO dove into his e-mail box and spoke to several employees. "The amount of response to his first e-mail caused him to give it personal attention," says Greg Hullender, an engineer in the company's MSN Search group who has worked at Microsoft for 12 years and represented gay employees on Microsoft's Diversity Advisory Council.
The company's ultimate support for the anti-discrimination legislation won widespread praise from employees and gay rights groups. But it could come at a cost. Conservatives inside and outside of Microsoft have not given up the fight. Eric Boyd, a 28-year-old software tester at Microsoft who believes homosexuality is a sin, vows "the Christians here won't be quiet" next year when the bill resurfaces.
And Reverend Ken Hutcherson, the local preacher who originally pressured Microsoft to drop its support for the legislation, plans to tap the broad network of like-minded religious conservatives to lean on the company. "We'll see what kind of pressure [Microsoft] can bear," he says.
Who else is in this network? In addition to AFA, Focus on the Family in Colorado Springs and the Family Research Council in Washington have been monitoring corporate support for gay rights. Other groups have targeted different issues. The much-smaller Largo (Fla.)-based Children of God for Life announced a boycott of General Electric (GE ) in April because of the company's pursuit of embryonic stem-cell research. Life Decisions International in Washington distributes 10,000 copies of The Boycott List -- naming companies that contribute to Planned Parenthood—at least twice a year.
Unlike Hutcherson, most of the people who run these groups make a point of not beating their chests when companies back down. They fear that such publicity-seeking is counterproductive because it makes execs fearful of appearing weak. "If you stop giving to Planned Parenthood, we won't release your name," says LDI President Douglas R. Scott, who compiles The Boycott List by digging through corporate tax returns. "We have an agreement with the companies."
This strategy was evident in a recent boycott targeting Procter & Gamble (PG ). Backed by AFA, Focus on the Family, and the Family Research Council, among others, it was triggered by the company's support of a local law that would have barred discrimination against gays in Cincinnati. After doing some preliminary research about P&G's position -- and discovering that the company had, among other things, published an ad for Downy fabric softener in a foreign gay magazine that showed two men in bed -- AFA's Wildmon and three others held a conference call with a P&G representative in early September. "It was obvious by their tone that they were dedicated to giving money to homosexual activists...and that their next major step would be support for homosexual marriage," says Randy Sharp, AFA's director of special projects.
So on Sept. 14, Wildmon sent out an e-mail calling for a boycott of three of P&G's top-selling products: Tide detergent, Crest toothpaste, and Pampers disposable diapers. A special page on the AFA Web site documented the various ways in which the company allegedly supported gay rights -- including sponsoring a Cincinnati gay rights parade, advertising on an employment Web site for gay workers, and supporting a gay workplace conference.
In the following weeks nearly 365,000 people signed electronic petitions urging the company to change its policies, says Sharp. In fact, so many people called the company about the issue that switchboard operators started directing them to a prerecorded voice message stating P&G's position.
While Sharp has no way of knowing the extent to which the effort lowered sales -- and the two sides made no contact after the announcement of the boycott -- he did start to notice changes in P&G's behavior. He claims that the company ceased advertising on the gay jobs Web site and that the corporate logo was dropped from sites promoting the Cincinnati gay pride parade and the workplace conference. "All the stuff we pointed to on our Web site just started disappearing," he says.
Convinced that P&G had mended its ways, AFA and the other groups sent out an e-mail on Apr. 16 calling off the boycott -- and that was that. No efforts were made to promote the self-styled victory to the mainstream media. P&G declined to comment on the events leading up to or following the boycott.
The AFA, Focus on the Family, and the American Decency Assn. of Freemont, Mich., have also had success in recent months persuading companies to stop advertising on racy shows such as Desperate Housewives. Quietly whirring recorders at the AFA headquarters tape all three networks 24/7. YUM! Brands (YUM ), parent of KFC and Taco Bell, S.C. Johnson, Lowe's (LOW ), Tyson Foods (TSN ), and Kellogg (K ) are among the advertisers that decided not to buy additional commercial time during the show after their offices were flooded with complaints.
"Our advertising guidelines are such that Lowe's chooses not to advertise in controversial programming, including programming with gratuitous sex and violence," Lowe's spokesperson Chris Ahearn said.
NO END IN SIGHT.
The AFA's newest target is Kraft. On May 4, a Christian employee sent the group an e-mail alerting it that the company had signed up as a sponsor of the 2006 Gay Olympics. So on May 9, Wildmon shipped out an e-mail to about 120,000 people suggesting they send the following message to CEO Roger Deromedi: "As a consumer of many of your products, I strongly ask you to reconsider your financial support of this event. Your response to my concerns will determine my decision to purchase, or not purchase, your products in the future." Kraft declined to comment on the controversy.
As Christian conservatives flex their political muscle, corporations will likely continue to squirm. And if there's any question about the explosiveness of the culture wars, the fact that mighty Microsoft cowered -- if only briefly -- under the threats of a local preacher should erase any doubt.
By Jay Greene and Mike France, with David Kiley in New York