Integrating Circuits and Responsibility

Intel constructs powerful agenda for new initiativesStangis

By Danielle Lee

Despite lofty positions on various best-of corporate responsibility and sustainability rankings, including the No. 1 slot on CRO’s 100 Best Corporate Citizens 2008 list, chip maker Intel—led in its CR efforts by Dave Stangis, its Director of Corporate Responsibility—believes its efforts are still a work in progress.

These planned improvements come at a time when various antitrust lawsuits against the company and an anti-competition investigation recently launched by the U.S. Federal Trade Commission (FTC) reach critical mass.

A Hallmark for Intel

Stangis appreciates how far Intel has come and where it needs to go. With 12 years at the Santa Clara, Calif., technology firm, beginning in an environmental, health and safety capacity, Stangis discussed Intel’s corporate responsibility accomplishments, challenges and priorities.

In his current position, he serves on the Boston College Center for Corporate Citizenship (BCCCC)’s international advisory board, which includes some 35 other CR leaders.

“Dave Stangis is one of the most passionate CSR advocates anywhere,” says Bradley K. Googins, Executive Director of the BCCCC. “He provides strong professional leadership inside Intel and through his remarkable communications skills has influenced the actions of so many other professionals and companies looking for best practices.”

Stangis traces the company’s current corporate social responsibility efforts back to the socially responsible investing trend of the late 1990s, when there was a shift in the way the company viewed stakeholders.

“I think we had been accused of arrogance in the past, as a company, and I don’t think you’d hear that too much today,” says Stangis. “You still might hear a little bit of it because of how large we are, but it’s not the same kind of approach we take to stakeholders today as we did in the past.”

Intel recognized that stakeholders deserved a voice, and the company would benefit from avenues to hear about and address potential problems with products and practices.

“The integration of corporate citizenship into its core business strategy has been a hallmark for Intel and can serve as a model for other companies,” says Googins. “Intel recognizes that the responsibility of being an industry leader, and good corporate citizenship begins inside the company with employees and facilities and extends to how their chips are manufactured to how the company can have a positive impact on important societal issues.”

Shock Therapy

The company learned some tough lessons along the way. In June 1994, Intel engineers discovered a chip flaw, a calculation error in the math subsection of the Pentium microprocessor. At the time, Intel did not publicize the problem, which was not easily detected.

However, four months after the company noticed the bug, Thomas Nicely, a professor of mathematics at Lynchburg College in Virginia, discovered it himself. When Intel did not respond to his finding, Nicely posted the information online and sparked a small Internet maelstrom that eventually reached the mainstream press and the pages of The New York Times.

Though Intel had fixed the flaw in later versions of the chip, it took a financial and reputational hit. The company then reversed its stance and publicized the glitch. Intel also formed an issues and prevention-management group, all of which actually increased the brand’s visibility at the time and earned the company positive marks for crisis management.

In 1999, during Stangis’s tenure, Intel confronted another storm when it introduced, at the behest of customers seeking consumer information, a processor that had unique serial numbers to track users. When privacy advocates objected, Intel turned off the tracking function with a much quicker response than it had shown in 1994.

Intel then created privacy management review committees and wrote and publicized privacy policies.

Now, through the prevention-management group, Stangis tracks customer concerns and risks through Intel’s blogs, external blogs, news wires and RSS feeds. The Intel homepage, recently revamped to include greater social networking features through programs like interactive online community Second Life, also offers a feedback loop on corporate responsibility issues.

“All are outlets for people so they don’t have to wait until it turns into a New York Times kind of aggravation,” says Stangis. “That’s the difference today.” Stangis also stresses that consumers today expect an individual response, something that was impossible at the time of the Pentium flaw without direct e-mail.

Putting Energy into Sustainability

A pioneer in developing cleaner chip technologies, Intel counts its environmental accomplishments among its most important strides. In fact, Intel’s environmental strategy accounts for the bulk of the 60-page increase in its annual corporate responsibility report.

The company was the largest purchaser of green power in the United States in the last six months, and spent $20 million on energy conservation projects over the past six years, which saved Intel more than $40 million, according to Stangis.

At the design level, engineers strive to reduce the company’s water and energy use, while the operating facilities are recycling more than 70 percent of the water used and 80 percent of the waste.

In March, Intel opened a fabrication facility in Arizona that it expects will be LEED-certified once Intel reaches certain green goals in its operation; the construction itself has already met LEED standards. This would be the company’s first fabrication facility to fulfill the criteria, joining a design center in Haifa, Israel, that is also LEED-certified.

The company believes the Arizona facility will serve as a standard for other semiconductor manufacturers.

These facility improvements follow a legacy of governmental citations and a community outcry about pollution at an Intel factory near Rio Rancho and Corrales, N.M.

In 1993, citizens formed the Corrales Residents for Clean Air and Water council to document cases of respiratory and other illnesses believed to be linked to factory emissions. The New Mexico Environment Department cited Intel for air-pollution infractions and in 2003 two former Intel employees, acting as whistleblowers, released statements saying the company was covering up the severity of the pollution by taking false measurements and refusing to improve faulty equipment.

Stangis says that Intel continues to work with that community, noting that he has personally met a few times with residents, to address the issues.

Among its responses to the problem, Intel assembled its own alliance in August 2004—the Community Environmental Working Group (CEWG) in New Mexico that includes environmental activists, Intel representatives, local Intel critics and other community members. The group was designed to provide a two-way exchange with the community to facilitate continuous environmental improvements to the site.

“We definitely made some mistakes early on in listening and responding to their concerns,” Stangis says. “But we have made concerted efforts now for many years to rebuild those relationships and the site has really become a new model in proactive stakeholder engagement.”

Environmental improvements at the site have included new pollution control equipment, a 70 to 80 percent reduction in chemical biocide use in the cooling towers and a “citizen protocol,” with methods and procedures for air emissions testing determined by the CEWG instead of Intel.

“Once you lose or challenge the trust of even a single stakeholder, you have to work doubly hard to win it back,” says Stangis.

Stangis points out that the Environmental Protection Agency has designated all Intel sites worldwide as having “minor source” status, which means they are below more onerous major-source levels.

Among Intel’s other environmental initiatives, the company joined Google in launching the Climate Savers Computing Initiative in 2007, which features a roster of hundreds of member companies and thousands of individuals that have committed to cutting energy used by computers in half by 2010.

Antitrust Litigation

As Intel builds on its accomplishments and gears up for new initiatives, it faces a number of challenges, including ongoing antitrust litigation brought in separate cases by the European Commission and rival manufacturer Advanced Micro Devices (AMD), and an anti-competition investigation brought by the FTC. On June 5, South Korean regulators said Intel had abused its dominant position in the market and ordered the company to pay a fine of about $26 million in a ruling that follows three years of investigation and is expected to be appealed by Intel. There are also several pending class-action lawsuits against the company initiated by indirect purchasers, and an investigation by the New York Attorney General, launched in January.

The European Commission charges that Intel provided illegal rebates and discounts to computer manufacturers, dating back to 2003, in attempts to close the competitive gap with Sunnyvale, Calif.-based AMD. CEO Paul Otellini recently testified at a March hearing in Brussels, Belgium, countering these anticompetitive practices allegations.

The company is confident that “we didn’t violate any laws and we didn’t harm consumers in any of this,” says Stangis. “Anything that we would have done would have actually benefited consumers in terms of our strategy of lower cost.”

The EU recently denied reports at the end of May that the European Commission had reached a provisional decision to bar some of Intel’s sales practices in Europe, maintaining that the investigation is ongoing and no deadline for a resolution has been set. The case could bring sanctions that could cost Intel up to 10 percent of annual sales, if found guilty.

AMD’s lawsuit, brought under the Sherman Antitrust Act, Clayton Act and the California Business and Professions Code, brings similar charges of monopoly and unfair business practices. The trial was recently delayed until February 2010.

“In April 2005, AMD was named ‘Processor Company of 2005’ at an Intel-sponsored industry awards show,” AMD notes in its complaint. “Bested in a technology duel over which it long claimed leadership, Intel increased exploitation of its market power to pressure customers to refrain from migrating to AMD’s superior, lower-cost microprocessors.”

In the lawsuit, AMD lists Dell and Japanese manufacturers, including Sony, Toshiba and Hitachi, as companies Intel has allegedly maintained exclusive relationships with through “outright payments and favorable discriminatory pricing and service.”

The suit, filed in September 2005 and currently in the discovery phase, could take years to resolve in U.S. federal courts, according to Stangis and legal experts.

“This is a landmark case in the field of monopoly after the Microsoft case,” says Bert Foer, President of the American Antitrust Institute. “The parties recently submitted statements for their case, but these statements are so highly redacted … The interested parties are thinking about challenging that and seeking a less-redacted version so [the] public can get a better understanding of the case.”

“If it were up to us, there’d be no redaction,” says Michael Silverman, an AMD spokesman. “It’s in our interest to let the facts be made freely available, let people decide for themselves if Intel is competing fairly. If it were up to Intel, you wouldn’t be able to see anything; if it were up to us you’d be able to see everything.”

Stangis defends Intel’s practices. “We don’t believe it’s unfair and it actually benefits consumers. It’s that principled argument that has to be solved, the legal one is out there for everyone to kind of pour through.”

Not surprisingly, AMD believes it, too, will prevail. “We’re confident that based on recent evidence, Intel will be found guilty of antitrust violations,” says Silverman. “They were already found guilty in Japan and charged for antitrust allegations in Europe and South Korea. If you look at the trends, there’s only one way this movie is going to end.”

The FTC opened its formal investigation regarding Intel’s alleged anticompetitive conduct in early June.

In 2005, the Japan Fair Trade Commission ruled that Intel violated Japan’s Antimonopoly Act.

These cases have some parallels to the Microsoft antitrust civil actions, in which a 2001 settlement required the computer giant to share programming interfaces with third parties. “They similarly raise the question of what types of behavior by dominant firms are considered to be legitimate and which are illegitimate,” says Foer.

For Stangis, the issues go beyond the immediate competitive questions, and touch Intel’s perception in the market.

“All the good stuff we’re doing, all it takes is one bad thing to really dismantle the reputation we’re trying to build,” says Stangis. “And it’s a message I continue to stress inside the company and reinforce—that we can do all this great stuff, but if we’re just a mediocre company in terms of the marketplace or if countries around the world think we don’t operate in an ethical way, there’s not much I can do for you on the corporate responsibility. I can work all day but you still have to run business the right way.”

intel volunteersThe Environment, Inside

Intel is planning numerous initiatives on the CR front, and the inspiration for one came from an unlikely source. When “Late Night” host Conan O’Brien took a tour of Intel offices for the show in 2007, his jabs at the gray décor and uniform maze of cubicles were an “awakening,” says Stangis. These jokes led to a gradual implementation of small improvements that could bring Intel closer to the high rankings of its Silicon Valley compatriots on Fortune’s 100 Best Companies to Work For list. Intel was No. 97 on the 2006 ranking, and absent from the 2007 list.

Intel has a no-office policy, which seats CEO Otellini in the same type of cornered space as the other 86,000 employees around the United States. This set-up is harmonious with a company-wide meritocracy that features equal pay structures, bonuses and parking spaces.

“This meritocracy has been in place for a long time and it was rewarded for a long time,” says Stangis, “but then when you have places like Google, where they have the busses that bring the people back and forth to work and gourmet cafeterias serving food all day, you need to rethink it. There are obviously different things we can be doing.”

Intel hasremodeled the cubicles to provide more open spaces and natural light, added colors, and offers free coffee and soda.

“When the stock price in the late ’90s was doubling every two years, employees didn’t really care what their cubes looked like and what their carpeting looked like, but it’s a different industry,” says Stangis.

Though Intel’s recent absence from the Fortune list “drives our folks crazy,” says Stangis, Intel employees are proud of their positions on other “best of” lists that executives are finding increasingly instrumental in efforts to attract talent and appease stakeholders.

“It’s this external recognition that we seek, or that we don’t really seek and get, that’s the most valuable,” Stangis says. “We’ve been in the Dow Jones Sustainability Index since its inception and we’ve been the sector leader for all of technology for seven years in a row, and this year we’re the only U.S. company that is a sector leader in that index. We’re proud of that, our executives are proud of it, all of our employees are proud of it.”

Gaining wider public recognition of the company’s achievements is the biggest goal in what Stangis describes as Intel’s next fundamental leap in CR. Intel’s CR efforts, which developed as a specific function between 1998 and 2000, have focused primarily on what Stangis terms the “be” aspect, and now require evolution into the media-focused “be perceived.”

Now that the company has seen its early CR efforts pay off, resulting in as many as 50 awards a year for its environmental and community work, according to Stangis, and invitations to participate in various coalitions and advisory boards, Intel is focusing on communicating its CR achievements.

“That’s probably where we’d complain the most, if anything,” says Stangis. “Some of our competitors are newer to the game, they’re doing great things, but they might be getting just as much, if not more, credit than we are because they’ve told a story better.”

Googins ofthe BCCCC acknowledges Intel’s corporate role. “Intel’s collaborative leadership in the Electronics Industry Code of Conduct influenced an entire industry sector and has changed the supply-chain management practices by companies across the board,” he says.

Stangis in turn says he receives 20 to 30 benchmarking visits and calls a year from Fortune 100 companies eager to get some insight into Intel’s CR practices, but that Intel gains knowledge from other companies, as well. He cites Hewlett-Packard’s annual CR report and AMD’s communications on climate change a few years ago as two examples of efforts that have influenced Intel’s practices.

Intel, though, finds communicating its own efforts outside the electronics industry to be important and challenging, because “as a brand we compete with every sector,” says Stangis.

“What’s unique about Intel that’s different from other sectors and other electronics manufacturers, [is that] we are not able to communicate the same way a consumer products company would,” he says. “We don’t have a Starbucks store to put our brochures in when you come by to get your chip in the morning.”

Instead, Intel has broadcast its message by beefing up its annual CR report to 100 pages from the old standard of 30-40; distributing a one-page, results-focused, quarterly e-newsletter; and introducing a CSR blog eight months ago that welcomes 10-20,000 visitors per month.

Sustainability Efforts

This year, Intel is celebrating its 40th anniversary, and one of the big initiatives surrounding this milestone is a program in which the company matches employees’ volunteer hours at schools with cash donations to the educational institutions.

Stangis says he is working to improve employee involvement in the company’s CSR programs.

“We’ve never really been able to, or found the right set of ingredients, to bring our employees into the tent with us in terms of getting their engagement, getting their agreement, tapping all their energy,” says Stangis.

A sustainability network that Intel does have in place is “a small group and really the whole company should be thinking about this as we go forward, and that’s a big miss. We’re working on it more this year than we have in the past decade.”

This sustainability group shares ideas, brings in speakers and circulates research.

Intel also incentivizes employees: A portion of employees’ compensation for the first year is tied to their product leadership in environmental performance, the perception they promote about Intel around the world with customers, and their work to reduce the company’s carbon footprint and to promote renewable energy use.

What’s Next?

Stangis views nongovernmental organization (NGO) partnerships as increasingly essential for Intel and other corporations, noting that the public increasingly relies on the credibility these organizations provide.

Forging these alliances, though, can be tricky. “People want to see companies and NGOs working together to solve really big, huge challenges around the world,” says Stangis. “But NGOs are also worried about getting in bed with companies that don’t have a great reputation, and having it harm then. So you’re going to see very selective company-NGO partnerships in the future.”

Stangis also predicts an increase in company communications about CR and sustainability, both at Intel and other corporations.

“We’ve been publishing environmental data now quarterly, publicly, for several years. It’s almost going to get to the point where it’s real time; where somebody can make that decision [to publish results] in real time.”

This trend will help filter out companies guilty of greenwashing, Stangis says, requiring companies to back up their claims.

Intel is also seeing positive internal changes regarding that other CSR buzz-phrase, “tone at the top.”

Stangis describes the leadership support at Intel as “growing,” with each new CEO catching on faster than their predecessor to CR concepts.

“One of the things that I think people complained about for years was that [CR] was a bottoms-up, organic strategy,” says Stangis.

Now, the support is much loftier.

While Intel’s CR reports have been translated into many languages for international distribution, its diversity practices are felt through initiatives implemented in the workplace since the 1990s.

One of the earliest companies to establish a Gay, Lesbian, Bisexual and Transgender diversity group, the company has more than 20 such chartered employee committees, including those for various ethnicities and religious beliefs.

Dave Stangis, Intel’s Director of Corporate Responsibility, expresses the company’s pride in these executive-sponsored groups, but admits that diversity is still a big challenge for Intel.

“The pool of employees that you would recruit around the world has not been that diverse to begin with,” Stangis says, “so [it’s about] finding ways to make everyone feel comfortable and to actually promote these networks internally… We still have a major challenge in terms of workforce diversity, especially at the senior levels. Focusing on women and underrepresented minorities in the technical senior positions has

been one of the goals for years and we work on it and work on it and work on it, and it is always hard to do.”

These “programs have a long way to go in terms of results,” says Stangis, who cites the company’s average global employee ratios as about 30 percent female and 70 percent male over the last 10 years.

Intel has tried to pick up the slack by pushing K-12 educational programs, scholarships and science competitions.

“There’s a decline in girls, young women going into the hardcore sciences,” says Stangis. Additionally, employee retention is an issue.

“The shift…points to culture and expectations. If you’re a woman in a group of 10 men in some engineering design organization and they meet every week, and you have to take care of family…and you’re gone, you’re missed. If one of the males is missed in the group, that doesn’t pick up as much.”

Intel’s options for employees regarding child care and additional unpaid time off to attend to family matters, among other practices, landed it a spot on Working Mother magazine’s 2007 list of 100 Best Companies.

-Danielle Lee

intel

Posted June 6, 2008 in Social Resposbility