Corporate Responsibility Spotlight: AT&T


Telecom giant AT&T (NYS: T) may not be the first company that comes to mind for a socially responsible investor, although it has made great strides in corporate responsibility. Having recently released its 2011 Sustainability Report, AT&T makes a great candidate for scrutiny. First, we will check out the positives in environmental, social, and governance aspects, then move on to the negative sides of the company.

The Good Stuff:
Since releasing its first Social Responsibility Report in 2006, AT&T has committed itself to environmental efficiency and initiatives, and made these projects well known to the public. Similarly, the 2011 report details many new environmental projects. The company reached $42 million in annualized energy savings through more than 4,500 energy-efficiency projects, far more than we can discuss here. Notably, all AT&T branded packaging will soon transition to a plastic composed of up to 30% plant-based materials. In transportation, it increased the number of deployed alternative-fuel vehicles to 3,469, avoiding the purchase of 2.5 million gallons of gasoline in future years. While improving transportation efficiency is good, reducing overall transportation is even better. And AT&T did just that, using TelePresence minutes rather than physical transportation to avert 8,261 metric tons of CO2.

Many environmentalists hope for a future corporate America that takes responsibility for products in all life cycle stages rather than just selling a product and letting the consumer dispose of it. AT&T is taking steps to account for its products post-sale by improving recycling rates on cell phones and other electronic devices. In 2011, the business collected approximately 3 million cell phones -- triple Verizon's (NYS: VZ) collection total of 1 million recycled phones -- and 1.7 million pounds of batteries for reuse or recycling, a significant contribution.

While AT&T clearly has many positive environmental initiatives, their scale is small compared to the company's larger operations. Still, many of their projects that increase efficiency also save money, which will help the company's profitability going forward.

Similarly, AT&T has many programs designed to increase community engagement and workplace diversity. The company announced that it met its four-year, $100 million commitment to AT&T Aspire, an education initiative focusing on high school student retention and workforce readiness. It plans to increase its involvement through an expanded $250 million commitment this year. A company mentoring program teaches elderly people about the benefits of technology, and how to stay safe in today's digital world. The corporation, employees, and the AT&T Foundation donated a total of $115 million to programs and projects that support education and address community needs, so philanthropy is an important component as well. Its most relevant project is "It Can Wait," the company's campaign against texting while driving. This growing operation reduces potential harm from the company's own product.

AT&T also scores high marks in workplace diversity, earning the No. 4 spot on DiversityInc's 2012 Top 50 Companies for Diversity. Debbie Storey is the company's current chief diversity officer. The company also has received many other awards for workplace diversity, listed on its corporate citizenship page.

AT&T breaks the "boys club" trend in business by including both minorities and women on its board of directors. Its diverse hiring practices and encouragement of employee volunteerism and philanthropy indicate positive governance, as does the company's commitment to releasing a Sustainability Report every year. Additionally, the Communications Workers of America union represents all AT&T employees, ensuring that workers can bargain for improved wages, opportunities, and job security. This, in addition to the company's discounted rates for union members, shows that AT&T supports fair employment practices, while competitor Verizon has frequently faced bad press coverage from labor disputes. For Verizon, subpar employee relations and the subsequent corporate image problems present a risk for investors and could hurt Verizon's profitability, while AT&T's superb relations make AT&T less risky.

The Bad Stuff
Like all megacorporations, AT&T does not have a spotless record, having recently undergone several discrimination lawsuits. The company lost a 2008 racial discrimination suit brought by a female African-American sales representative from Dallas. The company was ordered to pay several hundred thousand dollars for repeated failure to promote her. Retired AT&T workers brought an age discrimination lawsuit in 2009, as it was alleged the company impeded them from reapplying for jobs, but the case was eventually dismissed. Both situations are unfortunate but appear to be isolated incidents in a sea of positive employee relations.

AT&T also received bad publicity surrounding security problems. The Electronic Frontier Foundation sued AT&T in 2006, alleging that AT&T had cooperated with the National Security Agency to allow unwarranted monitoring of customers' phone and Internet communications, but this case was dismissed as well when Congress exempted AT&T. Another privacy scandal arose in 2010 when hacker group Goatse Security hacked a script on AT&T's website and obtained over 100,000 emails of 3G iPad customers. While both situations have been resolved, security could be a liability for investors.

Recently, consumers have been putting pressure on AT&T to stop the use of "conflict minerals" in its electronics. These minerals are obtained from war-torn areas of the Democratic Republic of the Congo and surrounding countries, where armed militias force children and adults to work in the mines. As consumer pressure mounted over the last few years, the government included a clause in the 2010 Dodd-Frank Act that requires companies to disclose whether their products contain any conflict minerals by tracking their supply chains for tin, tantalum, tungsten, or gold -- the four most common conflict minerals. While the email campaign protested almost every tech company, including competitors Verizon, Sprint Nextel (NYS: S) , and T-Mobile, AT&T's failure to eliminate its own exposure to conflict minerals presents a definite risk going forward if further regulation or trade restrictions are put in place.

In terms of customer service, AT&T continues to trail main competitor Verizon according to J.D. Power's 2010 rankings (the most recent year available). Verizon scored first in the industry with a ranking of 753 out of 1,000, while AT&T placed third with a score of 733. While not outstanding, AT&T's score is just under the industry average of 739, so this factor should not be too alarming.

Additionally, AT&T had some corporate governance issues worth noting. Randall Stephenson, the current CEO, also occupies the post of chairman of the board of directors. Socially responsible investors typically prefer a separate CEO and chairman to maintain a board better suited to overseeing management, including the CEO himself. Also, Stephenson's compensation, $22 million last year, far exceeds the telecommunications industry average of $6.6 million. The CEO only owns 0.01% of the company, so he is not significantly invested in the company's shares. Digging through AT&T's 2012 Proxy Statement also revealed that the board of directors opposed three shareholder resolutions that would require the chairman of the board to be an independent director not occupying a management position, mandate full disclosure of corporate political contributions, and commit to net neutrality (or granting Internet access without the possibility of prioritizing any traffic). As per the board's recommendation, all three resolutions were defeated.

While a gigantic, wide-reaching company like AT&T will not have a perfect record, AT&T is committed to helping employees, community members, and customers while increasing value for shareholders. Its progressive environmental and social initiatives indicate that the company cares about more than only profitability, and has the cash flow to support such ventures. Its dominance (along with Verizon) of the ever-growing smartphone market, juicy 4.90% dividend, and commitment to corporate responsibility could make it a very profitable investment. AT&T passes my personal requirements for social responsibility and I believe it will continue to grow, which is why I own shares. But does it have a place in your SRI portfolio? That's up to you.

To learn more about socially responsible investing, check out any of the articles in this series:

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Fool contributor Charlie Kannel owns shares of AT&T. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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