After NSA Spying Scandal, AT&T and Verizon Shareholders Pressing for Transparency

After NSA Spying Scandal, AT&T and Verizon Shareholders Pressing for Transparency

Whether you mark him a villain or a hero, Edward Snowden let the genie out of the bottle, and we now must confront the fact that we are being watched a lot more closely than we ever realized. While public discourse has centered on the notion of governmental overreach, our right to privacy, and how far we as a society are willing to go to protect ourselves from threats, both real and perceived, the implications for business are profound. The implications are enormous for U.S. companies, their competitiveness in a global marketplace, and their duty to investors.

Shareholder activism
This week, a group of AT&T (NYSE: T) and Verizon (NYSE: VZ) investors filed shareholder proposals seeking greater transparency on both companies' parts with respect to the information they give to the government. Shareholders are requesting that the companies disclose :

  • How often the company has shared information with U.S. or foreign government entities;

  • What type of customer information was shared;

  • The number of customers affected;

  • The type of government requests; and

  • Efforts the companies are making to protect customer privacy rights.

So far, AT&T and Verizon have not demonstrated much inclination to let the sun shine on this information. This stands in contrast to many of their peers. The shareholder proposals specifically note that companies like Facebook (NASDAQ: FB) -- not often praised for its data privacy practices -- and Microsoft (NASDAQ: MSFT) publish "transparency reports" on government requests for data. Microsoft has taken the additional step of going to court in an attempt to win the right to share even more information with the public about government monitoring.

Competitiveness compromised
Maybe this is because AT&T and Verizon, as American carriers, have less riding on overseas operations than the big tech companies do. That matters, because foreigners are hopping mad. The presidents of Brazil and Germany, among other countries, have had some very strong things to say about the U.S. government overstepping its bounds. Europe is trying to build its own, NSA-proof cloud.

If overseas outrage builds enough, it could amount to a threat to the global competitiveness of American tech companies. Indeed, Cisco Systems (NASDAQ: CSCO) this week explicitly blamed what some analysts called the "Snowden effect" for its poor results last quarter . Cisco specifically called out a decline in Chinese sales that it attributed to hostility in that country to American companies . While there's some question as to how strong an effect this ultimately had on Cisco's revenues, it remains telling that a company would draw such a straight line from NSA spying to the bottom line.

Which leads us back to shareholders' concerns. "Verizon and AT&T are not managing this crisis effectively," said Jonas Kron, director of shareholder advocacy for Trillium Asset Management, one of the proposal filers.

Now is the time for these companies to demonstrate that they will protect user privacy, because it is in the interest of everyone -- investors, citizens, our nation and the companies. Failure to persuade customers of a genuine and long-term commitment to privacy could impede growth -- but equally important are the civil liberties that must be protected.

So far, neither Verizon nor AT&T has commented beyond acknowledging that they are considering the shareholder proposals. Lest you imagine that this is all blown out of proportion, consider what we already know about how the companies are cooperating with the government.

In bed with Obama
In June, The Guardian revealed that it had received a copy of a top-secret court order, issued this April, that required Verizon to hand over information on all phone calls in its systems, both domestic and between the U.S. and foreign countries, on an "ongoing, daily basis."

The Guardian noted that the court order was the first evidence that under the Obama administration, millions of American citizens' communication records were being collected "indiscriminately and in bulk - regardless of whether they are suspected of any wrongdoing ."

For AT&T's part, we found out earlier this month that the CIA has been paying the company $10 million a year for access to the treasure trove that is the company's phone records database, which includes Americans' international calls . Is ten mil really worth the potential loss of customers' trust?

Facebook and Microsoft don't seem to think so. In a joint letter supporting the embattled USA Freedom Act, Facebook, Microsoft, and five other tech giants wrote:

Transparency is a critical first step to an informed public debate, but it is clear that more needs to be done. Our companies believe that government surveillance practices should also be reformed to include substantial enhancements for privacy protections and appropriate oversight and accountability mechanisms for those programs.

Score one for the techies! They're wisely protecting their bread and butter. Verizon and AT&T would do well to take note.

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Sara Murphy has no position in any stocks mentioned. Follow her on Facebook @SMurphSmiles. The Motley Fool recommends Cisco Systems and Facebook. The Motley Fool owns shares of Facebook and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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