To: Microsoft Hardware Department / Supply Chain Mangers

From: Chase Moeller

Subject: Shifting supply of gold components away from immoral sources

Due to increasing concerns with our supply of gold components being obtained from immoral and illegal
sources, we will be shifting away from our conventional sources to suppliers that better fit with our
company ethos. The purpose of this memo is to inform the team of the new supply chain priorities, the
reasons for the shift, recommendations for specific changes, and the expected long-term effects.

Summary:
The majority of our first-party hardware containing gold sourced from immoral and illegal sources is a
violation of our values as a company and poses a significant threat to our public image. Because of this,
we will be shifting our supply chain towards more ethical sources. These new sources can include
recycled gold, gold mined in the United States and other developed nations, or reducing the use of gold
in our products. While there are many logistical challenges and risks involved with altering our supply
chain, our moral responsibility and the long term benefits of more ethical sources of gold outweigh the
cost of the changes.

Reasons for change:

The reason for this change is revelation that our supply of gold used in our hardware is mined in a way
that goes against our direction as a company. Our supply chain currently uses gold that is highly
exploitative of the environment and workers. These mines located in countries such as Peru are using
dangerous mercury-based mining methods in order to cheaply mine gold. This method is highly toxic
and results in acute and long-term damage to the environment and workers; this damage can include
cancer, DNA damage, birth defects, damage to the nervous system, habitat destruction, etc. To use gold
obtained via exploitation goes against our company’s moral code and can potentially cause serious
damage to our image in the public’s eye.

Changes/Recommendations:
We will be shifting our supply of gold away from our conventional suppliers and towards more moral
and sustainable sources.

Recommendations for alternate sources-

 Increase use of recycled gold. The supply of electronic waste is steadily increasing and is
therefore a reliable and relatively economical source of gold.
  Increasing use of gold mined in the United States, Germany, and other developed nations with
strong regulation.
 Put increased resources into developing hardware with reduced gold use, such as replacing
certain components with aluminum, copper, and silver.

Risks and challenges:

The primary negative effect will be the increased production costs of our hardware, most notably in the
short term. Furthermore, from a logistical standpoint, changing our supply of such a major material will
be extremely challenging and will require extensive resources and time. Another challenge will be the
potential slowdown in our production as our supply chain is disrupted, resulting in a decreased supply of
products. Lastly it will be difficult to ensure that our contractors and suppliers adhere to our new
standards, as some components such as graphics cards and processors are not produced directly by our
factories.

Answers to concerns / long term benefits:

While in the short term the profitability of our hardware will be reduced by these changes, the overall
impact to our bottom line will be minimal. Our current business model already accounts for very low
profit margins on our hardware. For example, our Xbox products have been sold at a loss for over 20
years, as the profitability comes from live services, digital revenue cut, and royalties. Furthermore,
although our Surface products have a higher margin than Xboxes, the long-term profitability also comes
from software and services, such as Office 365 and revenue from the digital Microsoft store.
Furthermore, the sales of accessories as well as bulk orders from enterprise customers also offset
relatively low hardware profit margins.

Our new supply chain direction will also balance out in the long term. While it is currently cheaper to
obtain gold from conventional sources, the growing amount of electronic waste will provide a
sustainability advantage over mined gold. Furthermore, there is a substantial savings in shipping cost as
most mined gold currently originates from South America, whereas most electronic waste recycling
takes place in Asian countries such as India and China, which is much closer to our factories. Similarly,
while our initiative to reduce the use of gold in our products may require costly research and
development, the rapidly increasing value of gold will likely result in net savings in the long term if we
are able to replace some gold components with other conductors such as silver, copper, and aluminum.

Conclusion:
Our organization is one of the largest in the world in terms of market capitalization, it is therefore our
responsibility to adhere to our values and do everything we can to ensure we do not contribute to
abuses of any kind. The changes we need to make are challenging for sure, but by shifting our supply
chain away from immorally obtained gold and towards more sustainable sources, we can ensure the
sustainability of our company. If anyone has further concerns, questions, or suggestions, they are
encouraged to send them to me.