MICROCHIP TECHNOLOGY INCORPORATED | Due diligence to trace product misuse at MICROCHIP TECHNOLOGY INCORPORATED

Status
16.73% votes in favour
AGM date
Previous AGM date
Proposal number
7
Resolution details
Company ticker
MCHP
Lead filer
Presbyterian Church
Resolution ask
Report on or disclose
ESG theme
  • Social
ESG sub-theme
  • Conflict and/or violence
  • Human rights
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Technology
Company HQ country
United States
Resolved clause
RESOLVED: Shareholders request that the Board of Directors commission an independent third-party report, at reasonable expense and excluding proprietary information, on Microchip Technology lncorporated's (Microchip) due diligence process to determine whether its customers' use of its products contribute or are linked to violations of international law.
Whereas clause
WHEREAS: The US and EU have imposed sanctions and export controls against Russia and its affiliated businesses in response to the illegal invasion of Ukraine.(1)(2) The Biden administration launched a task force focused on enforcing export controls-regulations designed to keep sensitive technologies out of the hands of foreign adversaries and called on companies to watch out for counterparties "reluctant to detail the end use of a good."(3)

Reporting from the Royal United Services Institute (RUSI) and Ukrainian government found that Microchip's products were among the most prevalent in the 208 dual-use components recovered from 26 Russian weapons systems. RUSI notes that Microchip manufactures ECCN-classified components, which require a license for export, and the company's other EAR99-designated components create "a due-diligence obligation to make sure they were not destined for a prohibited end user, or to be used in prohibited end use."(4)

Missile systems with Microchip components have been implicated in attacks on Ukrainian civilian infrastructure, which may be considered a war crime.(5) Reporting shows that some missile systems used in Ukraine were manufactured in late 2022(6), indicating western components are still being diverted to Russian entities despite sanctions(7), and that Microchip products were sold directly to a Russian entity with known military connections or diverted from a single intermediary.(8)

The use of Microchip's products during the Russian invasion of Ukraine may result in human rights and financially material risks through potential violations of evolving American and EU sanctions and export controls, the UN Guiding Principles on Business and Human Rights (UNGPs), Microchip's human rights policies, and international law.

Because human rights risks can be particularly acute in conflict-affected and high-risk areas (CAHRA), characterized by widespread human rights abuses and violations of national or international law, the UNGPs call for heightened human rights due diligence (hHRDD). To mitigate risks associated with customer conduct in CAHRA, companies undertake hHRDD and "Know Your Customer" (KYC) due diligence, coupled with sanctions compliance programs.
Supporting statement
SUPPORTING STATEMENT

Shareholders seek information, at board and management discretion, through a report that describes Microchip's:

•Sanctions and export control compliance process to ensure that dual-use items are not used by proscribed users or for proscribed uses in connection with Russia's invasion and across CAHRA;
•Board of Directors' role in overseeing the identification and management of risks associated with proscribed users and use;
•Determination if Microchip's hHRDD and KYC due diligence processes must be strengthened to adequately address material risks associated with proscribed users and use; and
•Assessment of legal, regulatory, and reputational risks to shareholder value posed by the use of Microchip's products in connection with the invasion and across CAHRA.

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