Towleroad received an email from a source inside Microsoft saying that the buzz the blogs have generated over Microsoft's withdrawal of support from the Washington state gay rights bill is having a large internal impact at the company.

My source sent the text of an email that was sent to all U.S. employees by CEO Steve Ballmer last night in an effort to calm the internal conflict over the company's decision. Ballmer says that Microsoft never officially endorsed the bill and confusion arose because two MS employees testified before a House committee in support of the bill, but they were not representing the company's official position.

Text of Steve Ballmer memo to U.S. Microsoft employees:

From: Steve Ballmer
Sent: Friday, April 22, 2005 6:40 PM
To: All Employees of MS in Puget Sound; All Employees of MS in MSUS
Subject: Microsoft and the Anti-Discrimination bill

Over the past two days, there've been a lot of stories about Microsoft
and our position on an anti-discrimination bill in Olympia.

I've heard from a number of employees, and I take all of the input on
all sides seriously, so I wanted to talk directly with all of you
about the company's position and how I view these issues.

First, I want reaffirm my personal commitment — and the company's
commitment — to keeping Microsoft a company that values diversity.
That will never change.

As long as I am CEO, Microsoft is going to be a company that is
hard-core about diversity, a company that is absolutely rigorous about
having a non-discriminatory environment, and a company that treats
every employee fairly.

I'm proud of our track record on diversity issues. We were one of the
first companies to provide domestic partner benefits, or to include
sexual orientation in our anti-discrimination policies. And just this
year, we became one of the few companies to include gender identity or
expression in our protection policies.

There have been several news stories that imply that Microsoft changed
its position on an anti-discrimination bill, HB 1515, because of
pressure from a conservative religious group. I want to make it clear
that that is not the case.

When our government affairs team put together its list of its
legislative priorities in Olympia before the Legislative Session began
in January, we decided to focus on a limited number of issues that are
more directly related to our business such as computer privacy,
education, and competitiveness. The anti-discrimination bill was not
on this list and as a result Microsoft was not actively supporting the
bill in the Legislature this year, although last year we did provide a
letter of support for similar legislation.

On February 1, two Microsoft employees testified before a House
Committee in support of the bill. These employees were speaking as
private citizens, not as representatives of the corporate position,
but there was considerable confusion about whether they were speaking
on behalf of Microsoft.

Following this hearing, a local religious leader named Rev. Ken
Hutcherson, who has a number of Microsoft employees in his
congregation, approached the company, seeking clarification of whether
the two employees were representing Microsoft's official position. He
also sought a variety of other things, such as firing of the two
employees and a public statement by Microsoft that the bill was not
necessary.

After careful review, Brad Smith informed Rev. Hutcherson that there
was no basis for firing the two employees over the misunderstanding
over their testimony, but did agree that we should clarify the
ambiguity over the employee testimony. Brad also made it clear that
while the company was not taking a position on HB 1515, the company
remains strongly committed to its internal policies supporting
anti-discrimination and industry-leading benefits for gay, lesbian,
bisexual, and transgender employees.

I understand that many employees may disagree with the company's
decision to tighten the focus of our agenda for this year's
legislative session in Olympia. But I want every employee to
understand that the decision to take a neutral stance on this bill was
taken before the Session began based on a desire to focus our
legislative efforts, not in reaction to any outside pressure.

I have done a lot of thinking and soul-searching over the past 24
hours on this subject, and I want to share with you my thoughts on how
a company like Microsoft should deal with these kinds of issues.

This is a very difficult issue for many people, with strong emotions
on all sides. And that makes it a very difficult issue for me, as the
CEO of this company.

On this particular matter, both Bill and I actually both personally
support this legislation that would outlaw discrimination on the basis
of sexual orientation. But that is my personal view, and I also know
that many employees and shareholders would not agree with me.

We are thinking hard about what is the right balance to strike – when
should a public company take a position on a broader social issue, and
when should it not? What message does the company taking a position
send to its employees who have strongly-held beliefs on the opposite
side of the issue?

The bottom line is that I am adamant that Microsoft will always be a
place that values diversity, that has the strongest possible internal
policies for non-discrimination and fairness, and provides the best
policies and benefits to all of our employees.

I am also adamant that I want Microsoft to be a place where every
employee feels respected, and where every employee feels like they
belong. I don't want the company to be in the position of appearing
to dismiss the deeply-held beliefs of any employee, by picking sides
on social policy issues.

It's appropriate to invoke the company's name on issues of public
policy that directly affect our business and our shareholders, but
it's much less clear when it's appropriate to invoke the company's
name on broader issues that go far beyond the software industry – and
on which our employees and shareholders hold widely divergent
opinions. We are a public corporation with a duty first and foremost
to a broad group of shareholders. On some issues, it is more
appropriate for employees or shareholders to get involved as
individual citizens. As CEO, I feel a real sense of responsibility
around this question, and I believe there are important distinctions
between my personal views on policy issues and when it's appropriate
to involve the company.

I know that some employees will still feel frustrated by the position
the company has taken, but I wanted you to hear directly from me on
this. We will continue to wrestle with how and when the company
should engage on these kinds of political issues. And above all, I
want you to know that as long as I am CEO, Microsoft will always be
committed to diversity and non-discrimination in all of our internal
policies.

Thanks.

Steve