The war on terrorism has, in the eyes of some, a new villain. It's not a person, not a government, and not a shadowy association of any kind. It's a public company, more than 75 years old, based in Peoria, Ill., and, in its own words, the "world's largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines." The company: Caterpillar (NYSE:CAT).

Social responsibility activists and shareholders have recently been urging the company to change its ways -- but they're not talking about pollution, labor conditions or animal testing. No, nothing like that. They're concerned because the company's bulldozers are being used by the Israeli army to raze Palestinian homes. (It was also a Caterpillar bulldozer that crushed 23-year-old American protester Rachel Corrie in Gaza in 2003.)

There are many political arguments to be made and hashed out about the situation, but this isn't the place for that. Our focus here in Fooldom is investing, and this development constitutes news for investors. Shareholders succeeded in getting a resolution voted on at Caterpillar's annual meeting, one asking the firm to reconsider its dealings with Israel. It was supported by just 4% of the votes, but that's enough to permit a revisit of the proposal next year.

Some of the questions this scenario raises include:

  • To what degree are companies responsible for how their products are used? Gun makers such as Sturm, Ruger (NYSE:RGR) and Smith & Wesson (AMEX:SWB) have faced these questions for a long time, but now a construction equipment company is doing so.

  • To what degree should a company hew to its mission statement? Caterpillar says about itself, "We encourage social responsibility. Caterpillar is dedicated to improving the quality of life while sustaining the quality of our earth." Can or should there be exceptions to this?

  • As often happens, there are stakeholders with conflicting interests in this situation. Protesters, some shareholders, and many Palestinians would like to see sales of items such as bulldozers reduced or curtailed in Israel. But that would require Caterpillar to leave money on the table, to voluntarily turn down some revenues and profits, to which one might argue shareholders are entitled.

So what is the solution? It's a tough call. Stopping sales might (but might not) save some lives or at least (perhaps) protect some property. The company prides itself on traits such as integrity and conservatism, and it even notes, "Wherever we conduct business or invest our resources around the world, we know that our commitment to financial success must also take into account social priorities." Perhaps such a company should take this shareholder proposal seriously. Maybe the ultimate solution is to open up the decision to all shareholders -- let them decide, via votes, whether to change the firm's Israeli operations.

Share your thoughts on our discussion board. And read this article by Paul Elliott on Socially Responsible Investing.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.