Recently, I voted in a contested election with repercussions for a big Islamic nation. (No, not Iran.) As a shareholder in mutual funds run by Vanguard and Fidelity, I voted to ask both mutual fund companies to sell their holdings in companies doing substantial business with Sudan, and thereby helping to finance the genocide in the Darfur region.
If you own stocks or mutual funds, this is the time of year when shareholder proxy ballots arrive in the mail, usually accompanied by pages of small print asking you to change the corporate bylaws or “elect” a slate of directors who have already been chosen. They’re boring and easy to ignore.
This year, however, shareholders of Vanguard, Fidelity and other mutual fund groups should keep an eye out for the important shareholder proposals about genocide on the ballot. These proposals don’t mentions Sudan because they are broader in scope. They ask but the funds to refrain from investing in companies that “substantially contribute to genocide or crimes against humanity.”
Perhaps surprisingly, Vanguard and Fidelity both recommend a “no” vote on the proposals.
“They don’t want to have limits on where they invest,” says Eric Cohen, the co-founder of Investors Against Genocide, a volunteer organization that got both proposals on the ballot.
Cohen, a retired tech executive, is a soft-spoken and usually understated guy but he says this of Vanguard and Fidelity: “Their lack of due diligence connects their customers to the very worst companies in the world.”
The Investors Against Genocide website puts it this way:
Looking back, who would support the idea of investing in firms that sought to make a profit by selling Zyklon-B gas to the Nazis or machetes for the genocide in Rwanda? Looking forward, who wants their personal savings and pension funds invested in companies that help fund genocide?
Investors Against Genocide was formed in January, 2007. (I wrote one of the first stories about the group, under the headline Fidelity’s Sudan Problem, for CNNmoney.com.) By then, campus activists had persuaded the endowment managers at Harvard, Yale and Stanford to sell stocks of companies that were doing business with the government of Sudan, which is responsible for the genocide that has now taken the lives of an estimated 300,000 people in the Darfur region. (Another 2.7 million have been forced out of their homes.) Pension funds in half a dozen states, including California, had also agreed to divest.
The targets of the divestment movement are Asian energy companies—PetroChina, the Chinese state-owned energy firm, as well as Sinopec (Chinese), ONGC (Indian), and Petronas (Malaysian). These four oil companies work with the government of Sudan and, in exchange for oil, help fund the genocide. Another activist group called the Sudan Divestment Task Force (which is no longer active, but has morphed into the Conflict Risk Network) has done good work in research and advocacy around the divestment issue. U.S companies are prohibited by law from doing business with Sudan.
So what do Fidelity and Vanguard have to say for themselves?
Fidelity has done its best to avoid this issue since I began paying attention back in 2007. “Fidelity has declined all our outreach,” Cohen told me. If you Google “Fidelity mutual funds Sudan,” you turn up a slew of critical websites and stories, but nothing of substance from the Fidelity. That’s not a good place for a consumer-facing company to be.
The issue clearly concerns a substantial minority of Fidelity investors. Last year, some 31 percent of the shareholders in Fidelity’s Blue Chip Value Fund voted for divestment.
Vanguard has been better. According to Cohen, executives first told him that many of Vanguard’s funds could not be expected to divest because they are passively managed index funds, designed to hold all the companies in a given market or segment. Later, again according to Cohen, Vanguard said it would engage with companies and consider divestment around the genocide issue.
Vanguard says it opposes the shareholder resolution because it duplicates existing practices:
“…the trustees directed Vanguard to implement a formal procedure for regular reporting to the trustees on portfolio companies whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment…”
The trouble is, as Susan Morgan of Investors Against Genocide wrote on Huffington Post, Vanguard held shares in PetroChina and Sinopec as of March 31 and had yet to sell anything for social reasons. So what’s the point of the policy? Yes, judgments can differ but the Sudan divestment movement is now so broad-based – it has the support of public pensions fund, social investment funds, state legislatures and the U.S. Congress—that the burden has shifted to Vanguard to explain why it sees now problem with holding Sudan-affiliated companies. That the company has failed to do–a fact that pains me since I have long been an admirer of Vanguard and its investor-friendly culture.
Investors Against Genocide also filed a resolution with TIAA CREF, another big mutual fund firm, which invited Cohen to meet with its CEO, Roger Ferguson. TIAA CREF subsequently agreed to divest, and the resolution was withdrawn.
That gives mutual-fund investors the option to do some divesting of their own—away from fund firms like Fidelity and into those like TIAA CREF or, even better, Calvert or Domini, which take their social and environmental responsibilities seriously. Calvert, particularly, has taken a lead in the Sudan campaign, working with the Sudan Divestment Task Force and the Save Durfar Coalition to do analysis and outreach around divestment.
“Real change can happen,” Cohen says. “We should not give up on the financial institutions. We should fix them.”
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Thanks for spreading the word on this. And – nice new look to markgunther.com!