Setting aside, for a moment, whether we really need yet another senior Goldman Sachs executive in a big job in Washington, the nomination of Robert Hormats to be Undersecretary of State for Economic, Energy and Agricultural Affairs raises anew troubling questions about Goldman’s role in raising money for a Chinese oil company that helped finance the genocide in Darfur.

Robert Hormats

Hormats played a leading role in defending PetroChina (NYSE:PTR) when Goldman took the Chinese oil company public in 2000. Worse, Hormats’ statements at the time, which included assurances that money from the public offering would not flow to the Sudanese government, were later investigated by the Securities and Exchange Commission, which brought a case against Goldman that the company settled for $2 million. (Here’s a Washington Post story on the settlement.)

That’s not enough money, to be sure, to matter at Goldman, but still, it makes you wonder: How much due diligence did  the Obama administration and Secretary of State Hillary Clinton do before nominating Hormats?

You’d think that misleading people about genocide might be sufficient cause to disqualify an executive, even one with impeccable Goldman ties, from a state department post.

Several nonprofit and human rights groups—the Genocide Intervention Network, Investors Against Genocide and the Public Accountability Initiative—have just reported on Hormats’ ties to PetroChina and Sudan. ABC News’ Jake Tapper blogged about the allegations in detail, and the issue is catching fire around the blogosphere. See this and this (from the FT.com) and this (from Matt Taibbi). Here’s the press release from the human rights groups.

In a letter to Senators John Kerry and Richard Lugar, who will hold confirmation hearings, Sam Bell of the Genocide Information Network and Eric Cohen of Investors Against Genocide ask that Hormats be questioned about:

1. His current view, in contrast to his view at the time of the IPO, of the dangers of investments in PetroChina helping to fund the regime in Khartoum.
2. His willingness, now, to make a clear and public statement recognizing that PetroChina is helping to fund atrocities in Sudan and to admit that his support of the IPO was a mistake.
3. Assistance he provided to PetroChina, allowing it to raise capital in the United States and subsequently help fuel the humanitarian crisis directed by the Government of Sudan.
4. Policies that he now considers would be prudent for financial institutions to adopt, so as to avoid the mistakes he facilitated during PetroChina’s IPO, and to avoid inadvertently connecting ordinary American investors to ongoing and future crimes against humanity and mass atrocities.

It will be fascinating to see what happens to this nomination. I don’t believe in Matt Taibbi’s conspiracy theories about Goldman (though his Rolling Stone takedown is a great read) but there’s no doubt that Goldman has enormous clout in Washington, no matter who is in power. (Employees of Goldman gave nearly $1 million to Obama’s presidential campaign in 2008, more than the employees of any other company.) Will Hormats be forced to explain himself? Shouldn’t financial institutions be held accountable, when they raise money for renegade companies? Shouldn’t we expect better than this from Wall Street? And the Obama team?

Photo credit: Council on Foreign Relations/Washington Post

Harvard, Yale and Stanford did it. So did the pension funds of 27 states, including California and New York. And investment firm TIAA-CREF.

So why won’t Vanguard, the big mutual fund company, agree to use its influence to get big companies to stop supporting the genocide in Darfur?

At Vanguard’s shareholders meeting last week, owners of the company’s mutual funds rejected a proposal that would have required the funds to come up with ways to avoid “holding investments in companies that, in the judgment of the Board, substantially contribute to genocide or crimes against humanity.”

The votes weren’t even close. For the the 21 Vanguard funds reporting results, affirmative votes ranged between 7 and 17%. On its website, the company said:

An average of 89% of Vanguard shareholders voted against this proposal. The vote demonstrates that Vanguard shareholders have confidence in the funds’ board of trustees and their judgment in fulfilling their fiduciary and investment responsibilities.

Not really. Investors Against Genocide, the shareholder group that submitted the proposal, never had a chance. Proxy votes like the ones at Vanguard are almost always won by management because most investors don’t pay attention to the packages they get at home by mail.

As Eric Cohen, the chair of Investors Against Genocide, put it:

Favorable votes today are unnaturally low, because Vanguard’s active opposition and misleading statement of opposition tilted the vote against the proposal. If Vanguard wanted a good test of shareholder support, it would have taken a neutral stance, rather than seeking to obscure the interests of shareholders, especially since, as we all know, it is common practice for ordinary investors to ignore and discard their proxy materials.

Instead, Vanguard claimed that the proposal was unnecessary because it duplicates existing practices. But the company has not released its existing policy. And recent reports of Vanguard’s holdings indicate that its funds own PetroChina, the Chinese oil company that provides revenues to the government of Sudan, which is carrying out the genocide. Hundreds of thousands of people have been killed in the genocide, and an estimated 2.7 million people have been drive out of their homes. U.S. companies are barred from doing business with Sudan, but there’s nothing to prevent U.S. mutual funds from investing in foreign companies that operate there.

According to Cohen, John Brennan, Vanguard’s chairman, would not be drawn into a discussion of the company’s decision to hold PetroChina during the meeting with shareholders.

Vanguard publishes a “pledge to clients” to “communicate candidly” and to “adhere to the highest standards of ethical behavior and fiduciary responsibility.”

This Vanguard client—more of my assets are invested in Vanguard funds than with any other company—thinks Vanguard is failing to live up to its own standards. I’d like to see a copy of the company’s genocide policy. Are you listening, Vanguard?

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.”

There was modestly good news about the crisis in Darfur last week, and I’ve been meaning to write about it. Unfortunately, I’ve been busy with other projects so the people at CSR Wire, a corporate responsibility newswire, and Bill Baue have kindly given me permission to post Bill’s CSR Wire story about developments at TIAA-CREF and Vanguard.

I’ve covered this story on and off for more than two years, sadly. Here’s a 2007 CNNMoney column and a  2007 blog posting about Fidelity’s ties to Sudan, and here’s a 2008 column that ran on  Huffington Post. The people at the Darfur divestment campaign deserve enormous credit for keeping the pressure on U.S. mutual funds that invest in companies that do business in Sudan.

Bill Baue has done a great job covering CSR issues for years. He’s also a host of a podcast and Internet radio program called Sea Change Radio, well worth checking out. I’m hoping to find time to work with Sea Change in the months ahead. In any event, here is Bill’s story:

Nothing could be more boring than proxy statements; on the other end of the spectrum, nothing could be more grim than the systematic murder of a population — genocide. These two worlds are colliding as the issue of genocide increasingly appears on proxies, awakening shareholders to the hidden link between their investments and serial rape, displacement, and killing in places such as Sudan. Now, two huge investment firms — TIAA-CREF and Vanguard — say they are severing this link through genocide-free investment policies promoted by Investors Against Genocide (IAG) shareholder resolutions.

This past week, TIAA-CREF upped the ante in its anti-genocide activism by pledging to push companies supporting the genocidal Darfur regime to reverse this complicity — or face divestment. This applies immediately if invitations to meet with TIAA-CREF go unanswered by “target” companies that provide most support to the regime: PetroChina, CNPC Hong Kong, Oil and Natural Gas Corporation, Sinopec, and PETRONAS. Seven other companies have nine months to publicly announce “significant progress” before TIAA-CREF yanks them from its portfolios.

In 2006, TIAA-CREF began engaging with 22 companies, encouraging them to steer clear of genocide — and 10 companies pulled out of Sudan, or committed to humanitarian initiatives there. A quant analyst examining “just-the-numbers” would see some of this behind-the-scenes engagement reflected in TIAA-CREF’s holdings, as it almost halved its PetroChina stake from 38.5 million shares at year-end 2006 to 21.2 million shares at year-end 2008. However, TIAA-CREF more than doubled its Sinopec holdings over the same period, from 7.7 to 16.9 million shares, according to IAG data. All the more reason for bright-line commitments.

Congress members applauded TIAA-CREF’s move. “I am hopeful that TIAA-CREF’s decision to divest from companies that do business with the government of Sudan will inspire other companies to follow suit,” said Representative Melvin Watt (D-NC) of the House Financial Services Committee. IAG also welcomes the “me-too” phenomenon.

In fact, TIAA-CREF piggybacked Vanguard’s genocide-free commitment. Earlier this month, Vanguard’s proxy boldly stated that its existing procedures are “substantially identical” with an IAG shareholder resolution seeking “procedures to prevent holding investments in companies that…substantially contribute to genocide or crimes against humanity.” While IAG filed the resolution with 30 funds, Vanguard asserts its procedure applies to all of its 157 funds.

IAG withdrew its resolution with TIAA-CREF, and promises to do the same at Vanguard if the Emerging Markets Stock Index Fund “shows a significant reduction in its holdings of PetroChina,” according to IAG Chair Eric Cohen. However, Vanguard just disclosed in its first quarter SEC filings an increase of its holdings of PetroChina in its Emerging Markets Stock Index Fund from 149.6 million shares worth $112.5 million at year-end 2008 to 155.7 million shares worth $114.9 million now. So much for “substantially identical”!