Mutual Funds Get Resolutions on Sudan
The non-profit human rights advocacy group, Investors Against Genocide, has submitted proposals to at least 21 Fidelity mutual funds asking them to rid their portfolios of companies complicit in genocide by doing business with repressive regimes, including Sudan’s Khartoum government. Already, the proposal has received the support of 27 percent of the shares voted on the Fidelity Capital & Income Fund ballot and 28 percent at Fidelity’s Select Health Care Portfolio. That solid backing at two of Fidelity’s largest funds— with more than $11 billion in assets under management combined, according to Morningstar—will allow the proposal to reappear next year.
The Campaign
The genocide-free investing campaign adopts a novel approach to shareholder activism—one that targets several widely held U.S. mutual funds’ stockholdings rather than the companies themselves. The resolutions asks the boards of each of the mutual funds to “institute oversight procedures to screen out investments in companies that, in the judgment of the Board, substantially contribute to genocide, patterns of extraordinary and egregious violations of human rights, or crimes against humanity.”
Another 10 Fidelity funds also already had votes, but at all of them the proposal failed on March 19 to reach the 50 percent quorum of shares necessary for results to be final when voting was tallied. Consequently, the proposal will be placed on those Fidelity funds’ holders’ proxy ballots again for an April 16 meeting, along with a handful of other targeted Fidelity funds that already had voting scheduled for that date.
This delay in voting may buy time for Investors Against Genocide, the proponents, to capture the attention of more ordinary investors with money managed by the giant mutual fund company. “That gives lots more opportunity to vote on the issue or for shareholders ask Fidelity for a new ballot to vote if they didn’t this time. We hope to see in April and May more people voting for the resolution. We’re really excited,” Eric Cohen, chair of Investors Against Genocide, told RiskMetrics Group. He attended the Fidelity shareholders meeting after his group held a protest outside Fidelity’s office building in Boston.
Fidelity didn’t return calls from RiskMetrics Group for comment on the genocide-free investing proposal or fund voting on March 19.
While a proposal on Sudan cropped up last year, it targeted a publicly traded company rather than a mutual fund. That resolution, from an individual shareholder, asked Berkshire Hathaway to divest from foreign firms that operate in countries that U.S. companies are barred from entering under U.S. law. The proposal gained much attention but ultimately only 2.4 percent support.
A few more publicly traded companies, though, have this year received resolutions motivated by concerns over Sudan. Amnesty International, Calvert Asset Management, Trillium Asset Management and Walden Asset Management filed resolutions at six investment firms— Citigroup, JPMorgan Chase, Merrill Lynch, Morgan Stanley, T. Rowe Price and Wells Fargo—asking them to consider how their investment policies can address human rights issues. Already, the filers have withdrawn the proposals at Merrill Lynch and T. Rowe Price after productive discussions, as discussed in more detail in the article on p. 9. (The Social Issues Service will issue separate reports on the proposals at the four investment companies, if they come to votes, but not for the proposals at the mutual funds.)
Traditionally, mutual funds haven’t been required by U.S. securities rules to conduct annual shareholder meetings, as listed companies are. The funds only have to schedule meetings for business that requires shareholder approval, such as board or fund manager changes. Now, activist groups are starting to ask mutual funds to place their proposals on the ballot whenever a regular business meeting is scheduled for the fund’s shareholders.
The resolution from Investors Against Genocide requests that Fidelity set up procedures to avoid future investments in companies complicit in genocide. For those Fidelity funds with existing stakes in problem companies tied to genocide— as determined by human rights watchdogs—two options are acceptable, the proposal says. If the holding is substantial enough that the fund can effectively influence the problem company’s management to end the genocide and that company is receptive to engagement, that approach may be appropriate. If the holding is relatively small or the problem company doesn’t respond adequately to engagement efforts, then the shares should be sold.
Adam Sterling, director of the Sudan Divestment Task Force, a project of the Genocide Intervention Network, told RiskMetrics Group that the most important aspect of the campaign against Fidelity is that it’s nuanced, calling for engagement by targeted companies with the Sudanese government first, and only advocating divestment when that fails.
The resolution put forth by Investors Against Genocide “asks companies not to leave Sudan but to change behavior in a country before divesting,” an approach meant to be more palatable to mutual funds, which are often slow to abandon shareholdings for ethical, rather than financial, reasons, Sterling said.
Maneuvering
The Investors Against Genocide activists started a letter and phone campaign last year that was narrowly focused on Fidelity’s existing investments with ties to the Sudanese government and its documented atrocities in Darfur, but have since set broader goals asking a number of U.S. mutual fund managers to establish investment screening of companies contributing to crimes against humanity anywhere.
The group, which originally was named “Fidelity Out of Sudan,” describes itself as “a non-profit organization dedicated to convincing mutual fund and other investment firms to change their investing strategy to avoid complicity in genocide.”
Mutual fund managers often respond to shareholder resolutions such as the one placed on Fidelity funds’ ballots this spring by saying the proponents are trying to “micromanage” the numerous, frequent investment decisions necessary to run their funds.
Fidelity appealed to the Securities and Exchange Commission to omit the group’s proposals for genocide- free investing on these “ordinary business” grounds, as well as under the materially false and misleading statements rule for proxy omissions, but lost that challenge in January. Cohen said that Fidelity made no move toward negotiating with his group in the weeks after the resolution was placed on the funds’ proxy ballot for voting starting March 19.
In addition to these genocide-related shareholder proposals being brought to a vote at mutual funds, 23 states and many colleges and universities in the United States also have ratified policies that call for divesting their pension funds or other institutional investments in companies doing business with the Khartoum government in Sudan. The resulting flow of institutional funds away from these securities is intended to encourage the companies, in turn, to pressure Sudanese leaders to stop their genocidal practices.
Investors Against Genocide has gained attention for its drive by warning ordinary investors that they unwittingly may be supporting genocide by holding shares in a mutual fund such as those offered by Fidelity.
Divestment Criteria
The group used the Sudan Divestment Task Force’s model to isolate a few public companies most closely tied to genocide in western Sudan. The model allows for “maximal impact on the government of Sudan while minimizing harms to both Sudanese citizens and portfolio returns,” according to the task force’s website. The model uses three criteria to target companies for divestment:
The list also includes Sinopec, or China Petroleum & Chemical Corp, another of that country’s staterun oil entities; Petronas, Malaysia’s state-controlled oil company; and Oil & Natural Gas Corp., or ONGC, an oil producer stateowned by India. Net oil importer China has cultivated the Sudanese regime as “Khartoum’s largest foreign investor and most significant international supporter,” the divestment task force said on Feb. 29 in substantiating its No. 1 ranking of PetroChina atop a handful of international companies labeled most “likely candidates for divestment” because of their relations with Sudan.
Then, Investors Against Genocide determined from SEC filings that household name Fidelity Investments was the largest holder of PetroChina American depositary shares at that time, with a stake of 4.1 million ADSs, valued at about $446.6 million, listed in its 13F filing to the SEC for the quarter ended June 30, 2006. That position has since been nearly liquidated by Fidelity. (The fund manager reported holding 834 PetroChina ADSs in its most recent ownership filing to the SEC this February.)
The discovery of Fidelity’s significant stake in mid-2006 led the activists to approach the company in September of that year about its PetroChina stake. Despite Fidelity’s notable selloff of PetroChina ADSs in recent months, Cohen says his group continues to have serious concerns about Fidelity’s holdings in PetroChina and Sinopec in markets outside the United States. He points to passive-investor filings to the SEC and information provided by Fidelity itself on non-U.S. market holdings that show remaining equity holdings worth millions of dollars in those two companies.
For example, a Feb. 14 amended 13G filing to the SEC by FMR LLC, one of Fidelity’s reporting entities in the United States, showed the fund manager owned 497,969,400 of PetroChina’s H shares traded on the Hong Kong exchange, or 2.36 percent of the Chinese company’s outstanding shares.
The defeat of the proposals on the proxy ballots of two of Fidelity’s dozens of mutual funds March 19 didn’t come as a surprise to Investors Against Genocide, who, Cohen said, had expected only limited support as a result of most Fidelity mutual fund customers’ usual dismissal of electronic or mailed proxy statements when received.
Strategy
Looking ahead, Cohen said his group hopes for a “white knight”—an investment company that offers mutual funds free of the problematic portfolio companies operating in Sudan He told RiskMetrics that once that happens, “that white knight will have a competitive advantage because it’s easy for people to move their money there from Fidelity.”
Sterling of the Sudan Divestment Task Force is encouraged about developments he has observed in the short period activists in the United States have been asking financial services companies to act on investments tied to genocide in Darfur.
“We’ve already seen enormous change since four years ago from dialogues with financial services institutions. For example, American Funds now has a statement on its website about Sudanese engagement. They’re hearing from customers and seeing the impact companies bring” to the situation, he said.
Voting on March 19 were shareholders of eight Fidelity mutual funds that had the resolution in their proxies released to the SEC: Capital & Income, Contrafund, Growth & Income, Low Priced Stock, Puritan, Real Estate Investment, Select Health Care Portfolio and Utilities funds. More votes were to take place on the same day for four additional Fidelity funds on which Investors Against Genocide filed their proxy resolution, although these weren’t included in earlier proxy statements filed with the SEC by Fidelity.
Investors Against Genocide is also planning to propose genocide-free investing resolutions for proxy votes yet to be scheduled at mutual funds managed by Barclays – the new largest holder of PetroChina ADSs as of Dec. 31, 2007, with 10.3 million shares valued at $1.8 billion, or a 4.87 percent stake in the company’s U.S. float reported to the SEC. It also seeks to place resolutions for shareholders to vote on at funds run by Vanguard, Franklin Templeton and T. Rowe Price, mainly because of their stakes in the Chinese oil firms linked to Sudan.
— Jane Meacham
The non-profit human rights advocacy group, Investors Against Genocide, has submitted proposals to at least 21 Fidelity mutual funds asking them to rid their portfolios of companies complicit in genocide by doing business with repressive regimes, including Sudan’s Khartoum government. Already, the proposal has received the support of 27 percent of the shares voted on the Fidelity Capital & Income Fund ballot and 28 percent at Fidelity’s Select Health Care Portfolio. That solid backing at two of Fidelity’s largest funds— with more than $11 billion in assets under management combined, according to Morningstar—will allow the proposal to reappear next year.
The Campaign
The genocide-free investing campaign adopts a novel approach to shareholder activism—one that targets several widely held U.S. mutual funds’ stockholdings rather than the companies themselves. The resolutions asks the boards of each of the mutual funds to “institute oversight procedures to screen out investments in companies that, in the judgment of the Board, substantially contribute to genocide, patterns of extraordinary and egregious violations of human rights, or crimes against humanity.”
Another 10 Fidelity funds also already had votes, but at all of them the proposal failed on March 19 to reach the 50 percent quorum of shares necessary for results to be final when voting was tallied. Consequently, the proposal will be placed on those Fidelity funds’ holders’ proxy ballots again for an April 16 meeting, along with a handful of other targeted Fidelity funds that already had voting scheduled for that date.
This delay in voting may buy time for Investors Against Genocide, the proponents, to capture the attention of more ordinary investors with money managed by the giant mutual fund company. “That gives lots more opportunity to vote on the issue or for shareholders ask Fidelity for a new ballot to vote if they didn’t this time. We hope to see in April and May more people voting for the resolution. We’re really excited,” Eric Cohen, chair of Investors Against Genocide, told RiskMetrics Group. He attended the Fidelity shareholders meeting after his group held a protest outside Fidelity’s office building in Boston.
Fidelity didn’t return calls from RiskMetrics Group for comment on the genocide-free investing proposal or fund voting on March 19.
While a proposal on Sudan cropped up last year, it targeted a publicly traded company rather than a mutual fund. That resolution, from an individual shareholder, asked Berkshire Hathaway to divest from foreign firms that operate in countries that U.S. companies are barred from entering under U.S. law. The proposal gained much attention but ultimately only 2.4 percent support.
A few more publicly traded companies, though, have this year received resolutions motivated by concerns over Sudan. Amnesty International, Calvert Asset Management, Trillium Asset Management and Walden Asset Management filed resolutions at six investment firms— Citigroup, JPMorgan Chase, Merrill Lynch, Morgan Stanley, T. Rowe Price and Wells Fargo—asking them to consider how their investment policies can address human rights issues. Already, the filers have withdrawn the proposals at Merrill Lynch and T. Rowe Price after productive discussions, as discussed in more detail in the article on p. 9. (The Social Issues Service will issue separate reports on the proposals at the four investment companies, if they come to votes, but not for the proposals at the mutual funds.)
Traditionally, mutual funds haven’t been required by U.S. securities rules to conduct annual shareholder meetings, as listed companies are. The funds only have to schedule meetings for business that requires shareholder approval, such as board or fund manager changes. Now, activist groups are starting to ask mutual funds to place their proposals on the ballot whenever a regular business meeting is scheduled for the fund’s shareholders.
The resolution from Investors Against Genocide requests that Fidelity set up procedures to avoid future investments in companies complicit in genocide. For those Fidelity funds with existing stakes in problem companies tied to genocide— as determined by human rights watchdogs—two options are acceptable, the proposal says. If the holding is substantial enough that the fund can effectively influence the problem company’s management to end the genocide and that company is receptive to engagement, that approach may be appropriate. If the holding is relatively small or the problem company doesn’t respond adequately to engagement efforts, then the shares should be sold.
Adam Sterling, director of the Sudan Divestment Task Force, a project of the Genocide Intervention Network, told RiskMetrics Group that the most important aspect of the campaign against Fidelity is that it’s nuanced, calling for engagement by targeted companies with the Sudanese government first, and only advocating divestment when that fails.
The resolution put forth by Investors Against Genocide “asks companies not to leave Sudan but to change behavior in a country before divesting,” an approach meant to be more palatable to mutual funds, which are often slow to abandon shareholdings for ethical, rather than financial, reasons, Sterling said.
Maneuvering
The Investors Against Genocide activists started a letter and phone campaign last year that was narrowly focused on Fidelity’s existing investments with ties to the Sudanese government and its documented atrocities in Darfur, but have since set broader goals asking a number of U.S. mutual fund managers to establish investment screening of companies contributing to crimes against humanity anywhere.
The group, which originally was named “Fidelity Out of Sudan,” describes itself as “a non-profit organization dedicated to convincing mutual fund and other investment firms to change their investing strategy to avoid complicity in genocide.”
Mutual fund managers often respond to shareholder resolutions such as the one placed on Fidelity funds’ ballots this spring by saying the proponents are trying to “micromanage” the numerous, frequent investment decisions necessary to run their funds.
Fidelity appealed to the Securities and Exchange Commission to omit the group’s proposals for genocide- free investing on these “ordinary business” grounds, as well as under the materially false and misleading statements rule for proxy omissions, but lost that challenge in January. Cohen said that Fidelity made no move toward negotiating with his group in the weeks after the resolution was placed on the funds’ proxy ballot for voting starting March 19.
In addition to these genocide-related shareholder proposals being brought to a vote at mutual funds, 23 states and many colleges and universities in the United States also have ratified policies that call for divesting their pension funds or other institutional investments in companies doing business with the Khartoum government in Sudan. The resulting flow of institutional funds away from these securities is intended to encourage the companies, in turn, to pressure Sudanese leaders to stop their genocidal practices.
Investors Against Genocide has gained attention for its drive by warning ordinary investors that they unwittingly may be supporting genocide by holding shares in a mutual fund such as those offered by Fidelity.
Divestment Criteria
The group used the Sudan Divestment Task Force’s model to isolate a few public companies most closely tied to genocide in western Sudan. The model allows for “maximal impact on the government of Sudan while minimizing harms to both Sudanese citizens and portfolio returns,” according to the task force’s website. The model uses three criteria to target companies for divestment:
- a business relationship with the Sudanese government or a government-created project,
- imparting minimal benefit to the country’s underprivileged or
- having demonstrated no substantial corporate governance policy regarding the Darfur situation.
The list also includes Sinopec, or China Petroleum & Chemical Corp, another of that country’s staterun oil entities; Petronas, Malaysia’s state-controlled oil company; and Oil & Natural Gas Corp., or ONGC, an oil producer stateowned by India. Net oil importer China has cultivated the Sudanese regime as “Khartoum’s largest foreign investor and most significant international supporter,” the divestment task force said on Feb. 29 in substantiating its No. 1 ranking of PetroChina atop a handful of international companies labeled most “likely candidates for divestment” because of their relations with Sudan.
Then, Investors Against Genocide determined from SEC filings that household name Fidelity Investments was the largest holder of PetroChina American depositary shares at that time, with a stake of 4.1 million ADSs, valued at about $446.6 million, listed in its 13F filing to the SEC for the quarter ended June 30, 2006. That position has since been nearly liquidated by Fidelity. (The fund manager reported holding 834 PetroChina ADSs in its most recent ownership filing to the SEC this February.)
The discovery of Fidelity’s significant stake in mid-2006 led the activists to approach the company in September of that year about its PetroChina stake. Despite Fidelity’s notable selloff of PetroChina ADSs in recent months, Cohen says his group continues to have serious concerns about Fidelity’s holdings in PetroChina and Sinopec in markets outside the United States. He points to passive-investor filings to the SEC and information provided by Fidelity itself on non-U.S. market holdings that show remaining equity holdings worth millions of dollars in those two companies.
For example, a Feb. 14 amended 13G filing to the SEC by FMR LLC, one of Fidelity’s reporting entities in the United States, showed the fund manager owned 497,969,400 of PetroChina’s H shares traded on the Hong Kong exchange, or 2.36 percent of the Chinese company’s outstanding shares.
The defeat of the proposals on the proxy ballots of two of Fidelity’s dozens of mutual funds March 19 didn’t come as a surprise to Investors Against Genocide, who, Cohen said, had expected only limited support as a result of most Fidelity mutual fund customers’ usual dismissal of electronic or mailed proxy statements when received.
Strategy
Looking ahead, Cohen said his group hopes for a “white knight”—an investment company that offers mutual funds free of the problematic portfolio companies operating in Sudan He told RiskMetrics that once that happens, “that white knight will have a competitive advantage because it’s easy for people to move their money there from Fidelity.”
Sterling of the Sudan Divestment Task Force is encouraged about developments he has observed in the short period activists in the United States have been asking financial services companies to act on investments tied to genocide in Darfur.
“We’ve already seen enormous change since four years ago from dialogues with financial services institutions. For example, American Funds now has a statement on its website about Sudanese engagement. They’re hearing from customers and seeing the impact companies bring” to the situation, he said.
Voting on March 19 were shareholders of eight Fidelity mutual funds that had the resolution in their proxies released to the SEC: Capital & Income, Contrafund, Growth & Income, Low Priced Stock, Puritan, Real Estate Investment, Select Health Care Portfolio and Utilities funds. More votes were to take place on the same day for four additional Fidelity funds on which Investors Against Genocide filed their proxy resolution, although these weren’t included in earlier proxy statements filed with the SEC by Fidelity.
Investors Against Genocide is also planning to propose genocide-free investing resolutions for proxy votes yet to be scheduled at mutual funds managed by Barclays – the new largest holder of PetroChina ADSs as of Dec. 31, 2007, with 10.3 million shares valued at $1.8 billion, or a 4.87 percent stake in the company’s U.S. float reported to the SEC. It also seeks to place resolutions for shareholders to vote on at funds run by Vanguard, Franklin Templeton and T. Rowe Price, mainly because of their stakes in the Chinese oil firms linked to Sudan.
— Jane Meacham