Pressure
on Fidelity Board Grows to Support ‘Genocide-Free Investing’
Article published on June 3, 2008
By Beagan Wilcox
By the time Fidelity held its May 14 shareholder meeting, six of its funds had already voted on the most controversial proposal on the ballot: a requirement that the board screen out investments in companies it deems “substantially contribute” to genocide.
Despite the board’s recommended “no” vote, support for the proposal at earlier shareholder meetings in March and April was unusually high, and ranged from 29% to 21%.
Fund shareholders in the six funds that voted on May 14 similarly voted in high numbers for the activists’ proposal, with 31% to 20% support.
“For that kind of resolution, [the support] really is extraordinary,” says Jackie Cook, founder of fund proxy-voting tracker Fund Votes.
The high votes against the recommendation of Fidelity’s board follow months of campaigning against Fidelity by Investors Against Genocide, the Boston-based activist organization that introduced the shareholder proposal to the ballot.
The group is attempting to get the fund behemoth to change its policy on investments in companies that are linked to the ongoing genocide in Sudan, where five years of violence have left about 200,000 people dead and displaced approximately 2.5 million, according to a 2006 U.N. estimate.
The Investors Against Genocide campaign is also targeting Barclays, Franklin Templeton, TIAA-Cref, T. Rowe Price and Vanguard, although votes have not yet been scheduled for any of those firms, except at TIAA-Cref, which will hold a meeting for its fund shareholders in July.
With high fund-shareholder support, the campaign appears to have gained greater attention from the Fidelity board.
When the campaign initially submitted the non-binding shareholder proposal, Fidelity asked the SEC to allow it to exclude the proposal, but the SEC rejected the request.
More recently, Fidelity directors attending shareholder meetings stated at the meetings that the board is listening carefully to shareholders. At the May 14 shareholder meeting, Eric Cohen, chairman of Investors Against Genocide, asked Fidelity’s board to change its recommended “no” vote and to remain neutral on the proposal.
Dennis Dirks, an independent trustee of the board who represented the other independent trustees at the meeting, said the board would consider Cohen’s request.
“I think it’s the most significant thing that happened at the meeting,” says Cohen.
In his presentation at the meeting, Cohen cited “systemic obstacles” that “tilt” the vote toward the board’s “no” recommendation, including blocks of internal and institutional shares automatically voting with management and Fidelity’s proxy solicitor urging shareholders to vote with management.
Fidelity’s trustees declined to comment for this article, says Vincent Loporchio, spokesman for the firm.
In proxies for the funds, Fidelity gives the reason behind the board’s “no” vote. The board recognizes that investors have other investment opportunities, “should they wish to avoid investments in certain companies or countries,” states the proxy. “Shareholders of the Fund, however, have chosen to invest in this Fund based on its specific stated investment policies. If adopted, this proposal would limit investments by the Fund that would be lawful under the laws of the United States.”
None of the Fidelity funds that have voted thus far on the proposal own shares of PetroChina, one of the four companies the campaign specifically targets for its links to the Sudanese government.
The four Fidelity funds that do own PetroChina shares held about $76 million in the company at the end of March and about $82 million at the end of September 2007, according to Lipper Fund Analysis.
But Fidelity International, a Fidelity affiliate, also holds a significant amount of PetroChina through its non-U.S. funds, notes Eric Cohen. Two of the funds — the China Focus Fund and the Southeast Asia Fund— held approximately $400 million in PetroChina as of the end of 2007, he says.
Pressuring the Board
Jay Lorsch, professor of human relations at Harvard Business School, says it’s difficult to know if Dirks was speaking for the entire board when he said they would consider the request to change the recommended “no” vote, or whether he was responding to the crowd at the shareholder meeting.
“The minimal thing they can do is to embarrass the board,” says Lorsch, referring to the typical tactics of investor activists. “I think what you’ve got is an example of at least one director who felt the pressure and who said they would consider [changing the vote recommendation],” adds Lorsch, who has written extensively about corporate boards.
Cohen made a plea to investors to support the “genocide-free investing” proposal and simultaneously took Fidelity to task for its stance during the May 14 shareholder meeting: “Investment managers may worry that they cannot hope to satisfy a varying myriad of social concerns of a broad customer base; ethical investing may mean different things to different people. However, surely there is a minimum standard upon which nearly everyone agrees. We draw the line at investing in genocide. The shareholder proposal on genocide-free investing sets this minimum standard for all mutual funds.”
Changing Vote in Midstream
Yet, even if the board wanted to change its vote recommendation, doing so at this point would be very unusual and would create logistical problems, given that proxies have already been mailed to investors.
“Typically the position that a board takes is consistent across the fund complex and if one position is good for some shareholders, then presumably it’s good for all shareholders,” says Paulita Pike, partner at Bell, Boyd & Lloyd. “And so I think it would be very difficult for the board to have different recommendations for different funds.”
Nine more Fidelity funds are scheduled to vote on June 18. The campaign has submitted the proposal to 11 additional Fidelity funds, which have not yet scheduled a vote (see graphic).
Next in Line: TIAA-Cref
Mutual funds typically hold proxy votes only when investor approval is needed for specific issues, such as electing a new director. Fidelity, for example, scheduled a proxy vote in order to get approval to change the board structure from one board to two, and to lower the quorum required for shareholder meetings from a majority of shares to one third of the shares entitled to vote.
TIAA-Cref, on the other hand, holds a fund shareholder meeting every year. But the campaign’s proposal arrived at least 11 days after the deadline for submitting shareholder proposals, according to a spokeswoman for TIAA-Cref.
On the homepage of the campaign’s website, the words “Tell TIAA-Cref to put genocide-free investing on the ballot” appear in red letters. A form letter on the site addressed to TIAA-Cref asks the firm to “voluntarily” put the shareholder proposal on the ballot.
“We have rules and procedures for the submission of shareholder proposals,” says Hye-Won Choi, head of corporate governance at TIAA-Cref. “We adhere to these rules because we want to treat all proponents of proposals in the same way.”
Choi says the firm considers the campaign’s divestment strategies short-sighted and that engagement with companies, which is TIAA-Cref’s approach, will yield better results in Sudan.
“Basically we agree with their objective,” says Choi, “but we disagree about the means of achieving their goal.”
On its website, TIAA-Cref notes that since the beginning of its engagement program, five companies in which the funds invest have either discontinued or committed to discontinue their operations in Sudan. Those companies include ABB Lt., Baker Hughes Inc., Marathon Oil Company, Rolls-Royce plc and Siemens AG.
But Cohen of the Investors Against Genocide campaign says American families don't want their money connected to genocide through their mutual fund investments. He also emphasizes the importance of shareholders' giving the issue their attention and support.
“We’re getting such strong support from shareholders, [Fidelity] ought to pay attention to this,” says Cohen. “We’re not going to go away.”
Article published on June 3, 2008
By Beagan Wilcox
By the time Fidelity held its May 14 shareholder meeting, six of its funds had already voted on the most controversial proposal on the ballot: a requirement that the board screen out investments in companies it deems “substantially contribute” to genocide.
Despite the board’s recommended “no” vote, support for the proposal at earlier shareholder meetings in March and April was unusually high, and ranged from 29% to 21%.
Fund shareholders in the six funds that voted on May 14 similarly voted in high numbers for the activists’ proposal, with 31% to 20% support.
“For that kind of resolution, [the support] really is extraordinary,” says Jackie Cook, founder of fund proxy-voting tracker Fund Votes.
The high votes against the recommendation of Fidelity’s board follow months of campaigning against Fidelity by Investors Against Genocide, the Boston-based activist organization that introduced the shareholder proposal to the ballot.
The group is attempting to get the fund behemoth to change its policy on investments in companies that are linked to the ongoing genocide in Sudan, where five years of violence have left about 200,000 people dead and displaced approximately 2.5 million, according to a 2006 U.N. estimate.
The Investors Against Genocide campaign is also targeting Barclays, Franklin Templeton, TIAA-Cref, T. Rowe Price and Vanguard, although votes have not yet been scheduled for any of those firms, except at TIAA-Cref, which will hold a meeting for its fund shareholders in July.
With high fund-shareholder support, the campaign appears to have gained greater attention from the Fidelity board.
When the campaign initially submitted the non-binding shareholder proposal, Fidelity asked the SEC to allow it to exclude the proposal, but the SEC rejected the request.
More recently, Fidelity directors attending shareholder meetings stated at the meetings that the board is listening carefully to shareholders. At the May 14 shareholder meeting, Eric Cohen, chairman of Investors Against Genocide, asked Fidelity’s board to change its recommended “no” vote and to remain neutral on the proposal.
Dennis Dirks, an independent trustee of the board who represented the other independent trustees at the meeting, said the board would consider Cohen’s request.
“I think it’s the most significant thing that happened at the meeting,” says Cohen.
In his presentation at the meeting, Cohen cited “systemic obstacles” that “tilt” the vote toward the board’s “no” recommendation, including blocks of internal and institutional shares automatically voting with management and Fidelity’s proxy solicitor urging shareholders to vote with management.
Fidelity’s trustees declined to comment for this article, says Vincent Loporchio, spokesman for the firm.
In proxies for the funds, Fidelity gives the reason behind the board’s “no” vote. The board recognizes that investors have other investment opportunities, “should they wish to avoid investments in certain companies or countries,” states the proxy. “Shareholders of the Fund, however, have chosen to invest in this Fund based on its specific stated investment policies. If adopted, this proposal would limit investments by the Fund that would be lawful under the laws of the United States.”
None of the Fidelity funds that have voted thus far on the proposal own shares of PetroChina, one of the four companies the campaign specifically targets for its links to the Sudanese government.
The four Fidelity funds that do own PetroChina shares held about $76 million in the company at the end of March and about $82 million at the end of September 2007, according to Lipper Fund Analysis.
But Fidelity International, a Fidelity affiliate, also holds a significant amount of PetroChina through its non-U.S. funds, notes Eric Cohen. Two of the funds — the China Focus Fund and the Southeast Asia Fund— held approximately $400 million in PetroChina as of the end of 2007, he says.
Pressuring the Board
Jay Lorsch, professor of human relations at Harvard Business School, says it’s difficult to know if Dirks was speaking for the entire board when he said they would consider the request to change the recommended “no” vote, or whether he was responding to the crowd at the shareholder meeting.
“The minimal thing they can do is to embarrass the board,” says Lorsch, referring to the typical tactics of investor activists. “I think what you’ve got is an example of at least one director who felt the pressure and who said they would consider [changing the vote recommendation],” adds Lorsch, who has written extensively about corporate boards.
Cohen made a plea to investors to support the “genocide-free investing” proposal and simultaneously took Fidelity to task for its stance during the May 14 shareholder meeting: “Investment managers may worry that they cannot hope to satisfy a varying myriad of social concerns of a broad customer base; ethical investing may mean different things to different people. However, surely there is a minimum standard upon which nearly everyone agrees. We draw the line at investing in genocide. The shareholder proposal on genocide-free investing sets this minimum standard for all mutual funds.”
Changing Vote in Midstream
Yet, even if the board wanted to change its vote recommendation, doing so at this point would be very unusual and would create logistical problems, given that proxies have already been mailed to investors.
“Typically the position that a board takes is consistent across the fund complex and if one position is good for some shareholders, then presumably it’s good for all shareholders,” says Paulita Pike, partner at Bell, Boyd & Lloyd. “And so I think it would be very difficult for the board to have different recommendations for different funds.”
Nine more Fidelity funds are scheduled to vote on June 18. The campaign has submitted the proposal to 11 additional Fidelity funds, which have not yet scheduled a vote (see graphic).
Next in Line: TIAA-Cref
Mutual funds typically hold proxy votes only when investor approval is needed for specific issues, such as electing a new director. Fidelity, for example, scheduled a proxy vote in order to get approval to change the board structure from one board to two, and to lower the quorum required for shareholder meetings from a majority of shares to one third of the shares entitled to vote.
TIAA-Cref, on the other hand, holds a fund shareholder meeting every year. But the campaign’s proposal arrived at least 11 days after the deadline for submitting shareholder proposals, according to a spokeswoman for TIAA-Cref.
On the homepage of the campaign’s website, the words “Tell TIAA-Cref to put genocide-free investing on the ballot” appear in red letters. A form letter on the site addressed to TIAA-Cref asks the firm to “voluntarily” put the shareholder proposal on the ballot.
“We have rules and procedures for the submission of shareholder proposals,” says Hye-Won Choi, head of corporate governance at TIAA-Cref. “We adhere to these rules because we want to treat all proponents of proposals in the same way.”
Choi says the firm considers the campaign’s divestment strategies short-sighted and that engagement with companies, which is TIAA-Cref’s approach, will yield better results in Sudan.
“Basically we agree with their objective,” says Choi, “but we disagree about the means of achieving their goal.”
On its website, TIAA-Cref notes that since the beginning of its engagement program, five companies in which the funds invest have either discontinued or committed to discontinue their operations in Sudan. Those companies include ABB Lt., Baker Hughes Inc., Marathon Oil Company, Rolls-Royce plc and Siemens AG.
But Cohen of the Investors Against Genocide campaign says American families don't want their money connected to genocide through their mutual fund investments. He also emphasizes the importance of shareholders' giving the issue their attention and support.
“We’re getting such strong support from shareholders, [Fidelity] ought to pay attention to this,” says Cohen. “We’re not going to go away.”