Fidelity Board Sticks to ‘No’ Vote on Divestment Proposal
Article published on July 1, 2008
By Beagan Wilcox
Despite pressure from activists, Fidelity’s board is not wavering on its decision to recommend that shareholders vote against a proposal requiring the directors to screen the funds for investments linked to genocide.
At the same time, investors in two more funds showed unusual support at a June shareholder meeting for the “genocide-free investing” proposal made by members of Investors Against Genocide, an activist group of shareholders based in Boston, Mass.
The activists’ proposal garnered 28% support from voting shareholders of the $41.2 billion Magellan Fund; 27% of the $37.5 billion Growth Company fund’s voting shareholders supported the proposal. Twelve other funds have also rejected the proposal, with support ranging for it from 31% to 20%. Shareholder proposals involving social causes usually get only single-digit levels of support.
While Fidelity has been under the most scrutiny from shareholder activists, the high level of votes against management’s recommendation could indicate the level of shareholder support this issue may get at other fund firms. Indeed, activists plan to continue their campaign at Fidelity and have submitted the same proposal to funds managed by Barclays, Franklin Templeton, TIAA-Cref, T. Rowe Price and Vanguard, although no votes have yet been scheduled for the funds.
The activists’ agitation — along with shareholder support for their proposal — seems to be having an effect on Fidelity. Executives at the recent shareholder meeting pointed to a new statement on the firm’s website that more fully lays out a stance on divestment. It also takes a tack not previously mentioned: engagement with companies the funds invest in that may be linked to genocide.
“[W]e have concluded that when it is appropriate to remain actively invested in a company, we will do so, thus retaining the ability to oppose company practices that we do not condone,” reads the statement. “This, in the long term, may have the greatest chance of ending those practices.”
The board played a part in this amplification of Fidelity’s position on the issue, according to Dennis Dirks, an independent trustee of the Fidelity board who attended both the June 18 and May 14 shareholder meetings.
Indeed, Dirks had told shareholders at the May meeting that the board would consider changing its recommended “no” vote on the proposal to neutral, a move that Investors Against Genocide activists have repeatedly advocated. The activists say that Fidelity’s suggested “no” vote skews the results because institutional investors often automatically vote with management. Fidelity’s stance against the proposal, say activists, runs contrary to the firm’s stated desire to listen to what its shareholders want.
After the May 14 meeting, the board had a “very, very intense discussion” about its recommendation to vote against the proposal, Dirks said during the June shareholder meeting. The board decided to go back to the adviser of the funds to request that management more fully outline its perspective, which it did in an undated “Note to Fidelity Investors” (click on "Investment Expertise" and then "Investment Philosophy" to reach the statement) posted on its website. Scott Goebel, Fidelity Management & Research Co.’s recently named general counsel, read from the statement during his remarks at the meeting.
“We are as appalled as others” by the tragedy in Darfur, said Dirks. But allowing the type of prohibition on investments that the activists’ proposal entails could open a Pandora’s box of other prohibitions. The overwhelming consideration of the board, said Dirks, is that they want to support portfolio managers in making investment decisions.
In a statement published after the June meeting, the Investors Against Genocide activists say their shareholder proposal explicitly endorses engagement, which can be an effective strategy for large shareholders if the engagement is “vigorous with clear time limits and real consequences applied to unresponsive target companies.”
“We look forward to Fidelity’s public disclosure regarding its plans for a vigorous effort with firm deadlines and meaningful consequences if no substantial progress is made to help end the genocide,” the release states.
Fidelity declined to elaborate on its online statement regarding engagement and, as a matter of practice, does not discuss its conversations with companies, says Vin Loporchio, spokesman for the firm.
Several shareholders at the June meeting were interested in knowing more about the board’s discussion of divestment from genocide-linked companies. One Fidelity shareholder who is participating in the activists’ campaign asked Dirks during the meeting: “You alluded to an intense discussion with the board. Could you shed some light on the nature of the discussion?”
In response, Dirks reiterated the board’s decision during its recent meeting and the board’s request that management outline its position on the matter more fully.
Through Fidelity’s spokesman, Dennis Dirks declined to be interviewed for this article.
After the meeting, the shareholder activist who asked Dirks about the board’s discussion, Helaine Simmonds, 72, said she wants to know if any of the board members are in support of the proposal. Simmonds also said she’s questioning whether to keep her money with Fidelity because of its investments that are tied to the genocide in Darfur.
“I’ve stuck with them through the bad times,” said Simmonds, a retired attorney. “I guess because I’m a native Bostonian, I still see it as a local company.”
David Rosenberg, 65, a computer programmer at the Massachusetts Institute of Technology, who also attended the meeting with the activists, said he was worried about the money in his Fidelity 401(k) supporting genocide.
“I don’t want to retire on money that was earned that way,” said Rosenberg.
Seven other Fidelity funds, including the nearly $78 billion Contrafund, did not get enough votes on the shareholder proposal to constitute a quorum. Fidelity said it would discontinue votes on those funds.
The halt in voting for the funds denies shareholders the opportunity to be heard on the issue, the Investors Against Genocide campaign said.
But Fidelity’s Loporchio says shareholder have had ample opportunity to vote on the matter. Enough shareholders of each of the seven funds have rejected the proposal that spending fund assets to gather more votes to reach a quorum will not change the result, he adds. Loporchio could not provide additional data on those funds’ votes.
Article published on July 1, 2008
By Beagan Wilcox
Despite pressure from activists, Fidelity’s board is not wavering on its decision to recommend that shareholders vote against a proposal requiring the directors to screen the funds for investments linked to genocide.
At the same time, investors in two more funds showed unusual support at a June shareholder meeting for the “genocide-free investing” proposal made by members of Investors Against Genocide, an activist group of shareholders based in Boston, Mass.
The activists’ proposal garnered 28% support from voting shareholders of the $41.2 billion Magellan Fund; 27% of the $37.5 billion Growth Company fund’s voting shareholders supported the proposal. Twelve other funds have also rejected the proposal, with support ranging for it from 31% to 20%. Shareholder proposals involving social causes usually get only single-digit levels of support.
While Fidelity has been under the most scrutiny from shareholder activists, the high level of votes against management’s recommendation could indicate the level of shareholder support this issue may get at other fund firms. Indeed, activists plan to continue their campaign at Fidelity and have submitted the same proposal to funds managed by Barclays, Franklin Templeton, TIAA-Cref, T. Rowe Price and Vanguard, although no votes have yet been scheduled for the funds.
The activists’ agitation — along with shareholder support for their proposal — seems to be having an effect on Fidelity. Executives at the recent shareholder meeting pointed to a new statement on the firm’s website that more fully lays out a stance on divestment. It also takes a tack not previously mentioned: engagement with companies the funds invest in that may be linked to genocide.
“[W]e have concluded that when it is appropriate to remain actively invested in a company, we will do so, thus retaining the ability to oppose company practices that we do not condone,” reads the statement. “This, in the long term, may have the greatest chance of ending those practices.”
The board played a part in this amplification of Fidelity’s position on the issue, according to Dennis Dirks, an independent trustee of the Fidelity board who attended both the June 18 and May 14 shareholder meetings.
Indeed, Dirks had told shareholders at the May meeting that the board would consider changing its recommended “no” vote on the proposal to neutral, a move that Investors Against Genocide activists have repeatedly advocated. The activists say that Fidelity’s suggested “no” vote skews the results because institutional investors often automatically vote with management. Fidelity’s stance against the proposal, say activists, runs contrary to the firm’s stated desire to listen to what its shareholders want.
After the May 14 meeting, the board had a “very, very intense discussion” about its recommendation to vote against the proposal, Dirks said during the June shareholder meeting. The board decided to go back to the adviser of the funds to request that management more fully outline its perspective, which it did in an undated “Note to Fidelity Investors” (click on "Investment Expertise" and then "Investment Philosophy" to reach the statement) posted on its website. Scott Goebel, Fidelity Management & Research Co.’s recently named general counsel, read from the statement during his remarks at the meeting.
Fidelity’s ‘Note to Investors’: Excerpts
“We are sensitive to the ongoing tragedy occurring in Darfur and, like most others in the world, we are repulsed by genocide and all other crimes against humanity. We also respect the request by some to divest holdings in companies that have any Sudan–related activities as one way to bring pressure to bear on the Sudanese government.
It is a request that we have given time and thought in evaluating, and we know that other companies in the industry have done the same. On the surface, the task appears relatively simple. In fact, however, weighing the consequences of divestiture against the value of active retention is quite complex. Though we do not like to admit it, as investment advisors it is very difficult for us to evaluate cause–and–effect relationships in a social and political situation as sensitive as this.
That said, we have concluded that when it is appropriate to remain actively invested in a company, we will do so, thus retaining the ability to oppose company practices that we do not condone. This, in the long term, may have the greatest chance of ending those practices. There is the possibility that driving publicly traded companies out of Sudan may actually make the situation worse, exposing the region to state–owned companies or companies that are not traded on the world's exchanges and, therefore, not subject to any shareholder influence whatsoever.
It is our best judgment that this approach — when applied over the spectrum of the world's investment securities — may be the most viable way to help bring constructive influence to world issues."
Source: Fidelity's website
The board also unanimously concluded that it would not change its vote, Dirks said.“We are sensitive to the ongoing tragedy occurring in Darfur and, like most others in the world, we are repulsed by genocide and all other crimes against humanity. We also respect the request by some to divest holdings in companies that have any Sudan–related activities as one way to bring pressure to bear on the Sudanese government.
It is a request that we have given time and thought in evaluating, and we know that other companies in the industry have done the same. On the surface, the task appears relatively simple. In fact, however, weighing the consequences of divestiture against the value of active retention is quite complex. Though we do not like to admit it, as investment advisors it is very difficult for us to evaluate cause–and–effect relationships in a social and political situation as sensitive as this.
That said, we have concluded that when it is appropriate to remain actively invested in a company, we will do so, thus retaining the ability to oppose company practices that we do not condone. This, in the long term, may have the greatest chance of ending those practices. There is the possibility that driving publicly traded companies out of Sudan may actually make the situation worse, exposing the region to state–owned companies or companies that are not traded on the world's exchanges and, therefore, not subject to any shareholder influence whatsoever.
It is our best judgment that this approach — when applied over the spectrum of the world's investment securities — may be the most viable way to help bring constructive influence to world issues."
Source: Fidelity's website
“We are as appalled as others” by the tragedy in Darfur, said Dirks. But allowing the type of prohibition on investments that the activists’ proposal entails could open a Pandora’s box of other prohibitions. The overwhelming consideration of the board, said Dirks, is that they want to support portfolio managers in making investment decisions.
In a statement published after the June meeting, the Investors Against Genocide activists say their shareholder proposal explicitly endorses engagement, which can be an effective strategy for large shareholders if the engagement is “vigorous with clear time limits and real consequences applied to unresponsive target companies.”
“We look forward to Fidelity’s public disclosure regarding its plans for a vigorous effort with firm deadlines and meaningful consequences if no substantial progress is made to help end the genocide,” the release states.
Fidelity declined to elaborate on its online statement regarding engagement and, as a matter of practice, does not discuss its conversations with companies, says Vin Loporchio, spokesman for the firm.
Several shareholders at the June meeting were interested in knowing more about the board’s discussion of divestment from genocide-linked companies. One Fidelity shareholder who is participating in the activists’ campaign asked Dirks during the meeting: “You alluded to an intense discussion with the board. Could you shed some light on the nature of the discussion?”
In response, Dirks reiterated the board’s decision during its recent meeting and the board’s request that management outline its position on the matter more fully.
Through Fidelity’s spokesman, Dennis Dirks declined to be interviewed for this article.
After the meeting, the shareholder activist who asked Dirks about the board’s discussion, Helaine Simmonds, 72, said she wants to know if any of the board members are in support of the proposal. Simmonds also said she’s questioning whether to keep her money with Fidelity because of its investments that are tied to the genocide in Darfur.
“I’ve stuck with them through the bad times,” said Simmonds, a retired attorney. “I guess because I’m a native Bostonian, I still see it as a local company.”
David Rosenberg, 65, a computer programmer at the Massachusetts Institute of Technology, who also attended the meeting with the activists, said he was worried about the money in his Fidelity 401(k) supporting genocide.
“I don’t want to retire on money that was earned that way,” said Rosenberg.
Seven other Fidelity funds, including the nearly $78 billion Contrafund, did not get enough votes on the shareholder proposal to constitute a quorum. Fidelity said it would discontinue votes on those funds.
The halt in voting for the funds denies shareholders the opportunity to be heard on the issue, the Investors Against Genocide campaign said.
But Fidelity’s Loporchio says shareholder have had ample opportunity to vote on the matter. Enough shareholders of each of the seven funds have rejected the proposal that spending fund assets to gather more votes to reach a quorum will not change the result, he adds. Loporchio could not provide additional data on those funds’ votes.