Article published on September 1, 2009
By Peter Ortiz
American Funds is following the path taken by Fidelity and Vanguard in urging its shareholders to vote against an anti-genocide proposal that will be put to a vote this fall at 16 of its funds.
This marks the first time American Funds has put the anti-genocide measure to a shareholder vote. In all, the mostly stock funds represent about $700 billion in assets under management, says company spokesman Chuck Freadhoff.
The proposal, put forth by a group called Investors Against Genocide, asks shareholders to authorize the funds’ board to “institute procedures to prevent holding investments in companies that, in the judgment of the Board, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights.”
American Funds opposes the measure. While it acknowledges the importance of human rights measures, it believes decisions about investments are best left to the investment managers, not the board, Freadhoff says. “We feel it is better for us to do this as part of the investment management process.”
The firm’s response to the proposal states, “While some believe total divestment is necessary for change, others generally prefer that the world stay engaged with the offending countries or governments because engagement provides the best — or only — opportunity to exert influence.” It also notes how shareholders in other fund firms have rejected proxy shareholder proposals similar to what American fund shareholders will vote for this fall.
Investors Against Genocide has targeted funds that have investments in the Chinese oil company PetroChina. Through the company’s closely related parent, China National Petroleum Company, it is providing funding that the government of Sudan uses to commit genocide in Darfur, the group says.
Three of the 16 funds subject to the proposal actually have investments in PetroChina, Freadhoff says. Those three funds include Capital Income Builder, with 0.07% of assets, Euro Pacific Growth (0.07%) and Capital World Growth and Income (.013%).
Eric Cohen, chairman of Investors Against Genocide, says the point of the group’s proposal is for shops to have a policy that applies to all their funds to ensure that none invest in genocide. It has lobbied against and criticized Fidelity and Vanguard for taking a similar position as American Funds.
After Fidelity urged its shareholders to vote against the anti-genocide proposals for four of their funds in July, the proposal garnered no more than 24.6% support, according to news reports. In another vote a month later for two more Fidelity funds, shareholder support was 21.9% and 23.4%. Previous votes at Fidelity had garnered as much as 31% shareholder support for the measure.
For its part, Vanguard also urged shareholders to vote against the proposal on 21 of its funds. The greatest amount of support for any fund was 17%, according to news reports.
In recommending that shareholders vote against the measure, American Funds, like Fidelity and Vanguard, has unfairly tainted the voting process, Cohen says.
“We’re disappointed that they have confirmed their decision to oppose the proposal and by doing so skew the voting,” Cohen says.
His organization warns shareholders that by investing in American Funds, they “may inadvertently invest in companies funding genocide because of investment decisions made on their behalf by American Funds."
“Even in the face of the most egregious violations of human rights, such as genocide, American Funds has released no policy to prevent investments that help fund or support such human violations,” the proposal states. “With no policy to prevent these problem investments, American Funds may at any time increase its holdings or involve new funds in such problem investments.”
Investors Against Genocide had discussions with American Funds in an attempt to persuade the firm to divest of companies connected to genocide or, at the very least, to remain neutral on the proposal, Cohen says.
American Funds’ position on the proposal makes clear “they do not want to have a policy that prevents investments in genocide even when they’re aware that investing in a problem company substantially contributes to genocide,” Cohen says.
Cohen contrasts the positions taken by American Funds, Fidelity and Vanguard with that of TIAA-Cref. That firm recently announced a nine-month time line for certain companies, include PetroChina, to make progress in ending genocide or risk all shares being divested.