Fidelity's Sudan problem
Divestment campaign targets mutual funds, and the nation's largest mutual fund company is the first target, says Fortune's Marc Gunther.
NEW YORK (Fortune) -- As institutional investors learned that Chinese oil companies are helping to finance genocide in Sudan, many took action.
Harvard University led the way, divesting its stock in PetroChina (Charts) in 2005, and selling off Sinopec (Charts) a year later. Yale, Stanford and dozens of other university endowments followed. California's legislature approved a divestment plan last fall; so have at least five other states. Barclay's Global and Northern Trust are marketing Sudan-free investment funds.
Now the divestment campaign is targeting Fidelity, the nation's biggest mutual fund company.
The connection between Fidelity and the genocide in the Darfur region of Sudan is not all that hard to draw, says Eric Cohen, a retired high-tech executive and a campaign organizer.
"It's not that Fidelity is killing people. They're not," Cohen says. "But Fidelity is the biggest investor in PetroChina. PetroChina is one of the largest companies operating in Sudan. They're pumping tons of oil. And that's generating massive amounts of revenue for the government of Sudan."
The Khartoum government has been condemned by the United States, the U.N. and most everybody else who has paid attention to the long-running crisis in Darfur, where an estimated 400,000 people have died.
How has Fidelity responded to calls for divestment? With form letters and prepared statements.
"We believe the resolution of complex social and political issues must be left to the appropriate authorities of the world that have the responsibility, and capability, to address important matters of this type," the company says. "And we would sincerely hope that they would do so wisely on behalf of all of the citizens of the globe."
Now, in fairness to Fidelity, divestment is not a step that should be taken casually. Often, a more effective course of action is to hold onto the stock in a company whose practices need reform, and join with other shareholders to seek changes. The last successful divestment campaign targeted businesses operating in South Africa in the 1980s, under the apartheid system.
Harvard decided to divest from the Chinese oil companies after forming a committee of faculty, alumni and students to study the issue. They examined a series of complex issues - the genocide itself, the importance of oil to the Sudanese government, the relationship between PetroChina, which operates inside China, and its parent company, the China National Petroleum Company, which is wholly-owned by the Chinese government.
Afterwards, the Harvard Corporation concluded: "Although Harvard maintains strong presumption against the divestment of stock ...we believe that the case for divestment in this instance is persuasive."
It's likely the decision, which got a lot of press at the time, didn't escape the notice of Edward C. "Ned" Johnson 3d, chairman of the board of trustees of privately-held Fidelity. Fidelity's based in Boston, just across the Charles River from Harvard, from which Johnson graduated back in 1954. Fidelity owns about 2 percent of the shares outstanding in PetroChina, worth about $492 million, the company's latest filings say.
In any case, when Eric Cohen and two colleagues with the Massachusetts Coalition to Save Darfur, all of them Fidelity investors, wrote to Johnson about the issue last fall, they got a form letter back. They wrote to the company four more times and, finally, out of sheer frustration built a Web site at http://fidelityoutofsudan.googlepages.com/ . They went public on Holocaust Remembrance Day, January 27.
Their initial goal is to get 400,000 people - one for each of the people who have died in Darfur - to contact Fidelity. It's worth noting that Fidelity also manages the 401-k programs for some of America's biggest companies, including Microsoft and Time Warner (parent of Fortune and CNNMoney.com). So anyone at those companies who holds Fidelity mutual funds could well have money in PetroChina and Sinopec.
"Americans do not want to be investing in companies that are allowing themselves, like PetroChina, to be supporting genocide," Cohen said. At minimum, he would like Fidelity, as a major holder, to publicly urge the Chinese to stop supporting the Sudanese government. "If they started using their muscle, instead of being the bad guys, they could be the good guys."
The Sudan divestment campaign has scored some victories. Talisman Energy, a Canadian oil company, pulled out of Sudan in 2003, and Siemens (Charts), the German industrial firm, agreed to leave the country later this year.
Fidelity won't be the last target of the campaigners. As of Sept. 30, other investors in PetroChina and Sinopec included Merrill Lynch (Charts), Citigroup (Charts) and Warren Buffett's Berkshire Hathaway (Charts).