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Today, the House Financial Services Committee could make it easier for investment firms such as Boston-based Fidelity Investments to take their money out of Sudan.
There's been a lot of pressure lately from an activist campaign to sever financial ties to the country's troubled region of Darfur.
But until now if mutual fund companies did so, they could have faced shareholder lawsuits. The proposed legislation from Massachusetts Democrat Barney Frank would protect against such litigation.
As WBUR's Business and Technology Reporter Curt Nickisch reports, the measure bolsters an activist campaign that's trying to get mutual fund companies to divest from Sudan.TEXT OF STORY
CURT NICKISCH: This is not what Eric Cohen had in mind for his early retirement. He's on a conference call in his home office:
SOUND OF CONFERENCE CALL, COHEN: "Anything Save Darfur Coalition does with respect to divestment..."
NICKISCH: The former corporate vice-president still spends his days in meetings. His activism started when he heard that profits from companies doing business in Sudan may be financing the mass killings in Darfur. The Chinese oil concern PetroChina is a chief target of this criticism. Cohen and his wife wondered if they had money in PetroChina through their mutual funds with Fidelity. He says they went online to Yahoo Finance and within minutes had their answer:
ERIC COHEN: There's a convenient click on the left for major holders. So thirty seconds later we have the list. The single largest investor in PetroChina on the New York Stock Exchange was Fidelity Investments, and it had at the time about five hundred million dollars.
NICKISCH: Cohen was horrified.
COHEN: Why would I as an investor want my money invested in companies like PetroChina that connect me with this genocide?
NICKISCH: Cohen took all of his money out — but he wants Fidelity to get out altogether. Turns out — it's not that easy. Harvard business professor Peter Tufano says mutual fund boards and money managers have basically one mission: get the best return for investors. And lately, PetroChina has been a great bet — averaging almost ninety percent returns over the last four years. Tufano says when members want to forgo those returns for ethical reasons, well, the funds just not set up for that.
PROF. PETER TUFANO: The first word in the phrase mutual fund is mutual. And that investment manager and that board must act within the best interest of all. Not some, not a few, but all.
NICKISCH: Now that could change, at least in the case of Sudan investments. Later this morning, Congressman Barney Frank plans to introduce legislation that would remove that financial obligation.
REP. BARNEY FRANK: So we will have a bill that will essentially say to Fidelity or anyone else — or to state pension funds — if you believe that this terrible genocide is a problem for a variety of reasons — you can get rid of any shares that you have in companies that are supportive of it, and no one can sue you.
NICKISCH: Such a move would boost the activist campaign that's been pressuring mutual fund companies to divest from Sudan. Here in Boston, the groups ran gut-wrenching TV spots and put up stark billboards in the financial district. Fidelty responded by saying it follows all US laws. But in a regulatory filing, the firm revealed it had sold ninety percent of its PetroChina shares in the US. It may still own company stock on foreign exchanges, but still.
RANDY O'NEIL: I think this type of activism: it clearly works.
NICKISCH: That's Randy O'Neil, global sales manager for KLD, a Boston investment research firm. He's says no mutual fund company wants to look like it's kowtowing to activists, but Darfur is different. O'Neil says Sudan divestment has broad support, unlike other causes.
O'NEIL: And so sure, these things are definitely going to come up. Where people are going to want to divest from everything in the world. But if they don't have the support, it's just not going to get off the ground. And it's not a coincidence that this is the one that got off the ground as opposed to all of these others.
NICKISCH: There's still a long way to go for Sudan divestment. For example, there are still forty fund groups in the US and at least one hundred individual funds that invest in PetroChina. Eric Cohen of the Save Darfur Coalition:
COHEN: It's not only Fidelity, but it's Franklin Templeton, it's American Funds, it's T Rowe Price, it's Vanguard, it's all the major mutual fund companies. Because they all have been operating under the same rules. And the rules are — look for ways to make money, and it doesn't matter if it connects you with genocide.
NICKISCH: The rules may soon change, though. Today the House Financial Services Committee is taking up legislation to give mutual fund companies more wiggle room. Congressman Frank feels good about its chances, because the measure is not a mandate to divest, but just gives investment firms the option.
For WBUR, I'm Curt Nickisch.
This program aired on July 26, 2007. The audio for this program is not available.
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