FIDELITY Investments, the world’s largest mutual fund company, has sold most of its stake in Asian energy giant PetroChina after coming under fire from activists. The move is significant because it demonstrates the mutual fund industry’s sensitivity to public campaigns that could taint their brands.
Mutual fund companies have historically been the least active in corporate governance issues. They are more likely to vote with corporate management than with other shareholders. And they have been reluctant to back shareholder proposals on corporate social responsibility issues, including climate change and executive pay.
However, even though Fidelity told the Boston Globe that the divestment had nothing to do with politics, they’re not fooling anyone if they claim that this is not a big issue for them.
Pressuring media to pull attack ads
Earlier this week, Advertising Age reported how Fidelity pressured media outlets to pull attack ads linking the investment company to Sudan’s Darfur crisis via its investment in PetroChina. PetroChina’s state-run parent China National Petroleum Corp. has oil interests in Sudan, whose government is accused of supporting genocide.
CNN, for example, held an ad from the Save Darfur Coalition that was supposed to start running May 1 after Fidelity complained it was wrong about the fund firm’s holding in PetroChina. Fidelity said the true holding figures would be disclosed in a securities filing. That filing was made two days ago and disclosed that Fidelity had sold 90% of its PetroChina stake by the end of the first quarter.
In a news release, Save Darfur Coalition executive director David Rubenstein welcomed the fund company’s decision to sell most of its stake in PetroChina. However, he warned that activists would continue monitoring Fidelity and other companies’ investments and activities in Sudan.
Mutual funds vulnerable to public pressure
No doubt about it Fidelity, which has steadfastly insisted it makes its decisions based solely on investment and financial merits, blinked in this case. Still, genocide is not a run-of-the-mill corporate responsibility or political issue, so don’t expect Fidelity to suddenly start backing activist pension funds against boards and executives.
Indeed, Fidelity spokeswoman Anne Crowley said as much to the Globe after the PetroChina divestment was made public: ‘‘Our funds have a fiduciary responsibility to act in the financial interests of their investors, in keeping with the investment policies for each fund. This is not Fidelity investing its own money, this is Fidelity investing the money of millions of people.’’
And that’s exactly the point. Those “millions of people” she refers wouldn’t feel good about Fidelity being involved with Darfur, or many other issues. This story simply shows how vulnerable big fund companies like Fidelity are to campaigns that attack their image and brand with “millions of people.”
In an increasingly interconnected, click-to-publish world where “millions of people” can quickly organize and spread information online, this is something mutual fund companies and corporate management will need to keep a close eye on. A stirring to action by the typically docile mutual fund industry could change the entire corporate governance landscape.
Fidelity says sales of oil holdings carry no message (Boston Globe)
Fidelity Urges Media to Nix Ads That Link It to Darfur (Advertising Age)