At a conference for trustees of public pension funds I recently attended, a topic was raised in a trustee-only roundtable and at dinner one night on divestment of companies that do business with the government of Sudan.
What is happening in that oil-rich country? Based on information Ive seen, I believe government officials in Khartoum have undertaken a process in which they are systematically murdering their own citizens in the Darfur region of western Sudan. I believe through the use of helicopter gunships and arms paid for by oil revenue, they have killed an estimated 450,000 of their own citizens, created a refugee crisis of immense proportions and continue to terrorize their own people through government-sponsored rape and slavery. President Bush has called it genocide, former Secretary of State Colin Powell has called it genocide, and the United Nations has called it genocide.
If youll remember, the phrase used often with regard to the genocide perpetuated against the Jews in World War II was Never again. That phrase runs true unless youre a trustee of a public pension plan, in which case the operative phrase is, Divestment will violate my fiduciary responsibility. So much for never again.
In the past few years, there has been a growing movement to get pension funds to sell assets of companies that are directly supporting this murderous regime. Pension funds are being asked to follow the lead of more than 50 universities, endowments and foundations, as well as five sov¬ereign nations that have pledged to divest of the offending companies. Several states have passed laws that require divestment, and the pension funds have fought those laws tooth and nail.
Im no fan of any lawmaking body interfering with my ability to best serve the members of my system, and I would strongly discourage any attempt at such interference. I would much rather attack the problem from a policy standpoint, implementing any restrictions from the board level, as opposed to setting them in statute.
But the restriction of investments in Sudan troubles my fellow trustees, both on my board and in other systems. The arguments I hear most often are:
cIf we start here, well have to take everybodys social issues.
cMy fiduciary responsibility is to the members of my system and not the people of Sudan.
Both of these justifications for not dealing with this issue are, I believe, short-sighted and disingenuous.
There is no law of any kind that says a board has to invest in everything, or on the contrary, not invest in everything. In fact, board members make investment and divestment decisions on a regular basis. The choice to hire one large-cap value manager over another means the board wont be hiring all large-cap value managers. From the fiduciarys point of view, that is just fine as long as the process used to make that decision is reasonable.
When a board goes through the process of selecting a large-cap value manager, it is not required to consider every manager in that universe. Boards set minimum standards for a managers time in the business, assets under management, compliance with applicable laws and a host of other requirements.
Much the same way, we can consider investing on the merits of each issue. We dont have to act on, or even consider acting on, divesting assets of companies that contribute to global climate change, have unfair labor practices or utilize sweatshops in their manufacturing process. Or we can.
We should judge each issue on its own merits, or lack thereof. Just because the slope is slippery does not mean that we have to avoid it. It may be difficult, but nobody ever told us being a trustee would be easy.
The second problem has to do with fiduciary duty. That has become, in my opinion, the most abused excuse for not dealing with problems faced by trustees.
Somewhere the belief has come about that we as trustees cant impart our own judgment into reaching a decision for the members of our systems. I have also heard trustees from other systems say that fiduciary duty means getting the highest return possible. Neither is correct, nor even close to correct.
We use our judgment each time we make a decision, whether its hiring actuaries or voting on the approval of the minutes of the last meeting. When we decide what to approve or disapprove, we use the value system we have honed over our lifetimes to make those choices. Its no different with divestment of Sudanese investments.
However, we have to face the reality that making the decision to divest just because of moral objections is probably a mistake. Not because genocide is somehow right, but because morals are fungible and relative. What I consider to be immoral might, by one of my fellow trustees, be considered perfectly natural and acceptable. There are many, many shades of gray in morality, but that goes beyond the scope of this discussion.
Where this discussion has substance, however, is the business decision that getting rid of investments in companies that support genocidal regimes is an action that is both reasonable and prudent. One would have to question the business acumen of a company that makes the decision to do business with such a regime in light of all the opposition to that regime. It makes no sense to hold the shares of such a company when it would appear that those shares will likely come under a great deal of selling pressure, causing their price to drop. It seems to me that continuing to hold these shares, with the knowledge that that pressure is forthcoming, truly is a violation of ones fiduciary duty.
But what really separates this call for divestment from all others is the scope of the injustice. In fact, injustice comes nowhere near describing the horror being perpetrated on one group by the government, simply because the groups members are different. This isnt sweatshops, environmental-law violations or anti-union forces; this is about the systemic elimination of an entire population. The level of the crime is as high as it goes.
For us to sit idly by, claiming that our fiduciary duty prevents us from taking any action, is simply wrong. Our fiduciary duty compels us to act.
Never again means Never again. By not divesting, we are giving tacit approval to the murder of hundreds of thousands of innocents. Id say that not only violates our fiduciary duty, but our duty as human beings as well.
Matthew N. Potter is in his 10th year as a member of the board of trustees for the Wyoming Retirement System, Cheyenne. He is chairman of its investment committee.