Published by Ignites.

By Peter Ortiz  April 1, 2011

A recent SEC ruling gives an investor advocate group that has long targeted funds it claims have investments tied to genocide the green light to go after the corporate parents of those funds.

The Securities and Exchange Commission’s ruling against JPMorgan Chase allows Investors Against Genocide for the first time to target publicly held corporations with shareholder resolutions. This is significant because unlike mutual funds, corporations hold annual proxy meetings, giving the group more frequent opportunities to put its resolutions on proxy ballots. The group is now aiming for Franklin Resources.

“We intend in the future to submit [resolutions] to other corporations, and we’re specifically interested in doing that at Franklin Templeton because they are such a large shareholder of PetroChina,” says Eric Cohen, chairman of Investors Against Genocide.

Investors Against Genocide has targeted companies invested in PetroChina, a Chinese firm with ties to genocide in Darfur through its large stake ownership in Sudan’s oil industry. JPMorgan’s mutual fund business represents a small part of its overall enterprise, but it is among the largest shareholders of PetroChina with nearly a 5% stake, or $1.3 billion, Cohen says. This is more than Fidelity’s and Vanguard’s PetroChina holdings, but Franklin is greater than all of them with a little over 6% of outstanding shares in PetroChina as of Jan. 20, Cohen says.

JPMorgan Chase shareholder Alice Rosenfeld submitted the Investors Against Genocide proposal to JPMorgan in November. Then, after learning that the firm sought assurances that the SEC would not recommend enforcement action if it omitted the proposal from its 2011 proxy, Rosenfeld wrote the agency in February asking it to deny that request.

JPMorgan had challenged the proposal, which requested that the board “institute transparent procedures to prevent holding investments in companies that, in management’s judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights. Management should encourage JPMorgan funds with separate boards to institute similar procedures.” Rosenfeld is a supporter of Investors Against Genocide.

But the SEC’s Division of Corporate Finance last month ruled against JPMorgan’s argument that the proposal was vague and written in a way that would mislead shareholders. The SEC wrote that it was “unable to conclude that the proposal is so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing the proposal, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires.”

In an e-mail response to questions, Charlotte Powell, JPMorgan Chase spokeswoman, notes that “while we share the shareholder’s concern about human rights generally and about genocide in particular, we believe the firm’s existing policies and procedures appropriately address these issues.”

Cohen’s group will be looking to employ this new “tactic” with other publicly held corporate parents of mutual fund firms. It won’t work in going after privately held fund companies, such as Fidelity and Vanguard, which have had their funds targeted by the group. But Cohen hopes that efforts targeting the corporate parents of funds will influence change with respect to the individual funds that invest in PetroChina.

“Franklin Templeton, the corporation, advises the mutual funds that Franklin Templeton runs,” Cohen says. “These are all arms of the publicly traded company, so they are in a position to influence by way of recommendation what investment courses those other mutual funds take.”

The proposal will appear on the proxy ballot May 17 in Columbus, Ohio, at JPMorgan Chase’s annual meeting.

A Franklin Templeton spokesman referenced a statement on its website that says while the firm recognizes the deplorable conditions in the Darfur region of Sudan, it has “seen that fostering economic and business development through investment can often help in achieving reform.”