NEW YORK (MarketWatch) — A couple of weeks ago, I received an unusual phone call just before I put the kids to bed.

On the phone was a representative of Fidelity Investments, the company that runs my 401(k) and maybe yours too, along with $1.5 trillion in assets.

Fidelity, to the best of my recollection, has never called me before. It has inundated me with mail, sending me small forests’ worth of proxy information, tax fodder and marketing junk, but it’s never called, and for that I was grateful — until the other day.

A big shareholder vote was coming on April 16, I was told. Fidelity wanted me to vote no, right there over the phone on an issue for which it had done a great deal of research. The pitch went on for a minute. Never was I told the issue Fidelity was calling about. When I pressed a little, I was told about a bureaucratic board, higher costs and activists. That’s the point in our conversation when I realized what the call was about.

Fidelity wanted me to vote against a resolution making it harder to invest in companies linked to genocide. “Can I put you down for a no?”

The mutual-fund scourge

No institution has killed American shareholder democracy more than the mutual fund. By creating extra layers of bureaucracy and complicated hurdles, the asset-management industry has taken away the voices of the owners of public companies.

Sure, we hear about aggressive funds that push for change in the boardroom and in the executive suite. T. Rowe Price, for example, pushed the family behind Dow Jones & Co. to accept a hefty premium from News Corp. last year. (As a result of that buyout, News Corp. is the parent company of MarketWatch.) Mutual Series, the investment fund founded by agitator Michael Price, recently took on Time Warner Inc. with Carl Icahn, producing mixed results.

But these instances are rare. Most mutual funds follow the recommendation of company management. They vote against corporate-governance proposals, limits on executive pay and resolutions to make companies friendlier to the environment. These funds are patsies, but at least they vote. Some funds don’t vote at all.

When it comes to the shareholders of the funds themselves? Fuhgeddaboutit. The system is stacked against participation for a reason: The executives at the top don’t want shareholders to take away their paydays.

Even when companies fail, agreements between the board and executives keep management fat and happy. Jimmy Cayne, the former chief executive of Bear Stearns Cos., is walking away with $61 million. Angelo Mozilo, the former chief of Countrywide Corp., collected $250 million during the last decade and sold much of his stock as the company veered toward destruction.

Do you think you’d vote for those kinds of packages if you owned Countrywide or Bear Stearns shares? The problem is that you do — through your mutual funds.

Maybe the mutual funds are the “co-conspirators” Sen. John McCain was talking about when the likely Republican presidential nominee blasted CEO pay during the weekend.

A clear choice

At least there are respectable arguments on both sides of CEO pay.

When it comes to investing in companies that associate with the government of Sudan, there’s little gray area. Companies such as PetroChina Co. and Petroliam Nasional Berhad (MY:6033: news, chart, profile) have been peeling away profits from the country by cooperating with a government that either has been accused of participating in genocide there or has looked away.

More than 2.6 million people have been dislocated from their homes; two-thirds of the population depends on humanitarian aid and 200,000 have lost their lives, according to Amnesty International.

Rather than do nothing, groups like AI and Investors Against Genocide are asking Fidelity and other companies to create policies or “board oversight” to examine investments. IAG has been targeting the fund companies. Amnesty International is taking the campaign to Morgan Stanle , Citigroup Inc. , J.P. Morgan Chase & Co. and other banks.

Nearly 20 states have passed Sudan divestment laws, including McCain’s home state of Arizona. School endowments, including Harvard University’s, passed divestment resolutions. Proxy Governance, one of those companies that recommend how investors vote, has recommended that fund companies and other investors do the same.

But private investors have been reluctant. Warren Buffett shot down a divestment petition at Berkshire Hathaway Inc.’s annual meeting last year. But within just a few months, Buffett was out of PetroChina and the Sudan.

‘Micromanaging’

Fidelity’s response has pretty much mirrored that of the industry: We don’t need no stinking controls on our investments. Fidelity got 170,000 emails protesting its Sudan investments. There were protests outside the firm’s headquarters in Boston.

For a while, it looked like the complaints were getting through. Fidelity dumped 99% of its PetroChina shares by the end of last year. It was progress, even if the company’s funds still own shares traded overseas.

Fidelity tried to block the measure from getting on the proxy, but the Securities and Exchange Commission ordered the company to include it. Once the question was added, Fidelity actively campaigned against the proposal. That’s where my evening phone call came in.

Fidelity says it doesn’t want to be told how to invest. Its managers are told to make money and obey the law. A restriction against companies profiting on genocide is an attempt to “micromanage” investment policy, it said.

Fidelity “recognizes and respects that investors, including those investing in this Fund, have other investment opportunities open to them should they wish to avoid investments in certain companies or countries,” the company said in its response. “Shareholders of the fund, however, have chosen to invest in this fund based on its specific stated investment policies.”

This from a bunch of guys who can’t even beat the market.

No one is asking for Amnesty International or Investors Against Genocide to join any of the management teams at Fidelity. If approved, the resolution would be nonbinding. Those groups are just asking fund managers and their boards to consider genocide when investing in companies.

So far, the system has won out. Just 28% and 27% voted for the proposal when two Fidelity-run funds voted on the plan last month. Seventeen other funds didn’t have enough votes for a quorum. But remember, most investors throw that proxy stuff away. It’s a hassle, but an unreturned ballot is almost as good as a vote for Fidelity.

“We know ordinary people who get this stuff mostly find it boring and throw it away,” said Eric Cohen, chairman of Investors Against Genocide.

The good news is that the proposals did earn enough support for them to reappear on the proxies next year. Cohen doesn’t expect to win much in the next few weeks, but he does expect gain support as investors learn about the cause.

“We think there are large numbers of Americans just like us,” he added. “We’re prepared to go a long way.”

All of this seems harmless enough, but Fidelity insists on spending a lot of my fees trying to stamp out this proposal. Even worse, Fidelity seems to be making the argument that mass murder isn’t an issue for humankind, but a political issue — like taxes or steroids in baseball.

Who at Fidelity explains that to their kids before bedtime? And how do they sleep?

David Weidner covers Wall Street for MarketWatch.