US puts pressure on companies doing business with Sudan
Oct 21, 2006 (SAN FRANCISCO) — Companies doing business in Sudan are coming under increasing pressure from the United States, as the international community struggles to force an end to the humanitarian crisis in the Darfur region of the country.
Earlier this month, President Bush signed an executive order freezing assets of Sudan in the United States and prohibiting transactions “by United States persons relating to the petroleum or petrochemical industries in Sudan, including, but not limited to, oil-field services and oil or gas pipelines.”
The move follows passage of a bill in California a few weeks ago ordering the state’s huge retirement-pension funds to move toward divesting from companies doing business in Sudan.
“At some point, people are going to be dropping these companies like hot potatoes, and you don’t want to be the last one to hold them,” said California Assemblyman Paul Koretz, who co-authored the bill signed by California Gov. Arnold Schwarzenegger late last month. “If other states divest, holding these companies seems to be a bad idea from a fiscal point of view.”
Bush’s latest action builds on an earlier executive order signed in 1997 by President Clinton.
“I think the president wants to increase the economic noose around the government of Sudan,” said Jason Miller, national policy director for Sudan Divestment Task Force. “This is ratcheting up the economic pressure one step further.”
The University of California Board of Regents voted in March to divest all UC shares in nine companies with operations providing revenue to the Sudanese government, including China Petroleum and Chemical Corp., also known as Sinopec (SNP) Reasoning that certain companies “can be persuaded to sever their ties with the Sudanese government,” the regents also voted to send “letters of concern” to four companies, including Italy’s Finmeccanica Spa and Schlumberger Ltd.
But divestment has its critics. California State Senator Roy Ashburn voted against the recently signed bill, because it “directs pension funds to invest in a particular way,” he said. It’s the pensions’ “legal and ethical responsibility” to invest to achieve “the highest rate of return for the public.”
The “international nature of business today” renders the bill impractical, and a state position on divestment abroad may be inappropriate, according to Ashburn. “I vote against all bills that involve California in foreign policy,” he added. “That is the responsibility of the president, Congress and the national government.”
ENGAGEMENT
Clark McKinley, a spokesman with California Public Employees’ Retirement System, said that the public-pension fund, which held shares of Finmeccanica (FINMF) as of last month, prefers to engage companies rather than divest.
“We have a constitutional mandate to maximize our investment returns,” McKinley wrote in an e-mail. “As a fiduciary, members don’t want us to leverage their investment dollars for worthy social causes, unless we can do so without undermining our mission. ”
As the nation’s largest public-pension fund, Calpers — which represents more than 1.5 million members with an investment portfolio that topped $200 billion as of late August — can influence corporate operations, the spokesman said.
The board of California State Teachers’ Retirement System — with a $149 billion investment portfolio, making it the nation’s second-largest public pension — voted over the summer to support divestment legislation that indemnifies officials and managers for divestment decisions.
“We have achieved considerable change in corporate policies and practices by holding our shares, keeping our place at the table and engaging corporate boards and management for positive change,” McKinley wrote. “Generally, engagement has paid off and is a more promising tactic for us than divestment.”
Assemblyman Koretz said that he believes it’s fiscally responsible to spearhead divestment initiatives: “It’s always been economic pressure Sudan has responded to.” He’s hoping that California’s divestment initiative will cause a “domino effect around the country and around the world.”
There is some academic evidence indicating that divestment campaigns weigh on share prices of targeted companies.
A 2002 study published in the journal Business & Society looked at what happened in 1993 when a divestment campaign against South Africa ended.
In the weeks following a 1993 speech by Nelson Mandela that served to mark the end of the divestment campaign, a portfolio of 87 boycotted U.S. firms with equity interests in South Africa outperformed expected returns by 5.9%, according to the study.
“The end of sanctions had a measurable impact on South Africa, and I suspect that it will be the same thing with Sudan,” said Richard Wokutch, co-author of the study, who is also a professor and head of Virginia Tech’s Department of Management. “If momentum builds up for the boycott, this would have a long-term depressing effect on the stock market.”
William Lamb, an assistant professor of strategic management with Ohio University who worked with Wokutch on the paper, said that of the 87 boycotted firms, a portfolio of the 47 that had agreed to operate their facilities there without discrimination outperformed the expected level by 6.8% in the weeks following the speech.
“One challenge that faces the Sudan divestment effort, when compared with the South African effort, is that South Africa was more of an economic power when the sanctions were being applied,” according to Lamb. “Alternatively, of course, Sudan could prove easier to isolate for this very reason.”
(MarketWatch)