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January 11, 2014
Genocide-Free Proposal to Stay On Proxy Ballot at Franklin Templeton
    by Robert Kropp

After the SEC rules against Franklin Templeton's request to have the resolution omitted, Investors Against Genocide will return to the mutual fund family's next annual meeting and renew call for a genocide-free investment policy.

Last year's general meeting of Franklin Resources, the parent company of the mutual fund family Franklin Templeton, featured—for the first time in at least 19 years, and maybe the first time ever—a shareowner resolution. Brought by Investors Against Genocide, the resolution requested that the company's board of directors "institute transparent procedures to avoid holding or recommending investments in companies that, in management's judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights."

According to a recent press release from IAG, Franklin Templeton “owned 1,470,026,753 shares of PetroChina, as of December 31, 2012. That holding amounted to 7% of the shares outstanding of PetroChina, a company widely recognized as contributing to the genocide in Sudan.”

Despite the fact that three senior executives at Franklin Resources collectively own 32% of the company's outstanding shares, and that the company recommended that shareowners vote against the proposal, some 15 million share voted in favor of it. The number amounted to 8.7% of share votes, easily enough for the resolution to be included on the this year's proxy ballot.

This year, Franklin Resources appealed to the Securities and Exchange Commission to have IAG's resolution omitted from the proxy ballot. “The proposal,” the company's lawyers argued, “creates precisely the kind of conflict of interest that the Courts and the Commission have historically and consistently considered to be a breach of fiduciary duty: placing the agenda of an indirect owner of an investment adviser (in the present case, a shareholder of the Company) above the interests of the adviser's clients.”

In all, Franklin Resources detailed five justifications for omitting IAG's proposal from its proxy ballot.

In its ruling, the SEC struck down every one of the five justifications for omitting the proposal from the ballot, stating, “It appears that Franklin’s policies, practices, and procedures do not compare favorably with the guidelines of the proposal and that Franklin has not, therefore, substantially implemented the proposal.”

“The proposal focuses on the significant policy issue of human rights and does not seek to micromanage the company,” the Commission further stated.

“We are gratified that the SEC has upheld shareholders’ right to vote on the important social issue of investments tied to genocide,” IAG chairperson Eric Cohen, said. “Americans, once they become aware of the problem, do not want their pensions and family savings connected to genocide. Although financial institutions may oppose it, ordinary investors who see the proposal will vote their values and support genocide-free investing.”

According to a 2010 study by KRC Research, 88% of respondents want their mutual funds to be genocide-free, and 84% said they would "withdraw their investments from American companies that do business with companies that directly or indirectly support genocide."

“Nonetheless,” Cohen of IAG stated before Congress in 2010, “Because most individuals entrust their savings to mutual funds, millions of Americans are investing, unknowingly, inadvertently, and against their will, in companies funding genocide."

In 2012, after the board of ING Emerging Countries Fund took a neutral position on a similar proposal, almost 60% of shareowners voted in favor of it. And in 2009 the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), a $400 billion financial services firm, divested its holdings in four of the five major Asian state-owned oil companies with significant operations in Sudan.


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