An intersection of competing interests:
PCUSA’s divestment process explained to the Board of Pensions
By Carmen Fowler LaBerge, The Layman, March 6, 2012
PHILADELPHIA. Pa. — The question: What happens to the Board of Pensions investment portfolio if the 220th General Assembly of the Presbyterian Church (USA) approves the recommendation to divest of Caterpillar (CAT), Motorola Solutions and Hewlett-Packard (HP)?
The answer: Judith Freyer, chief investment officer for the Board of Pensions (BOP), informed the Directors that a decision by the GA to divest would not result in immediate divesture for the board’s assets under management. The BOP’s policy forbids ownership and purchase of stocks from companies on the divestment list; but it does not require that shares already owned be sold.
The 54 shares of CAT stock (about $4000) would be immediately divested. However, the approximately $6 million of shares of CAT, HP and Motorola Solutions shares held across the board’s portfolios would not be.
She said that “it is very important when the GA acts, we listen.” Then she laid out for the board “how that will play out.”
Anticipating that the GA approves the recommendation that CAT, HP and Motorola Solutions be added to the divestment list, the immediate effect would be that the 54 shares used to file the shareholder resolution would be sold. The BOP investment managers would be told not to purchase additional shares of those stocks. Freyer then said that the managers would also be reminded that “those holding these securities in their managed portfolios are to retain those securities until they are sold in other accounts with the same mandate.” That means, Freyertranslated, “When they sell CAT from all their other institutional client portfolios, for investment reasons, they will sell the CAT share in the BOP portfolio.”
That liberty to retain stocks already in the portfolio that the GA might add to the divestment list is a product of the fiduciary responsibility that the BOP has to benefit plan members first and the denomination second. Freyer noted that “the GA has delegated oversight responsibility of benefit plan and assistance monies to the BOP.” The BOP “as fiduciary retains, monitors and excuses investment managers.” She continued that “we have both a duty of loyalty, to act in the exclusive interest of benefit plan members and a duty of care, to assure the adequacy of funding.”
Some background
The path of divestment recommendation begins with the General Assembly which makes referrals to its Mission Responsibility through Investing committee (MRTI). MRTI then follows a process which, in this case, resulted in a recommendation to the General Assembly Mission Council (GAMC) to divest of CAT, Motorola Solutions and HP. The GAMC affirmed the recommendation and has sent it as a business matter to the 220th General Assembly meeting June 30-July 7 in Pittsburgh.
The divestment recommendation will be assigned to a GA committee which will also receive related business including overtures that call the assembly to action on the matter in opposed directions. The committee will make a recommendation to the GA that it will vote on in plenary session. The General Assembly’s decision on the matter will require the Board of Pensions and the Presbyterian Foundation to respond by following their own processes related to divestment.
History and process that lead to the recommendation to divest
The Rev. Brian Ellison, member of the BOP and chair of the MRTI committee reviewed the path that lead to this point.
“In 1971,” Ellison said, referring to an action of the UPCUSA, “GA passed the first policy related to our discussion today. They said that ‘church investment is an instrument of mission and includes theological, social and economic considerations.’”
He outlined the goals for mission to be implemented by MRTI as:
- peacemaking
- protecting human rights
- racial justice
- social justice
- economic justice
- environmental stewardship
- women’s rights
The basis of MRTI’s actions is through shareholder engagement. Ellison explained that “as part-owners of a company, shareholders can engage companies to encourage policies and practices more in line with their values and ethics, and that address pressing issues in society.” Speaking of MRTI, he went on to say that “we do not generally seek to rally public opposition to corporations.”
Ellison affirmed that Presbyterians participate in “robust faith-based investing” through socially screening portfolios and shareholder engagement.
Shareholder engagement is an escalating process that includes
- Proxy voting.
- Correspondence with the corporation. Ellison said that “often this is the last step because companies respond favorably.”
- Dialogue meetings with management are used “when correspondence is insufficient,” Ellison said, adding that “dialogue meeting often result in resolution.” When they do not, the next step is:
- Filing shareholder resolutions. This is accomplished by “using some number of shares held by BOP and/or Foundation.” In the case of CAT, 54 shares of stock were used to file.
- MRTI then solicits support for the resolution by other shareholders and participation in a public appeals campaign with other interested parties.
Ellison concluded that “when we’ve tried everything else and we have concluded that the above approaches are not likely to bear fruit, the last step of corporate engagement is divestment.” He reiterated, “It is the last step because once done, you lose your space at the table.” He reminded the directors, “It is a regular part of our process.”
After reviewing divestment efforts of the past related to apartheid in South Africa and Talisman energy in the Sudan, Ellison offered the history of efforts with companies operating in Israel/Palestine.
The 2004 GA instructed MRTI to begin a process of “phased, selective divestment,” Ellison said. Then, “the 2006 GA clarified” that process further and the “2008 GA urged corporations ‘to confine their business activity solely to peaceful pursuits’ and ‘refrain from allowing their products and services to support: violent acts, construction and maintenance of settlements or Israeli-only roads, military occupation of Palestinian territory, construction of separation wall.'”
Ellison continued, saying that the “2010 GA directed MRTI ‘to continue the corporate engagement process, and report on its status with any recommendation to the 2012 GA.'” He also noted that the 2010 GA issued a statement specifically denouncing Caterpillar.
Ellison shared that Caterpillar, based in Peoria, Ill., produces “equipment used for demolition of Palestinian houses, uprooting olive trees and construction of illegal settlements and road and military operation in occupied Palestinian territories.” Although, Ellison said, “the company had a worldwide code of conduct and says it expects is ‘customers’ to abide by it,” Ellison said that CAT “has no intention of monitoring or ensuring compliance.”
He then turned his attention to two other companies that find themselves in the divestment cross-hairs.
Hewlett-Packard, Ellison said, is a “diversified manufacture that supplies the Israeli military with communications and computer hardware equipment, and provides biometric scanners for the illegal checkpoints in occupied Palestinian territory.” He then turned to the process that MRTI has followed with HP, saying that
“after a shareholder resolution was filed, we had conversation with HP in Oct 2010.” That dialogue, Ellison said, “resulted in the withdrawal of the resolution.” He continued, “However, in April 2011 another call was held. At that time the HP representatives indicated that they were not serious or interested in continuing the conversation.” The recommendation for divestment resulted.
“Motorola Solutions is large electronics and telecommunications company with a wholly-owned subsidiary in Israel that has extensive ties to the Israeli military,” Ellison said. “They provide for surveillance and communication equipment in illegal settlements.” The company is the “product of a 2011 split of Motorola into two companies.” Ellison noted that “Motorola Mobility is no longer engaged in the region and is therefore, not a subject of continued engagement.”
Ellison concluded by saying that “this is not a call for general divestment – nor is it a boycott. We continue to have holdings in the region with companies like Intel, Oracle, Proctor and Gamble, American Express, McDonald’s” among others. He said that the “goal is to bear witness to what we believe and what we’ve been called to do.”
In answer to a question by a director, Ellison said in part, “We are not saying these are bad companies – but they are profiting from non-peaceful pursuits. We have to ask ourselves how do we expect companies to take responsibility for the end use of their products? To the extent that CAT is profiting from non-peaceful pursuits means they are subject to engagement. If CAT was a military contractor, they’d already be on the GA’s divestment list.”
The decision of what the PCUSA will do in regard to the recommendation for divestment will be made by commissioners of the GA in Pittsburgh, June 30-July 7.