Vote "no" on "no to genocide"?

As a shareholder of a Vanguard mutual fund, I was recently invited to vote on several proposals.

A year ago, I would've just voted according to the Board's recommendations, which are prominently advertised in the proxy statement: vote yes for every trustee, and vote yes for the updating and standardization of all funds' investment policies. I don't understand finance, I don't know what's best; these guys are professionals, I would've figured.

But a third recommendation gave me pause: the board of trustees is advising shareholders to vote AGAINST a proposal that would create procedures to prohibit investment in companies that "substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights."

How can anyone claim that there's no need to divest from genocide?

Well, here's Vanguard's take: You should vote against this proposal because it would "duplicate existing practices and procedures of the Vanguard funds".

A quick look around the Internet shows this isn't true: according to Investors Against Genocide, Vanguard invests $303 million in "the top problem companies" as of 1/31/2009. Between the late 2008 and 1/31/09, Vanguard increased its holdings in PetroChina from 177 million shares worth $134 million to 189 million shares worth $140 million. PetroChina, through its parent, China National Petroleum Company, provides funding that the Government of Sudan uses to conduct genocide in Darfur. In its reply, Vanguard does not address or refute these claims.

But, again according to the Vanguard trustees, "mutual funds are not optimal agents to address social change."

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So what if you believe you can't separate ethics from investment practices?

In their reply, Vanguard's trustees suggest their so-called "ethical" investment fund, the Vanguard FTSE Social Index Fund. Authorised in 2000 "in recognition that some individuals consider social issues when selecting investments", the fund "screens companies on social, human rights, and environmental criteria".

The top ten funds:
1. JPMorgan Chase & Co.
2. Apple
3. Intel
4. Google
5. QUALCOMM
6. McDonald's Corp
7. Amgen
8. Bank of America
9. Gilead Sciences
10. CVS

...McDonald's? If you're concerned with the ethics of a corporate-industrial food system run by transnational companies and retailers, or with the environmental sustainability of the planet, how can you support a company that's reshaping the world's diet to include more and more meat when livestock production is responsible for 18 percent of all greenhouse gases, according to an FAO study? And that's just a top of my head... I'm sure a more intrepid blogger would go to town with that list.

Can we really be living in a system where someone who wants to invest ethically has no better options?

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What's most troubling is that all of this slips under our radars. Who has time to read a 131-page .pdf document sent by an investment company? Not many of us - and Vanguard knows it. If you don't want to think, when you get to the online ballot, you can just click a button that says "Show me what the board recommends" at the top of the page, and it fills in your votes FOR YOU.

And you're not only voting against the "no genocide" proposal. In voting to "update and standardise investment policies," you're essentially letting Vanguard do away with its current regulations, which are stricter than national standards. For example, the new proposals would allow Vanguard funds to borrow more money and use more leverage, which means investing more money than you actually have in order to make more profits. But haven't we all seen in the past few years that this can go terribly awry? Isn't it clear that our national regulatory framework for finance isn't quite up to scratch, and that its construction was inherently political?

Sure, there's an argument that this will increase efficiency and decrease expenses - but at what cost?

If I've learned anything this year, it's that deference to "expert knowledge" and unflagging trust in regulatory structures equals a devolution of governance to people and institutions who don't have our best interests at heart. We need to be asking: how were the regulations created? By whom? With whose interests at stake?

Yet I'm not one to stand on my soapbox. I voted this time, but I've let these decisions slip past me more often than not.

And even with awareness, what's to do now? As we can see, when investors mobilise to democratically challenge the structural power of finance, the company tries to subvert them by claiming virtues it doesn't have. If collective action doesn't work, what can we do to change the system?