Should Berkshire Divest PetroChina?

We all know Warren Buffett as a true class act in a less-than-classy business world. So it comes as a bit of a surprise that Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) shares in PetroChina (NYSE: PTR  ) , which were bought years ago at $488 million and are currently worth more than $3 billion, have been a subject of controversy.

Here's the issue: Activists wrote in an article that the Chinese government, a majority owner of PetroChina, also does business with the Sudanese government. To make a tragic story short, the Sudanese government has engaged in acts of genocide, and an estimated 200,000-450,000 people have died, with an estimated 2.5 million people displaced from their homes.

Holocaust survivor Elie Wiesel said in a speech regarding the Darfur genocide:

Scores of women are being raped every day; children are dying of disease, hunger, and violence.

How can a citizen of a free country not pay attention? How can anyone, anywhere not feel outraged? How can a person, whether religious or secular, not be moved by compassion? And above all, how can anyone who remembers remain silent?

However, there are two sides to every coin. As Berkshire's Charlie Munger noted, "Whose bread I eat, his song I sing."

Here are the arguments from both sides:

Berkshire's stance
Berkshire left it up to shareholders to decide. Buffett obviously agrees that the genocide in Darfur is a tragedy but maintains that PetroChina has nothing to do with it and that divestment would do nothing to help Darfur victims. Berkshire noted that PetroChina does not have any operations in Sudan.

Although Berkshire agrees that PetroChina's owner, the state-owned CNPC, does business in Sudan, it argues that PetroChina itself is not accountable for the Chinese government's actions. As an example, Berkshire pointed out that even though Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) are government-sponsored entities, it would be wrong to hold them accountable for the U.S. government's actions. Berkshire investors overwhelmingly voted not to divest PetroChina's shares.

Sudandivestment.org's stance
On the other hand, Sudaninvestment.org pointed out that PetroChina and its parent company are closely linked and that the creation of PetroChina as a subsidiary was done explicitly to allow CNPC to raise capital without the taint of genocide. The site also points out that both PetroChina and CNPC share many of the same executives, including PetroChina's chairman, who is also CNPC's president. Thus, Sudandivestment.org argues that PetroChina does bear some indirect responsibility for the tragedies, given that Sudanese oil supports the military that is carrying out the genocide.

My two cents
Both sides of the divestment argument are entitled to their own opinions, but I think that Berkshire should divest, not because it will help save Darfur victims -- the problems go much, much deeper than who owns PetroChina's shares -- but more because Berkshire has always been a beacon of light for investors everywhere, and it would be a tragedy for that light to be clouded, regardless of whether the reasoning was even slightly correct. One major shareholder, Fidelity, has already divested most of its PetroChina shares.

When Buffett stepped in to save Salomon Brothers after the company was rocked by scandals, he told employees to refrain from doing anything that crossed the line, and to also refrain from doing anything that even came close to crossing the line.

Buffett, who is a standout citizen and has donated all of his wealth to beneficial foundations, hardly needs me to tell him what to do. But in my humble opinion, the PetroChina investment may have hints of crossing the line, and perhaps to preserve Berkshire's reputation it should be divested. I would hate to have future generations not admire and try to emulate Berkshire's business principles because of this.

The shareholders have spoken, though I think they should consider both sides of the argument. Should Fannie Mae shares be divested to dissociate from the U.S. government if the U.S. government were engaged in genocide? If there is a clear link, such as common executives and direct ownership, then I believe the answer is yes.

The Darfur tragedy is truly something that all human beings need to be concerned about. I'll be the first to raise my hand as someone who has been too indifferent. For more information, check out www.savedarfur.org or www.sudandivestment.org.

For related Foolishness:

Berkshire Hathaway and Fannie Mae are Motley Fool Inside Value recommendations. Find out why with a free 30-day trial.

Fool contributor Emil Lee urges Fools to go out and watch The Devil Came on Horseback and take action! He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.


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