Warren Buffett's investment holding company, Berkshire-Hathaway, owns a chunk of the Chinese oil company PetroChina. PetroChina is a subsidiary of the Chinese state-owned oil company, CNPC. CNPC has a 40 percent stake in a Sudanese oil venture.
The ongoing horror of genocide in Sudan has inspired a divestment campaign that is apparently generating some genuine heat on Berkshire and Buffett. On Wednesday, Berkshire took the unprecedented step of responding to critics by posting a defense of its PetroChina investment on the Berkshire Web site. The Berkshire argument can be summed up simply: PetroChina is a domestic Chinese oil company and is not directly involved in the Sudan. And even it was, divestment wouldn't make any difference, anyway.
Whether divesting from PetroChina would influence the actions of Sudan's rulers is a question that can be debated. But Berkshire's assertion that PetroChina is untainted by its parent company's actions is suspect.
Here's what Berkshire says:
To begin with, we have seen no records, including the various materials we have received from pro-divestment groups, that indicate PetroChina has operations in Sudan. The controlling shareholder of PetroChina, CNPC, does do business in Sudan. CNPC is 100 percent owned by the Chinese government, and its activities may logically be attributed to the government of China itself. But the Chinese government's activities can neither be attributed to PetroChina nor the other major Chinese companies the government controls (also through 100 percent-owned entities), such as China Mobile, China Life and China Telecom. Subsidiaries have no ability to control the policies of their parent.
Here's what Harvard discovered in 2005 when making its own decision to divest itself of any investments in PetroChina.
In an effort to determine whether PetroChina can exercise independence from CNPC despite CNPC's 90 percent ownership interest in it, the subcommittee examined the management of the two companies. The results of that review were striking. The Chairman of PetroChina is the President of CNPC; PetroChina's legal counsel is CNPC's President; PetroChina's Vice Chairmen, Executive Directors, and Non-executive Directors are also CNPC's Vice Presidents; and the four subcommittees of PetroChina's Board of Directors contain substantial representation from CNPC. Indeed, the investment and development subcommittee of the board of PetroChina is comprised solely of two Vice Presidents of CNPC.
The management structure outlined by Harvard does not appear to be a typical parent company/subsidiary relationship. To declare, as Berkshire does, that a subsidiary has no ability to control the policies of the parent, when the two entities are run by the exact same people, is an exercise in specious obfuscation. It is also insulting our intelligence to compare PetroChina with other Chinese-government owned companies, such as China Mobile and China Life, which, presumably, do not share the same management as CNPC. Warren Buffett wouldn't put up with that kind of baloney if an executive from one of the companies Berkshire controls tried to lay it on him. There's no reason for us to have to accept it either.
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