Universities have better things to do than divest
To Divest or Not to Divest
Students are returning to campus, and bringing with them a heated issue: Should universities divest from Israel? Since Hamas's attack last October, this has prompted waves of student protests and driven the departures of the heads of Harvard, the University of Pennsylvania and Columbia. Much like the intractable Israel-Palestine conflict, it refuses to go away.
This is not the place to try to adjudicate the rights and wrongs of the situation in Gaza. But it's necessary to wrestle again with the questions of whether long-term investments are a good venue for a political struggle, and whether universities are entitled to divest on moral grounds.
Three of the most prestigious US universities illustrate the breadth of approaches. This op-ed in the student-led Columbia Spectator demonstrates that tension remains high. At the University of Michigan, pro-Palestinian activists took control of the student government last semester, and have now closed it down until the the university divests, deliberately hurting themselves in the process. Trustees at Brown meet soon to vote on a divestment proposal a concession that ended protests earlier this year. They also now have a letter from 24 attorneys general telling them that any divestment would be unlawful and prompt their states to sever all business with the Rhode Island university. Each school is making its decision in a different way.
The presidents of Harvard and Penn were driven out. Photographer: Kevin Dietsch/Getty Images
Brown
The formal statement on how Brown will make this decision, from President Christina Paxson, can be found here, while her letter to the committee charged with ruling on the divestment is here. They must thrash out whether buying a stock is consistent with the university's moral principles. They can divest only if at least one of these two conditions is met:
1. When such actions will likely have a positive impact toward correcting the specified social harm; or
2. When the company or industry in question contributes to social harm so grave that it would be inconsistent with the goals and principles of the University to accept funds from that source.
It's hard to see how divestment aligns with the first condition, or the second for most of the firms involved. Brown's students want to sell stocks in companies like Textron, Safariland, Volvo Group, Airbus, Boeing, General Dynamics, General Electric and Motorola. Sale by one university endowment in a moral gesture will have no discernible effect on them or on Gaza. But Brown does have a carefully worked out and judicious process in place to make the decision. That, it appears, is not enough for the Republican attorneys general, who wrote in a letter that "many of our states are currently undertaking a review of our pension investments and contracts to determine if Brown has already violated state law."
They concluded with a strongly worded threat that invoked anti-BDS (Boycott, Divest and Sanctions) laws that bar companies from discriminating against Israel:
Others have discovered to their detriment that those laws have profound financial consequences, and we would strongly counsel you to learn from those past examples. When Ben & Jerry's, a subsidiary of Unilever, recently attempted to boycott Israel, the application of state anti-BDS laws led to the divestment of hundreds of millions of dollars in Unilever stock by state pension funds and, eventually, the termination of the Unilever CEO.
Like Ivy League colleges, Vermont-based Ben & Jerry's is plainly on the liberal side of the US culture wars. That's not a coincidence.
Not the entire Columbia University community. Photographer: Spencer Platt/Getty Images
Columbia
Columbia has long had a system for deciding on divestment proposals, which has led it to withdraw from apartheid South Africa, Sudan, private prisons, and fossil fuel. The issue of whether endowments should ever take moral rather than merely financial factors into account does not arise here. Columbia long ago decided that they can. But on the specific issue of Israel, the committee decided not to divest. Their explanation, in February before the campus protests grabbed national attention, can be found here. The crux is to pass the following conditions:
1. There must be broad consensus within the University community regarding the issue at hand;
2. The merits of the dispute must lie clearly on one side;
3. Divestment must be more viable and appropriate than ongoing communication and engagement with company management.
I'm not sure Israeli divestment passes any of these tests, but the key problem lay in "broad consensus within the University community," a deliberately high barrier. A majority of undergraduates appears to be pro-Palestinian, but the Columbia community is defined to include all graduate students, alumni and faculty. Columbia is situated in one of the world's largest Jewish communities on the Upper West Side of Manhattan and it is very, very far from consensus on Israel. Columbia remains wed to the notion that politics and the wishes of its constituents can in some cases overrule investment decisions.
Middle ground looks elusive at the University of Michigan. Photographer: Adam J. Dewey/Anadolu/Getty Images
Michigan
The regents' explanation of why they refused to divest can be found here. Its key points concern materiality; that the issue is so small that it scarcely matters. Michigan has no direct investment in any Israeli company, while indirect holdings through funds come to less than 0.1% of the endowment. If anyone were to draw up a list of all the things that might help to resolve the Israeli-Palestinian conflict, it would be very long, and divestment by the University of Michigan would not appear on it.
This argument cuts both ways. The chances that divestment would have any discernible effect on the endowment's returns are also minimal. A symbolic gesture would also be a costless one. The temptation must be strong. However:
We must always consider the impact our decisions might have on students, faculty and staff — we do not make this decision lightly. After deliberation, we have decided to stand by our longstanding policy. We will continue to shield the endowment from political pressures and base our investment decisions on financial factors such as risk and return.
Unlike Columbia, Michigan says its endowment should avoid moral judgments and stick to its job of providing a great public university with the funding it needs.
What to make of this? The trickiest problem is that investment decisions and politics don't mix, despite interventions by political actors on all sides. At issue is not whether Brown sells Boeing, but why. Presumably if the endowment happened not to hold Boeing in the first place, the issue would not arise and the attorneys general would not force them to buy. Alternatively, Brown might decide to sell because Boeing's brand was damaged or its market cap had dropped so much that it fell out of the S&P 500, or that religious (not political) reasons led them to divest from all arms-makers.
Lesson in the lack of compromise. Photographer: Ahmad Salem/Bloomberg
Policing why investors make their every move is unworkable. A broader point, to both AGs and students, is that this is a culture war issue, red in tooth and claw. They are increasingly creeping into markets. Universities, where freedom to discuss and experiment should be encouraged, are bad places to try to force an outcome on one side or the other. This is doubly true of their endowments.
Investment lends itself to gray areas and compromise. You can hedge, you can split between stocks and bonds, and so on. Nobody running an endowment is ever required to put 100% into one investment. Neither the attorneys general nor Students for Justice in Palestine have any interest in such a risk-adjusted, split-the-difference approach. Both want it all, with hapless university authorities caught in the middle.
Students are returning to campus, and bringing with them a heated issue: Should universities divest from Israel? Since Hamas's attack last October, this has prompted waves of student protests and driven the departures of the heads of Harvard, the University of Pennsylvania and Columbia. Much like the intractable Israel-Palestine conflict, it refuses to go away.
This is not the place to try to adjudicate the rights and wrongs of the situation in Gaza. But it's necessary to wrestle again with the questions of whether long-term investments are a good venue for a political struggle, and whether universities are entitled to divest on moral grounds.
Three of the most prestigious US universities illustrate the breadth of approaches. This op-ed in the student-led Columbia Spectator demonstrates that tension remains high. At the University of Michigan, pro-Palestinian activists took control of the student government last semester, and have now closed it down until the the university divests, deliberately hurting themselves in the process. Trustees at Brown meet soon to vote on a divestment proposal a concession that ended protests earlier this year. They also now have a letter from 24 attorneys general telling them that any divestment would be unlawful and prompt their states to sever all business with the Rhode Island university. Each school is making its decision in a different way.
The presidents of Harvard and Penn were driven out. Photographer: Kevin Dietsch/Getty Images
Brown
The formal statement on how Brown will make this decision, from President Christina Paxson, can be found here, while her letter to the committee charged with ruling on the divestment is here. They must thrash out whether buying a stock is consistent with the university's moral principles. They can divest only if at least one of these two conditions is met:
1. When such actions will likely have a positive impact toward correcting the specified social harm; or
2. When the company or industry in question contributes to social harm so grave that it would be inconsistent with the goals and principles of the University to accept funds from that source.
It's hard to see how divestment aligns with the first condition, or the second for most of the firms involved. Brown's students want to sell stocks in companies like Textron, Safariland, Volvo Group, Airbus, Boeing, General Dynamics, General Electric and Motorola. Sale by one university endowment in a moral gesture will have no discernible effect on them or on Gaza. But Brown does have a carefully worked out and judicious process in place to make the decision. That, it appears, is not enough for the Republican attorneys general, who wrote in a letter that "many of our states are currently undertaking a review of our pension investments and contracts to determine if Brown has already violated state law."
They concluded with a strongly worded threat that invoked anti-BDS (Boycott, Divest and Sanctions) laws that bar companies from discriminating against Israel:
Others have discovered to their detriment that those laws have profound financial consequences, and we would strongly counsel you to learn from those past examples. When Ben & Jerry's, a subsidiary of Unilever, recently attempted to boycott Israel, the application of state anti-BDS laws led to the divestment of hundreds of millions of dollars in Unilever stock by state pension funds and, eventually, the termination of the Unilever CEO.
Like Ivy League colleges, Vermont-based Ben & Jerry's is plainly on the liberal side of the US culture wars. That's not a coincidence.
Not the entire Columbia University community. Photographer: Spencer Platt/Getty Images
Columbia
Columbia has long had a system for deciding on divestment proposals, which has led it to withdraw from apartheid South Africa, Sudan, private prisons, and fossil fuel. The issue of whether endowments should ever take moral rather than merely financial factors into account does not arise here. Columbia long ago decided that they can. But on the specific issue of Israel, the committee decided not to divest. Their explanation, in February before the campus protests grabbed national attention, can be found here. The crux is to pass the following conditions:
1. There must be broad consensus within the University community regarding the issue at hand;
2. The merits of the dispute must lie clearly on one side;
3. Divestment must be more viable and appropriate than ongoing communication and engagement with company management.
I'm not sure Israeli divestment passes any of these tests, but the key problem lay in "broad consensus within the University community," a deliberately high barrier. A majority of undergraduates appears to be pro-Palestinian, but the Columbia community is defined to include all graduate students, alumni and faculty. Columbia is situated in one of the world's largest Jewish communities on the Upper West Side of Manhattan and it is very, very far from consensus on Israel. Columbia remains wed to the notion that politics and the wishes of its constituents can in some cases overrule investment decisions.
Middle ground looks elusive at the University of Michigan. Photographer: Adam J. Dewey/Anadolu/Getty Images
Michigan
The regents' explanation of why they refused to divest can be found here. Its key points concern materiality; that the issue is so small that it scarcely matters. Michigan has no direct investment in any Israeli company, while indirect holdings through funds come to less than 0.1% of the endowment. If anyone were to draw up a list of all the things that might help to resolve the Israeli-Palestinian conflict, it would be very long, and divestment by the University of Michigan would not appear on it.
This argument cuts both ways. The chances that divestment would have any discernible effect on the endowment's returns are also minimal. A symbolic gesture would also be a costless one. The temptation must be strong. However:
We must always consider the impact our decisions might have on students, faculty and staff — we do not make this decision lightly. After deliberation, we have decided to stand by our longstanding policy. We will continue to shield the endowment from political pressures and base our investment decisions on financial factors such as risk and return.
Unlike Columbia, Michigan says its endowment should avoid moral judgments and stick to its job of providing a great public university with the funding it needs.
What to make of this? The trickiest problem is that investment decisions and politics don't mix, despite interventions by political actors on all sides. At issue is not whether Brown sells Boeing, but why. Presumably if the endowment happened not to hold Boeing in the first place, the issue would not arise and the attorneys general would not force them to buy. Alternatively, Brown might decide to sell because Boeing's brand was damaged or its market cap had dropped so much that it fell out of the S&P 500, or that religious (not political) reasons led them to divest from all arms-makers.
Lesson in the lack of compromise. Photographer: Ahmad Salem/Bloomberg
Policing why investors make their every move is unworkable. A broader point, to both AGs and students, is that this is a culture war issue, red in tooth and claw. They are increasingly creeping into markets. Universities, where freedom to discuss and experiment should be encouraged, are bad places to try to force an outcome on one side or the other. This is doubly true of their endowments.
Investment lends itself to gray areas and compromise. You can hedge, you can split between stocks and bonds, and so on. Nobody running an endowment is ever required to put 100% into one investment. Neither the attorneys general nor Students for Justice in Palestine have any interest in such a risk-adjusted, split-the-difference approach. Both want it all, with hapless university authorities caught in the middle.
No comments