Columbia University recently became the latest in a long series of institutions of higher learning to announce that it would withdraw its investments from U.S. corporations doing business in South Africa unless conditions improve there.
At the same time, Miami University of Ohio bowed to legal and financial realities by becoming the first academic institution to reverse its previous publicly enunciated decision to sell such stocks in its portfolio. "Universities are established to test ideas, but not to effect political change," Miami U President Phillip Shriver declared.
Church and campus threats of economic reprisal against American corporations as a means of fighting South African apartheid have accelerated in the past year. Boards of trustees have been torn between ideological and fiduciary responsibility. Ad hoc committees have weighed the pros and cons and issued solemn statements of policy.
So far as can be determined, four colleges and universities have withdrawn all or part of their South African-related portfolio investments. A fifth is in the process. The total amount of such securities sold amounts to nearly $11 million. The bulk of this comes from a single source, the University of Wisconsin. At least three universities, California, Chicago and Stanford, have announced an outright refusal to follow this lead for fear of adverse financial consequences.
The vast majority of institutions have taken a middle stance amounting to a strong denunciation of apartheid and a warning to U.S. companies that if they do not push for fair employment practices in South Africa, academe will exert financial pressure against them by selling their stock. Yet some, like Miami University, already have learned this is a two-way street. IBM, which controls 70 percent of the computer industry in South Africa and is also a large corporate donor to education, recently did an in-house survey to find out what position various universities were taking on the issue of South African-related investments. An IBM spokesman denied, however, that divestiture had any effect on donation activities.
College and university boards have rallied around the so-called Sullivan principals, named after Reverend Leon Sullivan, a civil rights activist who is minister of Philadelphia's Zion Baptist Church and a member of the board of General Motors. Last year Sullivan drafted a code of conduct for American firms in South Africa. Its six tenets call for racial integration on the job, equal pay for equal work, fair employment practices, training programs to prepare minorities for supervisory jobs, promotions of blacks to management, and improvement of employes' outside living conditions. In one year the number of U.S. firms agreeing to this code has risen from 12 to 98, according to Fortune magazine.
The first institution to divest itself of South African-related securities for ideological reasons was Hampshire College in Amherst, Mass. Hampshire, established in 1970, has only a $2 million endowment, only 2,000 young alumni and few corporate gifts. So, according to Treasurer Allen Torrey, the May 1977 decision in the face of student pressure to sell not only $39,000 in these securities but the rest of its $200,000 portfolio was relatively easy. The college received a few unflattering letters but suffered little economic effect, he said.
Its neighbor, the University of Massachusetts, with an annual budget of $200 million, sold $629,000 worth of South African-related stock, representing more than half of its portfolio. It suffered a net loss of $71,000. Only two or three alumni wrote saying they would reduce their contributions, a spokesman said, and one corporation, Johnson & Johnson, wrote to ask why they were selling. Another neighbor, Smith College, in Northampton, sold $688,000 worth of Firestone stock because the corporation's response to the college's inquiry about its stand on the Sullivan principals was deemed inadequate. Ohio University has authorized the sale of $13,000 worth of stock but has not received confirmation the order has been executed.
Regents at the University of Wisconsin wanted to exert influence through the use of this code but were overruled by the state attorney general, who declared that state law prohibited investing in corportions that practice racial discrimination. Wisconsin began divestiture of its $11 million in South Africa-related stocks in April, a process that will be completed later this year. Berwyn Westra, the trust fund accountant, estimated a loss of $1.2 million on the transactions.
Wisconsin held between $750,000 and $1 million of common stock in each of General Motors, General Electric, Exxon and IBM, plus lesser amounts in other corporations. Asked if the corporations objected, Westra replied that none had made a major effort to dissuade the university because they knew there was nothing they could do - even though they all claimed to be improving conditions in South Africa. The reverse happened in Oregon, where the state Board of Higher Education, which had decided to divest, was overruled by the attorney general. He ordered that the educators should have no say about investments, that the decisions should be left to investment managers to make on solely financial - not ethical or political - grounds. The University of Oregon has South African-related stocks worth $6 million.
The first and strongest stand against divestiture was taken last October by Stanford. Weighing ethical and economic considerations, the university decided the financial consequences were too great. Stanford owns 1.6 million shares of stock in 49 companies with assets in South Africa. The market value in July 1977 was $72.2 million, or 37 percent of its portfolio. Stanford stood to lose $1.4 million in one-time transaction fees and reduced market opportunities. Moreover it estimated $1 million a year in foregone gifts of stok if alumni no longer could contribute securities from the proscribed corporations. And $3.5 million in outstanding pledges from corporations was also jeopardized: The Universities of California and Chicago made similar decisions on similar grounds.
Yale also compared total divestiture with other less radical methods of influencing corporations such as letters, shareholders resolutions, portfolio exclusion, and progressive divestment. A committee found that selling all a company's stock might be necessary as a last resort in no more than half the cases, affecting 25 percent of Yale's $175 million holdings in companies with operations in South Africa. Yale has nearly $20 million invested in IBM stock and nearly $10 million each in Exxon and Ford.
In addition to possible capital losses and transaction charges, that would mean approximately $150,000 less each year in corporate donations. It would also mean an untold loss in stock gifts; approximately 90 percent of the securities gifts, amounting to about $6 million annually, were from companies operating in South Africa.
The Yale report added, "We hope that this final step (of progressive divestment) need not be taken and that the costs need not be incurred." It concluded that the committee's spectrum of recommendations "reflect the basic, inescapable fact that Yale as a university is also an investor, a part owner of many American businesses, and that if Yale does not boldly assume the ethical responsibilities that come from that position as investor, it will not fulfill its highest pedagogical aspirations."
According to the Investors Responsibility Research Center, which monitors South African investing, at least 16 schools have decided to give the Sullivan Principals a chance. Others have adopted one or more of the options outlined by Yale, reserving total divestiture as a final solution. But Princeton called the effects of the total approach on American companies "unclear at best and almost certainly minimal," while the effects on Princeton would be "dramatic and clearly negative." It reserved selective disinvestment as a last resort.
Several, including Harvard, with its billion-dollar endowment fund, have announced their intention to sell or not to buy stock in U.S. banks lending to the Government of South Africa. Three, including Columbia, have decided to withdraw their deposits from banking institutions that "provide new or continued access to capital markets" for South Africa and that "don't announce their intention to cease such activities." Columbia has holdings of $80 million in 44 companies with assets in South Africa, representing 35 percent of the endowment fund. It also will advise companies it will withdraw if they don't make progress on civil rights.
Miami University's $170,000 South African-related portfolio seems insignificant by comparison but its experience wasn't. First, legal counsel told the board its decision to divest itself of holdings in Union Carbide and Warner Herbert might not be constitutional because it would infringe on the federal government's right to make foreign policy, and it also might violate prudent investment rules.
Then, the letters began flowing in from alumni in some of the firms affected and others sympathetic to them. The theme, according to Miami president Shriver, was, "if [WORD ILLEGIBLE] tainted money, then the university wouldn't be interested in getting any" (for its gift and scholarship funds). Other college presidents called to express their disbelief about Miami's "untenable" position. The corporations concerned sent literature attesting to their anti-apartheid progress in South Africa. The board reversed its decision within a month. "It was a very trying experience," Shriver said.
The campus furor and boardroom agonizing now going on about universities' portfolio investments in U.S. corporations doing business in South Africa is just one manifestation of a much broader problem: the responsibility of multinational corporations. This topic was discussed recently by academics and business executives at a conference have sponsored by the Council of Better Business Bureaus.
A fresh approach to the question of ethics versus economics was offered by Robert Baum, a professor at Rensselaer Polytechnic Institute. His idea is to form moral review boards for multinationals, similar to the kind that regulate scientific experiments on humans. A review board could be called upon to decide what is in the best interest of the population of a country which is unable - due to lack of freedom or intelligence - to determine its own best interest as they relate to the presence of a multinational, or its products, in the country.
Thus, a board composed of international scholars, business persons, government representatives, etcetera, could tackle the question of whether the continued presence in South Africa of U.S. corporations helps or hinders the political and economic progress of blacks and coloreds. By having neutral outsiders decide the moral issue, a company president would be in a better position to weigh this factor along with economic ones, Baum theorizes.