The costs of divestment

Adam Johnson

By: Adam Johnson

Recently there has been much commotion on campus in regards to the University’s investment portfolio. The Stanford Students for Palestinian Equal Rights (SPER), along with dozens of other activist and community organizations on campus, pushed for the Undergraduate Senate to pass a bill that would recommend the Board of Trustees to divest from corporations involved in the Israel-Palestine situation (the bill did not pass).

And while this divestment campaign has been a fixture in recent years, another divestment campaign has begun: Students for Sustainable Stanford (SSS), following the lead of other campus groups concerned with climate change, has called on the University to freeze investments in fossil fuel companies and permanently divest within five years. SSS has opened up a petition and recently chalked slogans in White Plaza.

At the core of these campaigns is a vision for the University to uphold its commitment, as stated in the Founding Grant, to “promote the public welfare by exercising an influence in behalf of humanity and civilization.” While the Board of Trustees’ primary responsibility regarding the endowment is to maximize financial return taking into account risk, they also have a responsibility to examine the nature of the companies they invest in: when it is determined that the “corporate policies or practices of a company Stanford may invest in could cause substantial social injury [the trustees], as responsible and ethical investors, shall give independent weight to this factor.”

Given these potentially conflicting priorities, the investment debate becomes more complex than many realize. It is not enough to merely show that a company is complicit in the violation of human rights- “social injury” is just one factor in the endowment decisions. The flawed assumption that divestment campaigners make is that Stanford is obligated to divest from corporations if they are shown to be unethical.

Of course, a divestment advocate would likely respond that divesting, whether or not the Board of Trustees must do it, is the “right thing to do.” I, however, would like to question that logic. Going back to the Founding Grant, we must ask ourselves what it means to “promote the public welfare.” Does it entail only investing in corporations deemed ethical? Or should Stanford maximize its endowment returns in order to maintain and expand internal programs that, in theory, do work that improves the world?

This ideological conflict of commitments is thrillingly dramatized in Major Barbara, George Bernard Shaw’s 1905 play. In the play, there is a scene in which the leaders of a Salvation Army shelter must decide whether to accept a ten thousand pound donation from two men, one who made his fortune from whiskey and the other from weapons manufacture. The immoralities these men represent—alcoholism and warfare—are as incongruous with the mission of the Salvation Army as possible, and Shaw spares no gruesome image in making this fact apparent. Mrs. Baines, the Salvation Army commissioner, ultimately accepts the money despite the protest of one of her officers. As she asks, “will there be less drinking or more if all those poor souls we are saving come tomorrow and find the doors of our shelters shut in their faces?”

Certainly, Shaw’s play is a simplification of the investment dilemma Stanford faces. There are similarities worth noting, however. Ostensibly, Stanford invests in corporations that deal in fossil fuels or Palestinian oppression because these are profitable investments. This money does not disappear- it is used to fund departments, research, financial aid, and more. While Stanford is in no danger of shutting down, who knows what innovations or ideas can be linked to the extra money that “unethical” corporations have brought in? If we are of the opinion that this University does work to improve humanity, we may only constrain that mission by limiting investments to “ethical” corporations.

If you were Mrs. Baines, would you have accepted the money? Let Adam know at adamj11@stanford.edu.

About Adam Johnson

Adam is a senior from Illinois. He is majoring in Biomechanical Engineering, although his intellectual interests span dozens of departments. This is his second year writing for the Daily (you may remember him from his work last year on the Editorial Board). Outside of writing, Adam enjoys acting, skiing, making music, and thrift-store shopping.

Will Cox

Hey Adam, Will Cox here. So, just to clarify — you’re okay with ethnically segregated busroutes?
Adam Johnson

Hello Will Cox. Judging by your question, I think your missing the point I was trying to get at. I never said one way or the other whether we should divest. I did say that there is a cost of divestment that many do not realize. Even if we deem a certain corporation’s actions unethical, even if we view that as a problem, from a maximization of public welfare standpoint divestment may not be the best option.

If Stanford is a prominent shareholder in these corporations, I would rather they exert influence through their shareholder power rather than attempt to exert influence through divesting.

If Stanford had to decide between divesting from a bus company that operates segregated lines versus funding a potential research project that could lead to a medical technology resulting in thousands of saved lives, I don’t think it is as clear cut as you (and others) make it seem which path the University should take.
Toblerone

I’m very disturbed that you’ve set up an ends-justify-the-means argument. I’m even more disturbed that you put “unethical” in quotes, as if companies that present a clear and present harm (such as oil companies that destroy the environment) don’t exist. I don’t even care about the Israel-Palestine issue, but if you’re willing to accept definite negative outcomes in the short term for only theoretical positive long term results, then I hope you never come into a position of power. There are plenty of ways to be innovative and make a profit that don’t involve infringing on the rights of others.
Will Cox

But really, though, aside from that — you have provided absolutely no evidence that Stanford divesting would be comparatively worse for Stanford’s endowment than not divesting. That you can with such a blatant disregard for fact (and argumentation) ‘argue’ for a position that so directly contributes to the loss of life and liberties of actual living, breathing, feeling, loving human beings is absolutely disgusting.
Adam Johnson

Oil companies also provide the oil that keeps ambulances, firetrucks, hospitals, and more running. To call an oil company unethical, when you consume their products everyday and benefit from their products, speaks hypocrisy to me. Perhaps there are unethical companies out there- I just don’t think it’s as black and white as most make it seem.

If the only qualification for a company to be unethical is that it presents a clear and present harm, then what about Apple? If you’re the average Stanford student, you probably own two Apple products, endorse their innovative practices, yet never realize the inhumane conditions that brought those products into being. Why not divest from Apple?

You said you hope I should never be in a position of power because I would accept definite short term negative outcomes for theoretical positive long term results. On the contrary, I think this makes for an excellent politician or official. Short-term thinking is why taxes can’t be raised, why social security can’t be reformed, why energy policy can’t change. It works both ways, you see.
Adam Johnson

If Stanford is investing in these companies, I would expect them to be more financially lucrative than the alternatives (considering risk), given how seriously the University takes its endowment. Can I prove that in fact? No, but it is simple logic.

Directly contributes to loss of life and liberties? Please. Even if Stanford’s divestment decision affects the practices of these companies (a BIG if), there are dozens of other companies who will willingly take their place.
sunk harm

The argument of Major Barbara, as you present it, seems not to bear on the problem of divestment. In the play, it seems the money already exists, and taking it or leaving it will not undo the harm it represents. One could call this a “sunk harm”, like a sunk cost. Just like a sunk cost, a sunk harm in general should not influence future decision making.

In contrast, divestment is meant to mitigate future harm.

However, I don’t necessarily agree with the divestment movement, at least in the case of Israel and Palestine. Just as UN economic sanctions against nations end up hurting innocents (or the closest approximation to innocents we humans can be) more than the politicians and warmakers, so too, I believe, does divestment.

Divestment from oil and similar companies is another issue still. In my opinion, so long as we use fossil fuels, we should own up to it. Large shareholders like Stanford have the opportunity to steer companies toward better policies. Locally — and Stanford is doing this — we can figure out how to power the campus with sustainability a large factor in the decision making.
Toblerone

I’m not saying it’s a black and white issue. And I, as a single person, cannot completely remove myself from a society that makes poor global decisions (like relying on fossil fuels) when the only alternative is living in a shack on a desert island and my goal in life is to heal and to educate. I do my bit to walk the talk by choosing to bike to work/class/the market and, incidentally, boycotting Apple. Please check your American privileges and Western stereotypes at the door – they only reflect your own behavior.

Additionally, I’m not sure what your definition of unethical is if clear and present harm is not a part of it. A company doesn’t need to run on the screams of dying babies to be a detriment to society. Fashion magazines and their racist and unhealthy depictions of beauty have crossed the line into clear and present harm just as completely as a company that is an active accessory to an apartheid system.

Lastly, taxes are not a clear and present harm and aren’t even in the category of “outcome”. You’re conflating a harm with an investment. When I pay my taxes, I am choosing to make an investment in the future and in shared commodities such as local infrastructure and social security; if I didn’t want to do so I am free to move to the Kalahari Desert. There is no element of choice for people who must work for pennies to make Apple devices and Gap Tshirts, but Americans choose to support the companies that produce these blood commodities and soothe their weakly protesting consciences with “free trade” coffee.
Adam Johnson

“Please check your American privileges and Western stereotypes at the door.” Don’t act holier-than-thou because you ride a bike and boycott Apple.

“I’m not sure what your definition of unethical is…”
Exactly. I don’t think it’s clear what being “unethical” is, hence I put it in quotation marks. You, on the other hand, called me out on that, so perhaps you have a nice definition in mind.

“Taxes are not a clear and present harm.”
Taxes are not a clear and present harm!? Check your privilege. When some families can’t even get food, and yet politicians argue about increasing the sales tax. People have to buy products, and people have to pay taxes on those products- it’s about as much choice as the people that choose to work in sweatshops.

“If I didn’t want to do so I am free to move to the Kalahari Desert.”
You are also free to move to the Kalahari Desert and not use the products of oil companies. Oh wait….
Adam Johnson

“Divestment is meant to mitigate future harm.”

That is one intent, and you’re right the “Major Barbara” arguments don’t fit perfectly in regards to that. But, I think these divestment petitioners also have symbolic aims in mind. In that sense, the “Major Barbara” argument is certainly relevant. What does it mean when the Salvation Army accepts a donation from a whiskey distiller and armaments manufacturer? Does it corrupt their mission?
Toblerone

I see you’ve chosen not to deny that you take advantage of American privilege or judge people based on Western stereotypes and in fact continue on ad-hominem attacks. Noted. Not everyone at Stanford is middle-class or wealthier. Not everyone is an American citizen, and apparently the rest of society is okay with us suffering for it.

unethical: Lacking in moral principles, failing to conform to an accepted code of behavior.
where I define an accepted code of behavior as one that does not infringe on the individual rights of others without their consent. I hope you don’t take exception to this.

Um…you do know that taxes are based on income brackets, right? And that if your family unit is poor enough you get tax returns. And that there is federal aid for those who need it. I’m speaking, of course, from the perspective of someone whose income – as small as it is – matches my parents and I send most of my money back home. I eat better here at Stanford than I do back home, so don’t talk to me about not being able to afford food. I know exactly how taxes work, and I am still happy to pay them.

Kalahari nomads are most certainly not using the products of oil companies. They are hunter-gatherers. I think you’re confusing them with the oil sheikhs.

To get back on topic – these companies on the divestment bill lack moral principles and violate the individual rights of the people in the region and that’s why Stanford should divest. If we’re so hung up on innovation and entrepreneurship and free trade and all this other tripe, shouldn’t we be investing in companies that do so without hurting others? The influence hypothesis – since we’re invested we can influence the behavior of these companies – (1) kills itself by conceding that these companies engage in unacceptable behavior and (2) should have already worked, right? We’ve been invested in these companies for a long while now.

((I truly do enjoy logical debate on serious social issues, but I find that when people choose to willfully misunderstand me…this is why we never have nice things.))
Whathashappenedtothisworld?!

Hmm Adam, I wonder if you would be writing this article if YOU were Palestinian and you had just lost your home because it was bulldozed by an Israeli Soldier. If its a profitable investment, then who cares, lets just keep doing it.
Snoopy

The student independence campaign (Suites, XOX) and the divestment campaign (SSS, SPER) have a lot more in common than one might think.

For instance, here’s one way students can hasten divestment from unethical corporations: They can drive down the administrative costs of Stanford by taking cooperative control of their own lives one dorm at a time, thus ending R&DE and ResEd and saving millions of dollars in the most bloated part of Stanford’s fiscal budget (85% of annual operating costs go towards salaries and maintenance)… Students could then argue that by saving their University’s $4.4 billion enterprise $400 million per year, the Board of Trustees could thus safely (we’re talking fiscal harm, not bodily harm here) remove their investments in unethical business.

Furthermore, Adam, I think you’re slightly wrong about the “Stanford has really expensive and really important innovative research” point. According to an overview of university finances, research is in fact a source of 29% of our University’s income each year. And, if we go down the rabbit hole a bit further, we might find that it is some of the exact same unethical corporations, simultaneously both funding AND being invested in by our university. How would that be for a story?

http://facts.stanford.edu/administration/finances
MichaelP

A note: SSS is not involved directly in the campaign calling for divestment from Fossil Fuels, rather that is being lead by a student group called Fossil Free Stanford which has no organizational or funding connection to SSS. An event in White Plaza last week due to a great cooperation between the two groups but all of the chalking, flyering, meetings, the large Fossil Free dinner, and the initiating march were all coordinated by Fossil Free Stanford.
MichaelP

The petition is likewise being organized by Fossil Free Stanford.
http://twitter.com/PeterMGunn Commando Cool

The central crux of this argument assumes, though, that everything that comes out of Stanford is an unmitigated good, ignoring then that Stanford for many years participated in research for nuclear weapons, that it still does a great deal of research for the Department of Defense. Stanford also is home to the Hoover Institution, an intellectual hub of neoconservatism that provides a warm welcome to war criminals, as well as an economics department and business school that is responsible for promulgating much of the theories and practices that have led to our nation’s vast structural inequality.

Also, there is a big difference between accepting money from a corporation and putting your own money into that corporation. Putting one’s money into a corporation is an affirmation of that company and its business model.
MMD

You are the single most disturbing obstacle to progress and positive change in this world. You lack a very basic understanding of “oppression.” Privilege is characteristically invisible to those who have it, and my only wish for you is to step outside of yourself, outside of your own ego and begin to see and understand your privilege in this world. Please just try to take a critical look at some of your past articles, from “Everyone can be a racist” to “A discussion on feminism.” I urge you to sit down with a CSRE, Feminist Studies, or African American Studies professor and engage with them on your points. Maybe you’ll begin to see the world from a new perspective. Maybe, just maybe there is some hope for you. But if you continue to write and think like this, you will never understand the depth of oppression and injustice in our society and you’ll never be able to contribute in a positive way. It seems as though you are concerned about the current state of the world – because you like to contribute on issues like racism, sexism, and ethical investing – and it’s evident that there is good in your heart. Someone who lacks a sense of justice and “good” would not spend their time thinking about these issues. I really don’t mean to attack you as harshly as this is coming off, but I really would like you to begin understanding the world from the perspective of a person of color, or the opposite gender. Your opinions might just be in for a radical change.
Buy a clue

And the crux of the divestment argument is that investing in a company that some deem evil is an unmitigated evil. This misses several key points. First and foremost, our investment has essentially zero practical effect – and our divestment would have the same lack of effect, even if we were followed by hordes of like-minded institutions. Secondly, in case you haven’t noticed, even the moderate commenters on this board can’t agree on the net effects of energy companies or companies operating in the Middle East – who are you to lay down the law? Finally, divestment advocates are ignorant of the mechanics of endowment investing. It’s not as simple as selling a few stocks. It would require wiping out large portions of our opportunity set and taking away many of our greatest advantages. The payout from the endowment currently covers about 1/4 of the operating budget, allowing Stanford to be what it is. With a vastly reduced opportunity set, we would not be able to fund the budget in anywhere near the same scale and still preserve the endowment for future generations. The same holds for other great institutions. And if you don’t think that Stanford provides a net good to society, then what’s an altruist like you doing here?

As an aside, would it be right to shut down the Hoover Institute, the GSB, and the Econ department because the divestment advocates think that they ar not good for society? Slippery slope, dude…
Buy a clue

“I, as a single person, cannot completely remove myself from a society that makes poor global decisions (like relying on fossil fuels) when the only alternative is living in a shack on a desert island and my goal in life is to heal and to educate. I do my bit to walk the talk” — Do you really not see that you are making exactly Stanford’s argument in microcosm? What you’re saying is: “if I am overly puritanical about the issue, I am cutting off my nose to spite the world’s face (and by the way, it’s no fun). I think I can do more by judiciously using fossil fuels, staying in mainstream society, and hoping that I produce more good than I do harm by using precious resources.” Frankly, I’m more willing to make that bet for Stanford as a whole than for you as an individual, especially if you’re completely blind to the irony of your argument.

And as an aside – “check your American privileges and Western stereotypes at the door”? As trendy a catchphrase as the Harlem Shake – last month – and about as deeply meaningful. It’s a reflexive, condescending meme that generally has little thought behind it. If you truly believe that you have, I would love to meet you.
Buy a clue

Look again. He specifically mentions sales taxes. One of the great fallacies in the country is the progressiveness of the tax laws. Income taxes are (in theory) progressive, before manipulation. When sales taxes, payroll taxes, and other taxes that are either independent of income or capped are added in, those at the bottom get crushed.
Bla King

There are plenty of profitable investments that are socially responsible as well. If Stanford divests its unethical investments it can replace them with other profitable ones. The argument that suggests that Stanford would be lossing out is not correct. Also to suggest that investing unethically is the only way to make money, is a bit narrow minded. It’s like taking a blank white piece of paper with a black dot and zooming in on that black dot to say that the paper is all black. Zoom out.
Buy a clue

You understand nothing about the mechanics of investing. It’s not merely selling a few stocks (but by the way, who decides which ones?). It is ruling out all investments in which we don’t control the selection of the underlying instruments. In a typical sophisticated endowment portfolio, that’s at least 60% of the investments, and sometimes much more. And, test – the alternatives are greatly inferior. They’re what you and I can get through Charles Schwab, essentially. Generating enough of a return to support 1/4 of Stanford’s operating budget and keep up with inflation is a very, very difficult job already. So, yes we DO need to make choices.
http://twitter.com/PeterMGunn Commando Cool

“would it be right to shut down the Hoover Institute, the GSB, and the
Econ department because the divestment advocates think that they ar not
good for society?” Yes. Yes it would.
Were you this much fun 27 years ago during the South Africa divestment campaigns too?