Colleges throughout the United States began taking steps last week to rescind the investment restrictions they adopted in the late 1970s and 1980s to protest apartheid in South Africa. The actions came as Nelson Mandela, the leader of the African National Congress, issued a worldwide appeal for reinvestment in his country.
Now the very colleges, pension funds, and institutional investors that once were urged to divest their South Africa-related holdings are being courted by white and black South African leaders to invest in South African government and corporate securities to help shore up the country’s ravaged economy.
While some are moving cautiously — fearful of rekindling the rancor and protests that accompanied past campus debates on South Africa — many college leaders said they expected most divestment policies to be abolished within months.
The trustees of some institutions, including Connecticut and Colby Colleges and Wesleyan University, were scheduled to vote on revoking their divestment policies this past weekend. The board of the University of Notre Dame will consider a reversal of its divestment policy this Friday.
Several other institutions, including Smith College and the Universities of Illinois, Vermont, and Washington, said they expected their boards to vote on ending divestment by October or November.
One institution, the State University of New York at Stony Brook, ended its divestment on the very eve of Mr. Mandela’s call for the end of economic sanctions against South Africa. On September 23, the night before he addressed the United Nations, the investment committee of the Stony Brook Foundation voted to change its policy effective with Mr. Mandela’s call for the change.
The giant pension system that serves higher education, the Teachers Insurance and Annuity Association-College Retirement Equities Fund, is also responding to the changes in South Africa. Last week it announced it would move to eliminate all South Africa-related restrictions on the CREF Social Choice Account, an optional fund with assets of about $618-million.
‘Mandela Finally Spoke’
Higher education has weighed the end of divestment for several years, as the white-controlled government of South Africa began to dismantle apartheid and prepared for free and open elections leading to rule by the black majority. But even with elections scheduled for April 1994, colleges have been reluctant to act without a clear signal from the black South African leadership.
Tufts University, for example, considered ending divestment in late 1991, after President Bush lifted the ban on U.S. investments in South Africa, but decided to continue its policy. Now, says Nelson S. Gifford, chairman of the Tufts Board of Trustees, “all the rationale for doing it is lost. We wanted to hear from Mandela, and Mandela finally spoke.”
Mr. Mandela’s appeal “is probably the right sign for most of us,” says Stephen R. Lewis, Jr., president of Carleton College and an expert on the southern African economy.
Carleton has had a policy of investing only in companies operating in South Africa that adhere to fair-employment standards. “Now seems to be a reasonable time to quit,” Mr. Lewis says.
Father Oliver F. Williams, associate provost at Notre Dame, says he is recommending a quick change of policy at his institution because ANC leaders asked him to encourage colleges to end their divestment policies. Father Williams is an adviser to the ANC and watched the speech at the United Nations as its guest.
He says college divestment efforts were useful, although limited, tools for change. South Africa “needed some international pressure,” he says. “Psychologically they were probably more important than they were economically.”
That view is shared by many, although some note that sensitivity to race relations in the United States helped to fuel the divestment movement on American campuses.
“It was primarily a symbolic move,” says Stanley O. Ikenberry, president of the University of Illinois system. “That, of course, is what is was intended to be.”
“Racism is the fundamental, irreparable problem in the United States,” adds Carleton’s Mr. Lewis. “That’s what gave the South Africa issue the salience in the United States.”
Other college leaders say their support for divestment was inspired more by the desire to quiet campus dissent and calm protests than to make a moral statement. S. Frederick Starr, president of Oberlin College, says that when he advocated divestment in 1987, “I did it solely to protect the campus environment for study. I did not do it because I thought it would be efficacious.”
Divestment is no longer the disruptive issue it once was. Protests over divestment are rare. The shanties erected by students to symbolize poor living conditions of blacks under apartheid are gone from college quadrangles.
Carleton’s Mr. Lewis recalls trustees’ being barred from their meeting room in 1987 by a group of 33 students and six professors who demanded the enactment of a divestment policy. Today, he says, a trustee committee on divestment is dormant “because we couldn’t find anybody to meet with.”
The issue is still divisive on some campuses. Last week at Wesleyan University, the site of vigorous protests over divestment in the late 1980’s, the student government, the Students of Color Council, and Students Organized Against Racism met to discuss the end of divestment and ended up in a heated debate. Aaron M. Presnall, a senior and an organizer of the effort, says some students argued it was time to lift restrictions, while others contended that events in South Africa had not progressed far enough and that the political situation was still too unstable to warrant lifting economic pressure.
The Cost of Divesting
Mr. Starr says divestment cost colleges a lot of money, although other campus leaders say the amount was not great.
According to the Common Fund, an organization that operates as a mutual fund for school and university endowments, investment returns to institutions that avoided companies that do business in South Africa were between 1 per cent and 2 per cent lower than those of institutions with unrestricted portfolios over the past 12 years. But in some years, including the one that ended June 30, 1993, divested portfolios may have performed better than unrestricted ones.
The Common Fund’s South Africa Free Equity Fund, for example, had a return of 17.5 per cent last year, versus a 16.8-per-cent return posted by the Common Fund’s general equity fund and the 13.6-per-cent return of the Standard & Poor’s 500, a composite of stocks.
The South Africa-free fund now totals more than $500-million, invested by about 100 schools and colleges. The fund was begun in 1986, but Daniel A. Wingerd, a vice-president and the investor-responsibility officer of the Common Fund, says the future of the fund now depends on interest from members. “A year from now, there will be much less demand, and perhaps no demand, for a South Africa-free fund,” he predicts.
Mr. Wingerd says colleges should end divestment for reasons of economics and principle. As U.S. and foreign companies move back into South Africa — even tentatively, as expected — colleges that maintain South Africa-free portfolios will find themselves investing in a smaller and smaller number of businesses, he says.
Moreover, he says, “with Mandela’s call, the moral argument swings to the other side.”
For some institutions — particularly those with divestment policies that allow them to own stocks and bonds of certain companies operating in South Africa, the issues are still not that clear cut.
A Mix of Policies
About 200 colleges and universities have some form of divestment policy, according to a recent survey by the Investor Responsibility Research Center, which monitors business activities for institutional investors. Meg Vorhees, director of South Africa services at the center, says some of those institutions “may feel those policies are still relevant” because they favor companies that uphold equal-employment and civil-rights principles.
Harvard, Princeton, and Stanford Universities are among the institutions with such partial-divestment policies, and officials of all three say they expect to cautiously reconsider their policies now.
Princeton may continue its policy of selective investment, or it may decide that the call for the end of sanctions and reinvestment is “momentous” enough to warrant a change, says Laurel B. Harvey, the university’s assistant vice-president for finance and administration. “We don’t want to have policies that are dinosaurs.”
Still others, including the University of Wisconsin, say they are bound by state laws enforcing divestment until their legislatures change them. The University of California system is not bound by state law, but officials say they will wait for the state to change its policy before moving to lift their own divestment rules.
Even as colleges end divestment, some will find that South African politics remain on their financial agenda. That is so because South African business and political leaders are aggressively seeking new capital, and they have identified endowments, pension funds, and other institutional investors as potential investors.
A visible sign of those efforts was scheduled to take place late last week in Washington, at a meeting where investment managers for major endowments and pension funds, including the Common Fund and TIAA-CREF, were to hear from Mr. Mandela and other ANC leaders, black South African trade-unionists, and other officials about government and private investment opportunities in post-apartheid South Africa.
University endowments that divested “should now have a special interest in doing something that will help the transition to democracy,” says Herman W. Nickel, Ambassador to South Africa from 1982 to 1986 and a vice-president with a consulting firm that helped to organize the meeting.
Mr. Nickel says he hopes colleges find some of the investment instruments attractive, adding, “I think it would be nice if some of these institutions put at least some of their money where their mouth used to be.”
