The Effect of Student Protest on the Diffusion of University Divestment Decisions in the United States



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The Effect of Student Protest on the Diffusion of University Divestment Decisions in the United States

Sarah A. Soule

March 11, 2008

Cornell University



Abstract

This paper examines the effect of student protest on university and college decisions on divestment from South Africa related firms in the 1980s. Findings indicate that student protest in the form of building shantytowns impacted university and college decisions on partial divestment, but not on full divestment. While not addressed in this paper, the presentation will also describe analyses of diffusion of divestment policies, which show that universities imitated the divestment decisions of universities like themselves on various dimensions (e.g., prestige and institutional type).

During the late 1970s, in the wake of the Soweto Uprising of 1976, students in the U.S. began protesting, demonstrating, signing petitions, building blockades, staging sit-ins, building shantytowns, and participating in a movement designed to encourage pension funds, insurance companies, and other organizations to disinvest of their South African-related securities. This movement, known to most as the student divestment movement, had its roots in earlier student anti-apartheid activism, which began after the Sharpeville Massacre of 1960, but fluctuated throughout the 1960s and 1970s. 1 But, by the mid-1960s, student activists (many of whom were from seminaries in and around New York City and also from colleges in Western Massachusetts), had organized a boycott against the First National City Bank (later Citibank) and Chase Manhattan, both of which ran branches in South Africa. And, in March 1965, Students for a Democratic Society (SDS), Congress on Racial Equality (CORE), and the Student Non-Violent Coordinating Committee (SNCC) were joined by other student and civil rights organizations as they marched outside of Chase Manhattan’s downtown headquarters in protest of the bank’s loans to, and operations in, South Africa (Jones 1965). These events were joined by protest marches in the Spring of 1968 at Princeton, the University of Wisconsin, and Cornell, all of which explicitly called for banks and corporations to disinvest from South Africa (Massie 1997).

Thus, by the early 1970s, student anti-apartheid activists had begun to reframe their goals from the very broad goal of ending apartheid, to the narrower goal of ending corporate investment in South Africa, to (eventually) the very specific goal of divestment by their own universities of holdings in corporations with ties to South Africa. 2 This winnowing of goals of the movement was aided by a group called “Catalyst,” which in 1976 and 1977 sponsored speakers and informational forums at colleges and universities about divestment (Vellela 1988). These speakers drew the attention of students to the fact that college portfolios routinely held stock in companies entrenched in South Africa - a fact that galvanized support among students and led students to begin targeting their universities directly to divest of their South African- related stocks and bonds.

At the same time students were engaging in pro-divestment activism of various sorts, administrators at colleges and universities were debating the role of the university in divestment activity. As will become clear later in this chapter, in many ways, this debate mirrored some of the arguments for and against corporate social responsibility, which were discussed in Chapter 1. But, the outcome of this debate was the fairly rapid rate of university divestment: between 1977 and 1989, 167 educational institutions agreed to divest in South African-related companies through sales of stocks and bonds in these companies. Hampshire College was the first to divest, followed closely by Howard University and Michigan State University and then by many others.

The coincidence of the rise of the student divestment movement and the wave of university divestment raises the question of whether or not student activism mattered to university decisions and, if so, in what ways it mattered. These issues are the subjects of this chapter. As such, this chapter provides a clear example of a point raised in earlier chapters; that is, when we think about activism directed at corporations, we need to consider the issue of what the ultimate target of the movement is. As I discussed previously, this is key to differentiating between “contentious politics” and “social movements” and is important to arguments about scale shift. The subject of this chapter is a case of how is protest can be directed at an intermediary entity (in this case, the university), in an attempt to influence corporate behavior regarding an issue core to principles of corporate social responsibility. Of course, the ultimate target of this activism was the government of South Africa, thus we can consider activism around divestment to be contentious politics despite the fact that the proximate targets (college and universities, and corporations) were not states.

Before examining data which will speak directly to the issue of if and how student protest mattered to university divestment decisions, it is worth discussing the multiple and conflicting pressures that colleges and universities faced regarding the divestment issue during the 1980s. In the language used in Chapter 2, these pressures are part of the broader opportunity structure in which universities were located. In other words, these pressures likely impacted university and college decisions independently and in conjunction with one another in an interactive fashion. I have organized this discussion into two sections, one describing the pressures on universities to maintain their investments in South Africa in the wake of student pressure to divest, the other section describing the pressures (especially from the student movement) on the university to divest.

Pressures on the University to Retain South African Investments

Universities found themselves faced with several different kinds of pressures to keep their South African investments. These ranged from arguments about the expected role of universities as politically neutral entities, to pure financial arguments, to beliefs about the positive effects of U.S. business in South Africa. The strongest set of arguments against university divestment, however, was related to the actual and the perceived costs of divestment measures to the university. These arguments resonate with the discussion in Chapter 1 regarding the evolution of ideas of corporate social responsibility and whether or not a “business case” could be made for divesting. As such, this debate focused on how divesting would affect a university’s overall stock portfolio and how much divestment would cost the university. To argue for a business case for divesting, it is important to understand the costs to a portfolio that divestment incurred, which entails understanding the type of businesses that had investments in South Africa during the 1970's and 1980's. Essentially, the typical business with South African investments was large, successful, and generally appealing to potential investors because of its relatively low risk (Hauck 1985). Businesses that had South African ties were mainly large, multinational firms and equities of these firms accounted for about one-third of the market values of all U.S. securities during this time period (Hauck 1985). To totally divest meant to eliminate 30 of the top 50 stocks from Standard and Poor's and to exclude basically all of Standard and Poor's firms doing business in electrical equipment, machinery, automobile, hospital supplies, chemicals, soft drinks and pharmaceuticals (Hauck 1985). On average, the return on South African investments was about twice as high as that of investments in other foreign countries (Williams-Slope 1971) and South African investments were considered by most to be low-risk, steady performers (Hauck 1985). Obviously, then, it was financially disadvantageous to disinvest in firms with South African operations during this period, both because of the fact that these stocks performed well and because so many companies had investments in South Africa.

In contrast to the large and low risk firms that had ties to South Africa, South African-free securities were much smaller and not as well-known. Investors could potentially spend a great deal of money researching these securities and producing new information on South Africa-free investments. Further, since South African-free securities were lesser known, they were subject to much higher risk, which leads to higher transaction and administration costs (Wagner et a1. 1984).

Most experts at the time concluded, then, that divestment would be costly to universities, especially those with larger portfolios (Rottenberg 1986).3 Transaction costs, including commissions to brokers and dealers, fees, and transfer taxes, were estimated to be between 1.5 to 6.0% of the value of stocks sold (Hauck 1985; Kibbe 1989). A study conducted for Michigan State University cautioned that while it was possible to construct a South-African free portfolio for smaller funds, the costs of doing so for larger funds would be far too great (Hauck 1985). This conclusion was echoed by others who argued that while the costs of divestment in the 1980's for small portfolio funds were actually quite low, for larger funds, divesting had a more substantial negative impact (Wagner et al. 1984). In addition to transaction costs, the increased investment risk of smaller, lesser known companies was substantial enough to cause most portfolio managers pause.4

There is significant evidence to suggest that, from a strict financial standpoint, divestment may have not been especially wise. One financial study conducted at the time explicitly recommended that colleges and universities refuse to divest, arguing that a South African-free portfolio was simply of lesser quality and more volatile than a more diverse portfolio (Meidinger Asset Planning Service 1983). The veracity of such claims was the subject of much debate, but most experts agreed that there were costs of divestment and that these were especially high for large investment funds (Jackson 1992; Rottenberg 1986; Kibbe 1989; Hauck 1985).

The direct costs of divestment were accompanied by a number of indirect costs associated with divestment. One of these was the very real risk that corporate donors would cease giving cash, stock, and equipment to universities should they divest (Hauck 1985). Another indirect cost of divestment was the negative reaction from alumni, many of whom issued statements to colleges and universities threatening to stop donating, should the university divest from South Africa. 5 Negative alumni reaction to both the issue of South African divestment and to the broader student movement was exemplified in the events at Yale University in 1988, when an enraged alumnus (Dr. Elwood D. Bracey), visiting campus for a 30-year class reunion, burned down the shantytown that was erected on that campus in protest of Yale’s investments in South Africa.

In addition to the direct and indirect financial costs of divestment, there are four other reasons that opponents of divestment frequently gave, all of which hinged on the expected role of the university. The first and most common of these was the argument that discussion of corporate responsibility should not be taken on by the university, an argument based on Friedman’s (1970) discussion of corporate social responsibility (see Chapter 1). The purpose of a university, many claimed, is to produce competent and skilled leaders, not to debate issues of investment, divestment, disinvestment, and corporate responsibility (Simon et al. 1972). Hence, any debate surrounding the issue of divestment was viewed as an improper use of resources and one that hindered the proper functioning of the university. Moreover, some critics claimed that members of educational institutions make poor collective decisions on moral and social issues. In this view, a community of scholars is not a politically intelligent entity, thus questions of moral and social investment issues should not be approached by such 'incompetents' (Simon et al. 1972).

A second and fairly pervasive anti-divestment argument hinged on the notion that adopting value-laden policies is incongruent with educational institutions’ expected 'principles of political neutrality' (Simon et al. 1972; Rottenberg 1986). Here, the position a university adopts with regard to investment decisions should protect the "academic context" or the "conditions and atmosphere required for fostering academic work – particularly including conditions for the maintenance of academic freedom, which is...the right of scholars to pursue knowledge freely" (Simon et al. 1972: 70). By this line of reasoning, adopting moral and social investment positions caused universities and colleges to jeopardize their intended commitment to maintaining 'middle-ground' positions on social and political issues (Simon et al. 1972). A third argument made by opponents was the belief that the presence and expansion of U.S. business in South Africa served as a modernizing force in that country and actually improved living conditions for all South African citizens (Rottenberg 1986; Sethi 1987; Wilking 1987; Marzullo 1987). These opponents recommended that U.S. firms maintain their positions in South Africa with the condition that all business be conducted morally and with goals of social responsibility. By this reasoning, divesting of South African-related securities was more harmful than it was good. Derek Bok, then president of Harvard University, argued at the time that one of his main reasons for maintaining his University's South African investments was that divestment would harm black South Africans, as they would lose the protection of the Sullivan Principles, which ensured that companies that adopted them worked to end discrimination against South African blacks in the workplace (Harris 1986). 6

Such opponents argued that U.S. businesses that withdrew from South Africa also withdrew whatever leverage they may have had against the South African government. They argued that by maintaining ties, businesses were able to exert pressure where it was needed most. Many believed that the social impact of U.S. investment in South Africa was an overall improvement of not only labor conditions, but also housing, healthcare, education, and legal assistance to black South Africans. Hence, many argued that businesses should keep their ties to South Africa in an effort to influence the government and improve the living conditions there (Cornell Chronicle 1988; Sethi 1987; Wilking 1987). Similarly, an article published in The Washington Post argued that the South African "economy is its most effective engine of social transformation, compelling whites to grant blacks precisely the training and education, the livelihood and personal rewards, the choices of where to live and work, the associations and organizations, the sense of their own power and community, that apartheid would deny them" (The Washington Post 1985: A22). Businesses in South Africa were seen by many as a positive and moral force for good in a country that desperately needed help (Cornell Chronicle 1988). In fact, most published polls of black South African laborers indicated that they did not want U.S. companies to leave South Africa as this would mean fewer jobs and declining economic Finally, the fourth case made by opponents of divestment maintained that divestment was not an effective means of causing businesses to change. Because universities do not possess enough stock in any one company to lower the market price, selling stock is rarely an effective means of exerting influence on the practices of a firm (Bok 1982). Generally, a business would not disinvest simply because one, or even several, of its investors threatened to divest. Although there was some evidence that disinvestment might pressure the South African government to end apartheid (Schwartzman and Taylor 1999; Seidman 2007), it was also clear that corporate decisions to disinvest were rarely, if ever, based on universities' divesting of their stock (Rottenberg 1986). In this view, the university’s actions had very little impact on the political situation in South Africa because their actions did not actually matter much to corporations (Sethi 1987; Rottenberg 1986)

Derek Bok (1982) captured the arguments of opponents of divestment in his claim that divesting seriously jeopardized the intended function of the university and that divestiture opened "the trustees to the risk of liability while costing the university substantial sums of money and exposing it to all the burdens and hazards of using investment decisions as a weapon to influence corporate behavior" (Bok 1982: 292-293). Moreover, adopting policies of divestment to quell student protests or to bend to social and environmental pressures was seen as a shortsighted measure on the part of the university.

Given the prevailing array of arguments against divestment, it seems reasonable to also discuss the pressures in favor of divestment which universities simultaneously faced. These, of course, came from the university’s major constituencies (students and faculty members) but they also came from the broader society in the form of negative opinions regarding the South African

Finally, the fourth case made by opponents of divestment maintained that divestment was not an effective means of causing businesses to change. Because universities do not possess enough stock in any one company to lower the market price, selling stock is rarely an effective means of exerting influence on the practices of a firm (Bok 1982). Generally, a business would not disinvest simply because one, or even several, of its investors threatened to divest. Although there was some evidence that disinvestment might pressure the South African government to end apartheid (Schwartzman and Taylor 1999; Seidman 2007), it was also clear that corporate decisions to disinvest were rarely, if ever, based on universities' divesting of their stock (Rottenberg 1986). In this view, the university’s actions had very little impact on the political situation in South Africa because their actions did not actually matter much to corporations (Sethi 1987; Rottenberg 1986)

Derek Bok (1982) captured the arguments of opponents of divestment in his claim that divesting seriously jeopardized the intended function of the university and that divestiture opened "the trustees to the risk of liability while costing the university substantial sums of money and exposing it to all the burdens and hazards of using investment decisions as a weapon to influence corporate behavior" (Bok 1982: 292-293). Moreover, adopting policies of divestment to quell student protests or to bend to social and environmental pressures was seen as a shortsighted measure on the part of the university.

Given the prevailing array of arguments against divestment, it seems reasonable to also discuss the pressures in favor of divestment which universities simultaneously faced. These, of course, came from the university’s major constituencies (students and faculty members) but they also came from the broader society in the form of negative opinions regarding the South African system of apartheid, the U.S. government, and from the country of South Africa. Thus, these pressures came both from within the university itself but also from the larger context in which the university is embedded, exemplifying again my arguments about the nested structure of opportunities in which colleges and universities operate.



Pressures on the University to Divest of South African Investments

Conflicting with these strong pressures on the university to retain their South African holdings were many powerful signals promoting divestiture. Clearly, one of the greatest pro-divestment pressures was the increasing rate of student protest across the country. Most readers remember the shantytown protests, but sit-ins, blockades, hunger strikes, rallies, and marches were also common as students used both demonstrative and informative tactics to broadcast the issue of apartheid (Soule 1997; Rottenberg 1986; Vellela 1988; Loeb 1994; Massie 1997). Whether or not the student movement actually mattered to university divestment decisions is the subject of this chapter, but it is worth noting that, at the time, there was the perception that divestment was (at least in part) driven by student activism (see review in Soule 1999; Massie 1997).

Many students and faculty members at colleges and universities across the country viewed divestment as the only morally "right" measure to take (Soule 2001). They exerted pressure on the administrations of their universities to divest. Students accused their universities of "preserving the power structure" of the administration and failing to divest as a means of maintaining status quo politics (Wurf 1986: 3). Student activists in the mid-1980's believed that they had a "moral advantage' in that it was easy to "gain support for the notion that apartheid is wrong" (Williams et al.1985: 61). The protests surrounding the issues of divestment and South Africa were of varied types and occurred all over the United States. It was impossible for college and university administrations to ignore the movement, even if there were not dramatic events on their own campuses (Soule 2001).

What most Americans will remember about this era of student protest were the shantytowns (or shanties) that appeared on campuses across the country. Shantytowns were makeshift shacks, constructed of miscellaneous building materials (e.g., wood, plastic, cardboard, tar paper, and metal), which were built to encourage administrators to divest of their South Africa-related securities. In many cases, students lived in the shanties, which worried universities and colleges because of the potential for physical harm of the student activists. From UCLA to Middlebury College, the University of Tennessee to New York University, the shantytown tactic diffused across college campuses (Soule 1997). At many universities, students had been fighting for divestment for years, but did not mobilize large support until the shantytowns were built.

The shantytown tactic evolved from the familiar tactic of the “sit-in.” Sit-ins have been used on campuses in the U.S. since the Civil Rights Movement, and it is apparent from activist and newspaper accounts in the 1980s, that the shantytown evolved from this common tactic. This evolution began at Columbia University in March of 1985, when students met to call for divestment of South African-related stocks and bonds (Massie 1997; Hirsch 19xx). Much to their surprise, the building, Hamilton Hall, in which the meeting was scheduled, was too small to accommodate the growing number of concerned students. Determined not to discourage activism, the leaders turned this meeting into a “sit-out,” where at least three hundred students sat outside and conducted a peaceful protest meeting on the steps of the building. The blockade lasted almost two weeks, culminating in a speech by Reverend Jesse Jackson, which drew five thousand, more people (Loeb 1994). The Columbia event was highly publicized and brought the attention of students across the country to the issue of divestment.

Following the “sit-out,” the tactic began to evolve further. Princeton activists staged a “camp-out,” which was quite similar to the Columbia event and was followed by other “camp- outs” at the University of California at Santa Cruz and the University of Iowa. Finally, students at Harvard University held a “sleep-in” at the library and, shortly thereafter, students at Princeton built a “teach-in center,” which they dubbed “Princetown, South Africa” (Adams 1985). The sit- out, camp-out, “teach-in center” and sleep-in marked the beginning of the evolution of the shantytown, the first of which appeared in the spring of 1985 at Cornell University. Within 18 months, the tactic had spread to numerous other colleges and universities.

The shantytowns were a visible reminder to campus communities that their administrations had investments in companies and banks with ties to South Africa. They were an embarrassment to universities and, as one might imagine, universities often attempted to repress this form of expression. For example, at Cornell University, the administration ordered campus police to remove the shantytown – something that occurred again and again each time students rebuilt it. Broader campus communities often tried to repress the shantytowns, too. For example, in December 1985, conservative students at Dartmouth College destroyed the shantytowns while activists slept inside. As is often the case in repression, events such as these seemed to have sparked the movement, rather than quelled it.

In addition to the shantytowns and broader divestment movement, a second set of pressures on the university had to do with the fact that the American public was well aware of the South African situation and, as will be discussed shortly, was concerned with it. There was much rhetoric at the time about the absolute immorality of the South African system of apartheid, and these arguments had a firm grasp of reality in South Africa. On average in 1986, 130 black South Africans were killed each month (Anti-Apartheid Act of 1986 Hearings 1986: 53). The majority of black South Africans in 1988 were unemployed and over 7 million were denied citizenship (Anti-Apartheid Act Amendments 1988). To be a black South African meant to live in constant fear of police brutality and constant fear of being forcibly removed from one's home (Anti-Apartheid Act Amendments 1988). In fact, the situation in South Africa led the United Nations to deem apartheid a crime against humanity (Friedman 1978).

The objective situation in South African was well publicized in the United States. Videotapes of mass demonstrations at funeral processions of black South Africans killed in events of political unrest and photographs of segregated public facilities served as painful reminders of conditions in the not-so-distant past of the U.S. A count of news articles indexed in the Reader’s Guide to Periodic Literature shows that in the 1985 volume, there were 333 articles on “Race Relations in South Africa.” In the (nearly) two-year period spanning March 1978 through February 1980, there were only 75 articles on the “Race Question in South Africa.” Moreover, around the time of the Sharpeville Massacre in 1960, there were 80 articles indexed by the Reader’s Guide (March 1959 through February 1961). These figures indicate that race relations in South Africa captured the media’s attention in the mid-1980s, even more so than around the time of the Sharpeville Massacre. If we examine the yearly counts of articles indexed in the Reader’s Guide covering any topic having to do with South Africa, we reach a similar conclusion. The number of articles on South Africa rose to unprecedented highs in 1985 and 1986, with 349 appearing in 1985 and 447 appearing in 1986. These figures can be compared to those of years prior to 1984 when fewer than 100 articles were indexed per year. 7 Thus, colleges and universities faced with student activism around the divestment issue needed to contend with the broader American public, which was attuned to the problems in South Africa, in part because of the dramatic increases in media attention to the country.

In addition to being aware of the situation in South African, there is also evidence that the American public was also appalled by it. Thus, a third set of pro-divestment pressures that educational institutions needed to consider were the beliefs and opinions of the larger society (Lewis 1984). Since the student protests of the 1960's, the boundaries between the university and the larger society have dissolved as the university has learned that it must be attuned to public opinion and listen to its constituent groups (Frey 1977). The beliefs and opinions of the public might be thought of in terms of the broader cultural opportunity structure, as described in Chapter 2.8 In a 1977 Harris poll, 46% of Americans said that the U.S. government should pressure U.S. corporations to pull out of South Africa to end apartheid. By 1986, 56% believed that the U.S. government should pressure South African to end apartheid (Culverson 1996). As well, the public appeared to support protest against apartheid and South African. For example, a Washington Post-ABC News poll conducted in 1985 showed that of people who knew about protests against South Africa, 70% supported such actions (Sussman 1985; see also Culverson 1996).

A fourth set of pro-divestment pressures came from the U.S. Congress which adopted several pieces of anti-apartheid legislation in the mid-1980's. These pressures may be thought of as part of the broader political and legal opportunity structures, as described in Chapter 2. First, Representative William Gray introduced the Anti-Apartheid Act of 1985, which enforced sanctions on imports and exports from South Africa and called for the prohibition of loans to the South African government. Second, there was the Comprehensive Anti-Apartheid Act of 1986, which prohibited loans to and new investments in South Africa, and it called for the release of political prisoners in that country. A third piece of U.S. legislation was the 1988 Anti-Apartheid Amendments to the 1986 law, which extended the ban of all loans to South African business and to the government and prohibited any new investment in South Africa. These pieces of legislation were clearly important exogenous pressures on colleges and universities from the broader legal opportunity structure. On top of these federal level legal pressures, some states also passed anti-apartheid legislation, serving as a further set of pressures that colleges and universities faced. By 1987, 21 states and 68 cities had adopted some kind of divestment policy (Lansing and Kuruvilla 1988). And, some states passed laws that directly impacted universities. For example, Michigan passed a law in 1982 that required all higher educational institutions to divest from South Africa (Rottenberg 1986).

A final set of pressures toward divestment came from prominent black leaders in South Africa. In his testimony on the Anti-Apartheid Act of 1986 (p. 198), Representative William Gray highlights the thoughts of several prominent black leaders:

Archbishop Desmond Tutu, Reverend Allan Bosak, and other countless black leaders have pleaded with us not to make too much of their suffering. Apartheid has made suffering a way of life for them. If we want to help, they say, do whatever must be done to remove apartheid. That, they say, will end their suffering. Hesitating to do what we can because of concern for them rings, quite frankly, hollow in their ears.

A letter published in the Anti-Apartheid Act of 1986 Hearings from the United Methodist Church of Zimbabwe documents the killing of several South African church organizers in South Africa. The letter compared the South African regime to those of Hitler and Idi Amin and remarks that apartheid is "extremely evil" and makes the "most terrible mockery [of] democracy" (1986: 283). Prominent church, political, and trade union leaders in South Africa helped publicize the situation in South Africa and called for international action. This call fell upon receptive ears at colleges and universities in the U.S., and as a consequence served to heighten the political and moral debates at these institutions.

In sum, educational institutions faced these countervailing pressures about the appropriate stance on the divestment issue and faced a great deal of uncertainty as they sifted through these arguments for and against divestiture. Divestment was costly to be sure, but many educational institutions decided to divest, despite the likely costs to their portfolios. The next section of this chapter assesses the extent to which student activism in the form of the shantytown had an impact on universities’ decisions.

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