Stanford Divests from Sudan

Investment responsibility again a hot topic.

July/August 2005

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Stanford Divests from Sudan

Linda A. Cicero

The curly-haired freshman was poised as he addressed the professor from the Graduate School of Business.

“I don’t want the endowment that’s supposed to be serving me and this community invested in a country that conducts genocide,” Seth Silverman said after being told at an April town hall meeting that Stanford has about $1 million invested in PetroChina. The Chinese-owned oil company, he added, “facilitates the Khartoum regime and its oil extraction from Sudan” and operates in a country that is off-limits to American businesses.

Finance professor George Parker nodded, but also observed that $1 million is a “very small” percentage of the University’s $12 billion endowment. He nevertheless encouraged Silverman to formally present his argument to the Advisory Panel on Investment Responsibility (APIR), which Parker chairs. “Put your thoughts in writing and make your case,” he said. “Try to convince this committee that it is so compelling that this committee would [support] your logic with a majority vote and send it to the Board of Trustees, and say it’s our recommendation that the Board of Trustees tell the management company not to own PetroChina.”

So Silverman and his fellow members of Students Taking Action Now: Darfur did. STAND presented the 12-member panel of faculty, students and alumni with a single-spaced, 45-page argument for divesting from four foreign companies that support the Khartoum regime: Chinese-owned PetroChina and Sinopec, Russian oil giant Tatneft and Swiss ABB Ltd. After extensive discussion, APIR voted in favor of the proposal. The Board of Trustees voted June 7 to divest any directly held shares in the four companies. Stanford Management Company, which administers the endowment, will send letters to its investment managers recommending divestment of any shares held indirectly through, for example, mutual funds or indexes.

Ben Elberger, ’06, said students were “extraordinarily happy” about the divestment decision. “With South Africa, it took 10 years for [divestment] to happen, and we’re saying we can’t wait another 10 years on genocide [in Darfur].”

Indeed, investment responsibility is becoming a hot-button issue on campuses nationwide at a level not seen since the debates over South Africa in the late 1970s and 1980s. Harvard, for example, announced in April that it was selling its $4.4 million stake in PetroChina. In addition, there is a movement for more transparency in universities’ endowment holdings, led on the Farm by the Stanford Coalition for Investment Disclosure (SCID).

The Board of Trustees’ primary fiduciary responsibility is to oversee and maximize returns on the endowment so it can meet Stanford’s educational mission. Income on the endowment currently pays 16 percent of the University’s $2.6 billion annual operating expenses. In 1971, the trustees adopted a statement on “investment responsibility,” which stipulates that the University will examine allegations of “substantial social injury” caused by companies it invests in.

SCID has pressed this year for disclosure of University holdings. Tell us what stocks Stanford owns, students say, so that we can object to the wrongdoers. Tell us who the wrongdoers are and why, the University says, and we’ll consider whether to try to effect change within those companies or, ultimately, divest from them. Full disclosure is not practical for several reasons, officials say: investments change frequently; disclosure could compromise Stanford’s investment strategies; and certain potentially lucrative funds prohibit their investors from revealing their components.

“The whole focus of disclosure is to ask universities to download their holdings so students can find the bad actors,” says Linda Kimball, manager of investment responsibility for Stanford Management Company. “Unfortunately, there is a lack of understanding of institutional investing. People think the University is picking stocks, but that’s not modern portfolio theory. We invest with fund managers who have specific talents and teams and reputations.”

Kirk Hanson, ’68, MBA ’71, executive director of the Markkula Center for Applied Ethics at Santa Clara University and an emeritus senior lecturer at Stanford’s Graduate School of Business, observes that the new focus on disclosure is taking place on “leadership campuses” like Yale, Harvard and Stanford. Such schools have large endowments and strategies that include venture capital funds and hedge funds, “neither of which reveal what their investments are.”

The University is “in a bind,” says Hanson, a former chair of the President’s Investment Responsibility Committee, the precursor to APIR. “We committed to being a socially responsible investor, to evaluate for social injury, but now we’re not able to exercise the principle we established, so what do we do?” He proposes that universities work to secure agreements that allow once-a-year disclosure.

The discussion about disclosure will, of course, continue. Meanwhile, SCID proposed in April that the University disseminate information about investment responsibility more broadly and suggested paying students to investigate allegations of wrongdoing by companies in which Stanford holds shares. APIR agreed to a website that will set forth the University’s policy and provide details on how to present a case of corporate wrongdoing. It also will explain how Kimball votes Stanford’s “social proxies”—shareholder resolutions on such issues as adopting employment nondiscrimination policies or monitoring greenhouse gas emissions—and provide a proxy-voting history.

“The website is a big victory for SCID,” says member Anna Mumford, a co-terminal degree student who is also a member of APIR. “We’ve made some changes in a decision-making body.”

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