Divestment Not An Easy Affair

One Sunday morning at the end of April, the Harvard Darfur Action Group (HDAG) drew a crowd of 40 students to a vigil on the steps of Memorial Church before joining a citywide rally. The group’s demand: that Harvard adopt a policy of divesting from companies that do business with the Sudanese government.

Harvard continues to hold investments in firms accused of financing the ongoing genocide in Darfur. And despite selling its direct stakes in two oil firms with ties to Sudan, the University continues to maintain “indirect” investments in such companies through funds in its portfolio.

The University’s holdings in three of those funds declined slightly during the first quarter of 2007, according to filings last week with the Securities and Exchange Commission. But the student divestment movement has picked up steam throughout the spring.

Divestment from the University’s indirect holdings, however, may prove difficult.

‘MUCH TRICKIER’

In April 2005, Harvard became the first U.S. university to divest from a company linked to Sudan when it sold its holdings in PetroChina, a Chinese oil company. One year later, Harvard also divested from Sinopec, another Chinese oil firm.

But in January 2007, The Crimson reported that Harvard still maintained indirect holdings in these firms—as well as Petronas, a Malaysian oil firm accused of helping fund the genocide—through its investments in funds managed by the British bank Barclays.

Harvard’s holdings in the firms through the three funds were worth $12.8 million at the close of trading yesterday, if the University has maintained the same stake.

Harvard says its policy on divestment does not cover these indirect holdings. University spokesman John D. Longbrake said in February that the policy “does not extend to investment vehicles over which the University does not exercise direct control over composition and investment decisions.”

Divesting from these indirect holdings would not be as simple for Harvard as relinquishing its direct holdings. These funds contain a number of companies, allowing Harvard to invest in a specific industry or region without taking on all the risk of investing in an individual firm.

But foreign-owned companies included in such funds might not otherwise be listed on American exchanges or included in many other funds.

As a result, says Olshan Professor of Economics John Y. Campbell, the cost for an institution to eliminate these indirect holdings can be high.

“The obvious and easiest form of divestment is just to take no discretionary active position in a company,” Campbell says. “But it’s much trickier to eliminate indexes because the world market today is organized into indexes.”

An index fund is a kind of mutual fund that is designed to match the stocks included in market indexes such as the Dow Jones Industrial Average or the S&P 500.

While Campbell says he might support divestment in “rare cases,” he cautions against divesting from holdings in indexes that invest in Sudan-linked firms.

“I think we should be very careful about how difficult we make it for HMC to support the University,” Campbell says, referring to the Harvard Management Company, which invests the endowment. “We need to be careful of anything that might get in the way of the University’s mission.”

HDAG proposes that Harvard divest from any company that maintains a business relationship with the Sudanese government and fails to take steps to help civilians there, as long as the University can find an alternative investment that provides a similar return for similar risk.

This group’s proposal seeks divestment from indirect holdings such as exchange-traded funds and index funds containing Sudan-linked companies. HDAG argues that there are many Sudan-free funds being established to provide alternatives to Harvard’s current holdings.

The group does not propose divestment from hedge funds and private equity—investments through which Harvard may also hold stakes in firms tied to Sudan—due to a lack of similar investment options.

Alice W. Handy, founder and president of Investure, an investment group that advises non-profit institutions, echoes Campbell’s sentiments. Handy, who served as chief investment officer of the University of Virginia’s endowment from 1974 to 2003, says she can appreciate the student effort driving the divestment campaign, but urges caution in matters that deal with the endowment.

“Everybody has their certain hot button issues, but the endowment affects and benefits everybody at the institution,” she says. “Issues that you’re using the endowment for to make a statement have to be those with widespread campus support.”



CHANGING ‘CORPORATE BEHAVIOR’

Meanwhile, students at Harvard and other universities are working to amass that support. A campus petition launched in March has garnered over 1,400 signatures, while an Undergraduate Council resolution supporting the group’s divestment proposal passed unopposed in mid-April.

Peter N. Ganong ’09, an Adams House resident and member of HDAG, says the group received a response to its letters and petitions from Interim President Derek C. Bok. Bok wrote on March 16 that he had forwarded two letters from HDAG to the Corporation Committee on Shareholder Responsibility (CCSR) “for further review.”

The two-member CCSR is responsible for reviewing issues surrounding the University’s investments.

The committee has yet to respond to the HDAG proposal, but the students remain hopeful. Elizabeth Gray, the CCSR secretary, declined to comment last week.

Nationwide, the divestment movement remains energized, fueled by Harvard’s decision two years ago to divest from PetroChina. One activist group, the Sudan Divestment Task Force, is overseeing a campaign to pressure state governments and other institutions to adopt divestment policies.

“Harvard was the first university to divest from anything, back before people really knew what to divest from,” says Daniel Millenson, the group’s national advocacy director and a sophomore at Brandeis. “We [at the task force] have overcome some obstacles and now produce resources on divestment.”

And at Harvard, HDAG continues to pursue divestment on new fronts. When Andrew Gould, chairman and CEO of the multinational oil firm Schlumberger Limited, came to speak at Harvard in March, members of HDAG questioned him about his company’s work in Sudan. Gould maintained that his company operates independently of the Sudanese government.

The firm later sent two representatives to meet with members of HDAG on April 19. The contents of the meeting were confidential, but Ganong says the two representatives, one of whom had flown in from France, met with the students for about two hours.

“The fact that companies are coming to us and preparing responses shows that they’re worried and that what we’re doing is working,” he says. “The point of divestment is not to screw companies, it’s to change corporate behavior.”

Ganong says he knows divestment will not stop the genocide in Darfur on its own.

“But among what’s in our power,” he says, “do I think it’s the best thing that Harvard can do? Absolutely.”

—Staff writer Nathan C. Strauss can be reached at strauss@fas.harvard.edu.