Divestment
From Wikipedia, the free encyclopedia
In finance and economics, divestment or divestiture is the reduction of some kind of asset, for either financial or social goals. A divestment is the opposite of an investment.
Contents |
[edit] Divestment for financial goals
Often the term is used as a means to grow financially in which a company sells off a business unit in order to focus their resources on a market it judges to be more profitable, or promising. Sometimes, such an action can be a spin-off. Other times divestment can occur when required by the Federal Trade Commission before a merger is approved. A company can divest assets to wholly owned subsidiaries.
The largest, and likely most-famous, corporate divestiture in history was the 1984 US Department of Justice-mandated breakup of the Bell System into AT&T and the seven Baby Bells.
[edit] Divestment for social goals
The term also refers to the reduction of investment in firms, industries or countries for reasons of political or social policy.
[edit] Examples
Examples of divestment for social reasons have included:
- the withdrawal of firms from South Africa during the 1980s due to Apartheid
- discussion over whether it is ethical to invest in companies that sell tobacco
- the recent selling/commitment to nonpurchase of assets implicated in funding the government of Sudan, in acknowledgement of acts of genocide perpetrated in the Darfur conflict. This divestment has taken place both at the state level (including Illinois, New Jersey, Oregon, and Maine) and at many American Universities, notably Harvard University, Stanford University, Dartmouth College, Amherst College, Yale University, Brown University, the University of California, the University of Pennsylvania, Brandeis University, and American University. The Sudan Divestment Task Force [1]has organized a nationwide group which advocates a targeted divestment policy, to minimize any negative effects on Sudanese civilians while still placing financial pressure on the government.
Discussion of divestment for social, environmental and political reasons has arisen frequently on college campuses. For example, taking into account faculty and student opinion, several university boards of trustees voted to divest from South Africa entirely during the 1980s, in some cases after widespread protests occurred.
[edit] Example: Divestment against Israel
In 2004, the Presbyterian USA church, in a process they would later call 'flawed' voted to begin a process of phased, selective divestment from companies operating in Israel. A tremendous backlash occurred in response to the Presbyterian Church (USA) divestment overture in 2004, calling for an economic leverage/divestment process that dealt only with Israel. That resolution was couched in language asserting that the "occupation" was "at the root of evil acts." In 2005, the World Council of Churches followed suit. The New England Conference of the United Methodist Church, at its Annual Conference session held June 8-11-2005, voted to urge the divesting of funds from companies that support the Israeli occupation of Palestinian Territories. The resolution stated:
- Whereas the United Methodist Church should not profit from the illegal Israeli occupation of Palestinian land or the destruction of Palestinian homes, orchards, and lives,
- Whereas we are committed to ensuring that our denomination’s money is used in a manner consistent with our beliefs, with international law, and with Christ’s teaching,[2].
The United Church of Christ also followed suit [3], endorsing a range of economic leverages that included divestment, but church leaders publicly announced that no divestment path was planned for their pension or foundation assets. Theological Rationale: We believe that God in love seeks blessing and not destruction for all peoples, and lays the same pursuit upon Jews, Christians and Muslims (Genesis 12:1-3, 17:15-20, 21:14-19; Joshua 5:13-15; Isaiah 42:5-7, 49:6; Jonah; Micah 4:2-4; Matthew 5:14-16, 5:23-24; Mark 3:35; Luke 6:27-36, 9:51-55, 10:25-37; John 3:16-17, 21:15-17; Revelation 22:1-2)[4]. Many of these denominational caucuses were criticized by their own members for their association with lobbyists and speakers from the controversial Sabeel Liberation Theology Center.
In 2006, the Prebyterian Church (USA) General Assembly by a vote of 483-28 adopted a balanced resolution that replaced language adopted in 2004 mandating a process of divestment focused on Israel - and endorsing instead the church's customary corporate engagement process. [5]
To date, divestment campaigns aimed at Israel have yet to gain significant traction. In addition to the Presbyterian Church's replacing its 2004 call for divestment, the other large mainline churches have avoided the path to divestment. The Evangelical Lutheran Church in America rejected a pro-divestment resolution during the summer of 2005. The Episcopal Church USA ruled out the possibility of anti-Israel divestment later that year, and the United Methodist Church has also avoided divestment. Similarly, a pro-divestment push was rebuffed in the city of Somerville, MA. Successes for pro-divestment forces have been scarce. On May 27th 2006, representing more than 200,000 workers, delegates to The Canadian Union of Public Employees (CUPE) - Ontario convention in Ottawa voted overwhelmingly to support divestment, They also condemned what they called Israel's "apartheid wall," saying it is illegal under international law. [6]
On the 27th of April 2005, The Rawalpindi-Islamabad Citizens Peace Committee of Pakistan has called for a total boycott of US and British products to protest declaring war on weak nations [7]. Their release cites:“The local chains pay their American principals a royalty of 5% on each sale for using their brand names. It is this 5% that goes to bloat the coffers of the US corporations most of whom are major contributors to the state of Israel. Thus, consuming American fast food goes to strengthen the US and Israeli armed forces, US aggression worldwide and the Israeli atrocities on the Palestinians".
Pro-Palestinian student groups at many colleges and universities have petitioned their schools to divest from companies with ties to the Israeli military in 2002-2004, but to date every university divestment campaign has been unsuccessful in swaying the schools' administrations' investment decisions. Former Harvard President Lawrence Summers famously called those campaigns "anti-Semitic in effect, if not in intent."
[edit] Socially conscious investing
Divestment campaigns have brought the notion of "socially conscious investing" into the public eye. Under such a philosophy, investors intentionally invest in companies whose policies they believe to be especially aligned with their own interests, for instance, supporting environmental protection or avoiding businesses in the alcohol, tobacco, or pornography industries. (See, for instance Ave Maria Mutual Funds.)
By divesting from certain sectors of the economy, and investing in others, such investors may intend to provide a market-based incentive for corporate social responsibility.
[edit] Criticisms of divestment for social goals
Some hold that divestment campaigns are based on a fundamental misunderstanding of how equity markets work. John Silber, former president of Boston University, observed that while boycotting a company's products would actually affect their business, "once a stock issue has been made, the corporation doesn't care whether you sell it, burn it, or anything else, because they've already got all the money they're ever going to get from that stock. So they don't care." [8] Regarding the more specific case of South Africa, he recalled:
...when the students were protesting the South African situation, I met with them, and they said BU must divest in General Motors and IBM. And I said, “Why should we do that? Is it immoral to own that stock?” Absolutely immoral to own it. And I said, “So then, we're supposed to sell it to somebody? We can't divest unless we sell it to somebody. And if we burn the stock, that just helps General Motors, because it reduces the amount of stock outstanding, so that can't be right. If we sell it to somebody, we have just gotten rid of our guilt in order to impose guilt on somebody else.” [9]
The common perception about the effectiveness of divestment lies in the belief that institutional selling of a certain stock lowers its market value. Therefore, the company's networth becomes devalued and the owners of the company may lose substantial paper assets. In addition, institutional divestment may encourage other investors to sell their stocks for fear of lower prices, which in turn lowers prices even further. Finally, lower stock prices limits a corporation's ability to sell a portion of their stocks in order to raise funds to expand the business.
[edit] External links
- Institute of Mergers, Acquisitions and Alliances (MANDA) M&A - An academic research institute on mergers & acquisitions, incl. divestments
- General divestment information from the Sudan divestment movement
- Pensions for Peace ~ ACT for the Earth
- CAMERA information on divestment.
- University of Wisconsin Divestment website.
- City of Seattle Divest.
- Mainline churches launch a policy to punish Israel by Eugene Kontorovich, in the Wall Street Journal, July 22, 2005.
- Palestine Solidarity Movement
