UC Regents Torn by South Africa Investment Issue

An issue that has pestered the University of California Board of Regents off and on for 20 years has resurfaced with demands that UC sell its vast holdings in companies that do business in South Africa.

The university maintains an investment portfolio worth about $5.5 billion, by far the largest of any American university.

Of this amount, about $1.7 billion is invested in companies with South African ties. It is these stocks that student and faculty opponents of apartheid are asking the regents to sell.

The board, which is expected to vote on the question at a meeting on the UC Santa Cruz campus in June, seems to be divided three ways.

One small group within the board wants to sell all of these holdings as soon as possible.

“Investing in businesses that are in South Africa is a stain on the university,” John F. Henning, executive secretary of the state AFL-CIO, said in an interview.

‘Social Justice’

Said Regent Yori Wada, former executive director of the Buchanan YMCA in San Francisco: “I think it’s inconsistent with the educational mission of the university . . . . Part of the reason the university exists is to have students learn about social justice, and I believe the government of South Africa deprives black citizens of justice.”

Yet another group of regents thinks investment policy should not be affected by political or social issues, no matter how important they may seem at the time.

Regent Joseph A. Moore, a San Francisco businessman, pointed out that the university’s pension fund accounts for about 85% of the huge investment portfolio.

“I really have great problems bringing political considerations into decisions about investing other people’s money,” Moore said. “If I want to sell my own stock--which I have done from time to time--that’s quite all right, but I really have trouble taking that kind of action with other people’s money.”

Still a third group of regents, perhaps the largest group on the 33-member board, is looking for a compromise.

Torn by Issue

Said board Chairwoman Vilma Martinez: “If there is something we can do to make a statement about apartheid that would be consistent with our fiduciary responsibilities, then I would be in favor of that.”

Two regents who asked not to be identified said they were torn by the issue. They do not want to take any action that supports the increasingly ruthless South African government but neither do they want to risk heavy losses in UC investments.

They are awaiting a report June 1 from regents’ treasurer Herbert M. Gordon about what other universities are doing and what options might be available to the University of California.

That report is expected to tell them that about 40 American colleges and universities already have divested all or some of their holdings in companies that do business in South Africa.

Some institutions, ranging from small liberal arts colleges like Antioch and Hampshire to large universities like Michigan, Michigan State and the University of Wisconsin, have gotten rid of almost all of these stocks.

Two years ago the University of Michigan agreed to the largest single divestiture to date--$41 million--retaining only about $4.7 million worth of stocks in companies that have corporate headquarters in Michigan or employ large numbers of people in the state.

This followed passage of a state law requiring public colleges and universities to sell their holdings in companies doing business in South Africa.

The University of Michigan Board of Regents is challenging the state law in court but in the meantime has sold most of the stocks.

Many other colleges and universities are pursuing a policy of “selective divestment,” in which they monitor the progress companies are making toward racial equality in South Africa and, if they decide not enough has been done, they sell the stock.

Harvard Policy

For instance, Harvard University has sold its shares of Baker International, a manufacturer of mining equipment, while Stanford University has said it will sell its Motorola stock if the company continues to sell radios to the South African army or police.

“The last count we had, perhaps 50% of universities have adopted some form of investment policy that would provide for the possibility of divestment under certain circumstances,” said Ronald Brady, UC vice president for administration. “This seems to be the trend.”

In deciding whether or not to sell stock, many universities are relying on the so-called “Sullivan Principles,” guidelines developed in 1978 by the Rev. Leon H. Sullivan of the Zion Baptist Church in Philadelphia.

These principles include equal employment opportunities for all races, equal pay for comparable work, an increase in the number of blacks in administrative, clerical and technical jobs and efforts to improve the quality of workers’ lives away from their jobs.

The Arthur D. Little Co., a Boston consulting firm, issues annual reports on progress companies are making toward compliance with these principles.

New Policies

Several regents expressed interest in adopting new investment policies that would be based in whole or in part on the Sullivan Principles.

Three of the nine UC campus chancellors--Ira Michael Heyman of Berkeley, Robert Huttenback of Santa Barbara and Robert Sinsheimer of Santa Cruz--have endorsed the Sullivan Principles.

But critics, and Sullivan himself, say some companies promised to adhere to the guidelines but then failed to do so.

Before the Vietnam War, few people ever raised the issue of “socially responsible” investments by universities. The regents turned down several attempts in the late 1960s and early ‘70s to force the university to sell its holdings in companies that were producing military goods for the American war effort in Southeast Asia.

In 1977, the board voted 11 to 5 against immediate divestiture of holdings in companies that were doing business in South Africa.

At that time, however, the regents also voted to require “good corporate citizenship” from the companies in which stock was held.

But this vague guideline has been largely ignored. Only twice has the university voted against management on a “social responsibility” issue. In 1979 the regents voted 15 to 3 to urge General Motors not to sell military trucks or spare parts to South Africa.

Illinois Firm

This week the board voted 17 to 11 to require Illinois-based Nalco Chemical Co. to improve its Sullivan Principles rating by next October or cease doing business in South Africa.

UC presently holds 1.5 million shares of Nalco stock, worth about $30 million.

One strong argument against divestiture has been that it would weaken the value of the UC investment portfolio.

A study by Stanford’s Board of Trustees in 1977 found that selling off such stocks would cost the university “several million dollars in lowered investment performance,” a Stanford spokesman said.

But more recent studies have challenged such claims.

For instance, Boston Co., a Shearson Lehman Bros. subsidiary, found that the 365 companies on the Standard & Poor’s Corp. list of 500 firms that did not do business in South Africa produced an investment return over an 11-year period ending July, 1983, which was 17.4% greater than the 135 companies with South African ties.

“I have been told it is possible to arrive at investments with companies that do not do business in South Africa and are companies that do yield a good return and are safe,” said regent Yvonne Brathwaite Burke, the only appointed black on the board. “I would like to look into that possibility.”

Political Neutrality

Another argument against divestiture is that academic institutions should remain politically neutral, making their investment decisions solely on the basis of financial considerations.

“Many pension funds have gotten into trouble in this country because of outside considerations,” said Regent Moore.

But Tim Smith, executive director of the National Interfaith Center for Corporate Responsibility, argued that “There’s no neutral place to sit in this debate--by not speaking out, you’re profiting from, and silently supporting, the South African government.”

The issue returned to the Board of Regents in January, when Fred N. Gaines, a second-year law student at UC Berkeley and the student regent on the board, urged the group to ask for a report from the treasurer and then to take another look at investment policy.

Gaines said he acted because of the board’s poor record in requiring racial progress by companies doing business in South Africa.

“If the regents had been more active in trying to get these companies to be good corporate citizens, then divestment might not be best,” Gaines said. “But the regents have never shown any interest in being socially responsible investors so, given that, I’ll accept divestment.”

Regent Henning said the issue has come up now because “the South African government is moving in a very ruthless way--it’s a murder machine down there.”

While trying to guess what the Board of Regents will do is always risky, many signs point to the end of the old laissez faire system and the adoption of at least a “selective divestment” policy.