More colleges pull up South African stakes

The start of the school year is very much a bottom-line issue for companies operating in South Africa. Many colleges and universities, already feeling the first student protests and increasingly worried about financial risk, are yanking their investments in companies dealing with South Africa.

Already, an estimated $266 million in such stocks has been divested by university endowments and pension funds, according to the American Committee on Africa, an organization that supports independence movements in Africa. Since the protests against American corporate involvement in South Africa erupted at Columbia University and other schools last April, 15 universities have divested $37.5 million worth of stocks, the group says.

Even more-substantial divestments are in the works. Columbia's total liquidation of its $39 million in South African-oriented stocks has not been formally ratified but is considered a fait accompli.

And there is still a lot of money to be divested. Harvard alone owns $400 million worth of stocks in companies operating in South Africa. Of the 100 colleges and universities with the largest endowments, no more than one-third have divested even partially, according to Christopher Coons at the Washington-based Investor Responsibility Research Center (IRRC), which researches several issues related to ethical investing.

Some universities may be forced to divest whether they like it or not. In Michigan, Wisconsin, and Iowa, laws have been enacted that require state universities to divest their holdings. At least three states (Pennsylvania, New York, North Carolina) have similar bills pending.

Beyond that, most states already have laws on the books that could force divestment. During the civil rights movement in the '60s, many states passed laws that require universities not to maintain investments in companies that have a discriminatory system. A Wisconsin judge, for example, interpreted such a statute to require the University of Wisconsin to divest its South African investments.

Divestment gained momentum this summer with South Africa dominating headlines and footage of violence there appearing on TV newscasts each night. But perhaps more jolting for schools was President P. W. Botha's announcement that he was suspending trading on the stock market, freezing loan repayments for four months, and reinstating currency restrictions that make it more difficult to pull money out of the country.

``South Africa is becoming a very risky place to do business,'' says Dudley Woodall, treasurer of Bowdoin College in Brunswick, Maine, ``and endowments must avoid extreme risk.''

This has become more acute as colleges have shifted more endowment funds into equity, says Greg Fall, one of two students on Bowdoin's committee to review the college's South African-related investment. Fifteen years ago, he says, 80 percent of the college's endowment funds were in safe, liquid assets like money markets; today more than 80 percent is invested in stocks.

Bowdoin announced at a convocation that it is divesting $1.85 million in three companies that don't meet its standards in improving working and living conditions for nonwhites in South Africa. Bowdoin officials say the decision was made for moral, not financial reasons. The committee dealing with investments recommended divestment a month before Mr. Botha's announcement.

``If you take the most current events in South Africa and assume those conditions will continue or worsen,'' says Mr. Woodall, ``then it will be a place that investors avoid on sheerly financial grounds.''

There is a shift in how schools go about divesting their stocks. During the first wave of protest in the late '70s, most schools sold stocks in firms that did not sign the Sullivan Principles, which set out guidelines for improving living and working conditions for blacks at United States companies in South Africa.

Today, the criteria are generally more stringent. Many schools decide what stocks to cut off based on performance ratings provided by the research firm Arthur D. Little Inc. Each year ADL consultants visit South Africa and determine whether companies are ``making good progress,'' ``making progress,'' ``need to become more active,'' etc.

This trend appears to be Bowdoin's approach: retaining stocks in companies that fall into the first two categories, but shedding those in companies that fall in the third. Most schools have chosen the middle ground, though total divestment has some supporters, such as Columbia, Ohio State, the University of Iowa, and California State at Northridge.

The decision to divest can be costly, especially if done rashly. According to the IRRC, the University of Massachusetts lost $90,000 when it totally divested its $630,000 portfolio in 1977. Part of the loss was due to transaction costs; part was because the stocks were sold in 90 days, before the stock values could rise above the price at which the university bought them.

Michigan State University, on the other hand, had a net gain of about $1 million (not including transaction costs) on the sale of $8.5 million worth of stocks. MSU phased out the sale over several years.

Most schools don't feel the pressure to move as quickly as the University of Massachusetts, says Alan Fein, secretary to the Corporate Committee on Shareholder Responsibility at Harvard. ``What concerns most people is the decision to divest. No one would press them [colleges] to incur a loss, but would allow prudent divestment,'' he says.

There are other costs to colleges and universities, however: alumni and corporate backlash. Many corporations operating in South Africa have close ties with colleges and get testy when they divest.

But of 60 schools where Mr. Coons interviewed officials, about 50 of them said there was no relationship between alumni support and the divestment issue. Of those that did acknowledge alumni or corporate pressure, many said the threat never materialized.

The bottom line for colleges and universities is whether divestment does any good. There is some evidence it does. In the last year, about 45 companies have signed the Sullivan Principles for the first time.