JHU & Big Tobacco- Part I

This entry is the first in a series on the history of divestment at the Johns Hopkins University. Phillip Morris and Trustee documents were obtained from the UCSF Legacy Tobacco Documents Library.

In 1990, 1.5% of JHU's portfolio was in tobacco stock- a massive source of revenue. In April 1990, JHU's Public Interest Investment Advisory Committee (PIIAC), a group of 6 students, 5 faculty, and 2 administrators, advised JHU to divest from tobacco companies (PDF). The PIIAC argued that divestment would give "new meaning" to JHU's "mission of serving the public's health."

The following October, the Board of Trustees formed an ad-hoc committee on tobacco divestment. The Report of the Trustee Committee on Tobacco Stock Divestment (PDF) found:

The holding of tobacco stocks is incompatible with the University's mission... divestment is seen as a necessary step to ensure that University actions are compatible with its public position. Moreover... a campaign against the use of tobacco products would be expected to have an adverse impact on the business of a company and the value of its stock (4).

Despite lobbying by Phillip Morris, the committee voted unanimously to recommend divestment from tobacco holdings. The Board of Trustees enacted the policy soon thereafter. JHU's 1991 divestment from tobacco companies set a strong precedent for targeted divestment. The next entry will explore this precedent, as well as the parallels between Phillip Morris' case against divestment and the position of present-day JHU executives.

Stiglitz on Divestment

Last Tuesday (April 8) the JHU Foreign Affairs Symposium brought renowned economist Joseph Stiglitz to campus. In "Globalization and its Discontents," Stiglitz suggests that foreign direct investment in oil-rich states may undermine development due to rent-seeking, corruption, and political concessions (72). Case in point: Sudan.

When asked about divestment, Dr. Stiglitz explained that he voted for targeted divestment as a member of Amherst College's board of trustees. He indicated that divestment would not hurt the civilian economy (e.g. increase unemployment) because offending firms primarily finance the military. Dr. Stiglitz also suggested that universities support student anti-genocide projects.

Targeted divestment is one part of the anti-genocide 'toolbox' - JHU STAND also engages in direct aid and genocide education in the Baltimore Public Schools. We believe that JHU has two responsibilities in light of the campus consensus: (1) restrict Sudan investments, and (2) institutionalize anti-genocide education by creating an endowed lecture series or a grant fund for student aid.

Divestment Efficacy

A comment on the last post asks: does divestment tangibly impact state-backed companies? As the commenter indicates, PetroChina is a subsidiary of the China National Petroleum Corporation (CNPC), owned and operated by the People's Republic of China (PRC).

Sudan is central to Chinese energy strategy. In Oil: Politics, Poverty & the Planet, Financial Times journalist Toby Shelley traces the interests of state-owned energy companies:

The close relationship between the Chinese companies, Petronas, and ONGC and the governments of their home countries demonstrates a clear intent to further national as well as corporate interests by gaining direct access to oil and natural gas (152).

The Sudan Divestment Task Force (SDTF) report on PetroChina (PDF) documents PetroChina/CNPC operations in Sudan. PetroChina is private, but the PRC backs PetroChina financially (e.g. asset transfers from CNPC) and politically. Nevertheless, PetroChina is dependent on shareholder equity and thus susceptible to engagement. Divestment intensifies international scrutiny and risk, and shareholders are risk averse.

Targeted divestment has consistently changed corporate and government behavior in Sudan. Divestment from Talisman Energy by pension funds led to a 1/3 drop in share price and withdrawal from Sudan. 9 companies have since suspended Sudan operations, including ABB, Siemens, Rolls Royce, and Schlumberger. More details in the report on divestment efficacy (PDF).

The Executive Legacy

JHU is virtually alone among top American universities: out of the top 15 ranked universities, only CalTech and JHU have no formal policy on Darfur. Given this discrepancy, president William Brody possesses a unique opportunity to secure his legacy before his December retirement. When asked about divestment in a March 27th interview, Dr. Brody asserted that

1. JHU has "no investments in corporations in Sudan"
2. "You can't divest if you don't have investments"
3. Coca-Cola or Pepsi could be targeted for operating in Sudan
4. Sudan divestment is analogous to divesting from China or Russia for "not promoting democracy"

JHU STAND's targeted divestment proposal explicitly addresses these points:

(1) JHU refuses to review indirect holdings (e.g. mutual/index funds) and therefore may still invest in offending companies. The Investment Office has the ability to review indirect assets but is ideologically opposed to engaging fund managers.

(2) Divestment implies restricted future investment in offending companies until firms change their behavior or the US retracts its genocide declaration. A consistent stance against genocide is critical- Rwanda, Bosnia, and the Holocaust exemplify the consequences of institutional 'neutrality.'

(3) The consumer economy (e.g. Coca-Cola) is strictly excluded by targeted divestment. The ~26 offending companies (e.g. PetroChina, Petronas, ONGC) are foreign energy firms that fund the Sudanese military while imparting minimal benefit to civilians.

(4) Darfur is not comparable to a Russian 'democracy gap.' Authoritarianism is a 'hazard': a condition which may threaten human life. But the Darfur crisis is an 'emergency':

An extraordinary situation when where there are serious and immediate threats to human life as a result of disaster... cumulative process of neglect, civil conflict, environmental degradation and socio-economic conditions. (Southern Africa Disater Management Training Programme, 6)

Genocide "shocks the conscience of mankind," warranting a response at multiple levels of society- individuals, government, firms, and NGOs. Sudan divestment operates on a proven economic pathway - foreign direct investment bankrolls the Sudanese military and Janjaweed militias. In this way, the genocide in Darfur is uniquely heinous but also uniquely susceptible to divestment.

March Campaign

JHU STAND is currently collecting signatures from JHU students, alumni, and faculty regarding Sudan divestment. You can find us at Fresh Food Cafe, Nolan's, the Breezeway, and MSE throughout the spring semester. The counter on the sidebar will show our progress towards our goal for Spring 2008 - at least 1000 signatures.

Sudan divestment is a non-partisan, non-controversial humanitarian movement. In January, Congress and the President passed the Sudan Divestment and Accountability Act (SADA) which makes it easier for fund managers to divest from scrutinized companies, and bans federal contracts with these companies.

2008 will be the year that Johns Hopkins divests- 59 universities and counting have enacted divestment policies, and JHU's dismissal of this issue is compromising the university's mission and reputation. Most importantly, the crisis in Darfur continues to escalate. Darfur is one of the world's worst humanitarian crises, and uniquely susceptible to divestment.

The Story So Far

JHU STAND has lobbied JHU on targeted divestment for 3 semesters. In April 2007, we brought our proposal to Dr. James T. McGill, Senior VP for Finance & Administration. 

According to Dr. McGill, JHU reserves the right to invest in offending companies [PDF]. CIO Dr. Kathryn J. Crecelius explicitly rejected review of indirect holdings (e.g. mutual funds) or engagement of third-party asset managers. The status of direct holdings (e.g. stocks & bonds) was left ambiguous. JHU executives refused to consider an investment policy addressing Darfur.

Dr. McGill asserted that divestment is not effective, and was not persuaded by divestment at 55 peer universities and the withdrawal of major companies including ABB, Siemens and Schlumberger. We were told that our position was fallacious because "for every seller of stock there is a buyer." This point is misleading; price is a function of demand, so divestment by JHU and other fiduciaries can devalue offending company stock.

In 1991, JHU sold $5.3 million of tobacco holdings because "the investments undermined its efforts to fight cancer." This despite tobacco representing an entire asset class with no financially equivalent alternatives. Imagine if JHU- which "saves lives, millions at a time"-still profited from tobacco, which kills 438,800 Americans each year. JHU's refusal to address an ongoing genocide is similarly inconsistent with institutional values.

Our objective for 2008 is to convey the campus consensus on Darfur to the JHU Board of Trustees. The recent Hopkins Energy Action Team (HEAT) climate neutrality success suggests a rising consciousness at JHU: united, students have the power to influence university policy.

Targeted Divestment Criteria

Our objective is to protect the victims of genocide; divestment is a humanitarian intervention rather than a wholly symbolic gesture.

"Targeted divestment" improves upon past movements by maximizing impact on the genocide while minimizing harm to civilians & university finances.

To this end, the Sudan Divestment Task Force has designed narrowly-focused divestment criteria. To be considered for divestment, companies must:

1. Have a business relationship with the Khartoum Regime
2. Impart minimal benefit to marginalized populations
3. Have no corporate governance policy addressing the Darfur genocide