Columns, Opinions

Krishnamurthy ’19: Divestment has severe costs — and nobody is talking about them

Staff Columnist
Tuesday, March 12, 2019

Last week, the Undergraduate Council of Students agreed to include in its March elections ballot a referendum asking students if the University should divest from corporations purportedly “complicit in human rights abuses in Palestine” and subject the endowment to greater transparency and student oversight. The coalition of students responsible for the referendum, Brown Divest, opposes the “University’s investment in the disenfranchisement, displacement and death of Palestinians,” per its statement of demands.

This effort to imbue the University’s investment philosophy with moral and ethical considerations is certainly noble and well intentioned. I believe fully in the importance of standing up for human rights and international law, and agree that identifying specific instances of injustice is essential to combating injustice everywhere. But it is not clear that Brown Divest has reckoned with the enormous opportunity costs of divestment, should their demands be formally adopted. Irrespective of one’s views on Israel — I’m not taking a position here — divestment is extremely expensive in foregone investment returns, enacts virtually no material improvement in the lives of Palestinians and seriously undermines the University’s financial well-being.

Let’s first be very clear: Divesting from public companies involved in the repression of Palestinians, or any social ill, will not actually hurt those companies. A single institutional investor like Brown selling shares in a public company will not drive that company’s share prices down. Some other investor, perhaps one with fewer moral reservations, will immediately snap up those same shares. Furthermore, stocks are sold on the secondary market; when an investor purchases a company’s stock, the proceeds of that sale go to the current owner of that stock, not the company itself. As a result, forcing Brown’s endowment to sell off shares in highly profitable businesses, without inflicting any meaningful pressure on those businesses, amounts to pointless self-flagellation.

And the companies singled out by Brown Divest, like Motorola and Boeing, belong to profitable industries that generate attractive returns for shareholders. According to the MSCI World Aerospace and Defense Index, defense and aerospace corporations boast a 5-year annualized return of 14.13 percent, compared to the 6.53 percent return delivered by the whole global stock market. In general, “sin stocks”— shares of companies in industries like alcohol, gaming and tobacco — outperform their more wholesome peers by 2.5 percent per year. This may not sound like much, but as of June 30, 2018, close to $1 billion of the University’s endowment was invested in stocks. If the University has invested just $100 million of its portfolio in sin stocks, a foregone 2.5 percent return would mean forfeiting nearly $2.5 million dollars, enough to cover tuition, housing and other expenses for 33 students.

When it comes to preserving the University’s capacity to provide aid and fund academic and extracurricular programming, small differences in asset performance and portfolio diversification matter. The trade-off here is clear: Selling shares in profitable companies might make us feel better about ourselves and our moral footprint in the world, but it won’t make a meaningful difference to the targets of our activism, and it will meaningfully hurt low-income students relying on sustained endowment returns for financial aid.

Relatedly, the demand that the University be more transparent about its investments and allow students to monitor them is ill-conceived. First, the University’s professional investment managers should spend their time doing their jobs, evaluating fruitful opportunities and making investments, instead of gathering disparate information on the social and moral soundness of the thousands of companies in which the endowment is invested. Second, portfolio managers cautiously safeguard the specifics of their investments to maintain their competitive advantage over other investors also seeking profitable opportunities. If the University shared its investments publicly, competitors could easily replicate them, eroding the return potential for those opportunities.

Proponents of divestment might argue that even purely symbolic support for human rights outweighs a cold and calculating emphasis on Brown’s endowment performance. As I briefly mentioned earlier, however, healthy endowment returns are indispensable to the financial viability of the University: Last year, one-sixth of the University’s operating budget came from endowment returns.

Maximizing the endowment’s performance becomes all the more urgent in the context of broader macroeconomic forecasts. The Federal Reserve Bank of Cleveland estimates a 30 percent chance of recession in February 2020. During the previous recession, Brown’s endowment plummeted by 26.6 percent. Now is the time for the University to grow the endowment so that it can withstand an imminent downturn, not for students to call for measures that will compromise the endowment’s ability to support the University.

Activists often point to South Africa as a shining example of the efficacy of divestment campaigns. In the 1980s and early 1990s, college students across the world demanded that their universities divest from companies doing business in South Africa, and more than 150 institutions of higher education complied. By 1994, following years of student activism, international condemnation and grassroots political mobilization, the story goes, Nelson Mandela won the presidency of South Africa and state-sanctioned apartheid ended. But the facts of divestment do not match this neat narrative. Evidence suggests that pressure from shareholders and legislators seeking to bar investments in South African firms had little effect on the valuations of those firms and the country’s financial markets. There is, in fact, substantial debate about what precise role divestment played in shifting public opinion about South Africa.

Instead of assailing the University’s investments, Brown Divest could better advance its agenda by focusing on Rhode Island’s elected leaders, who have enthusiastically voted for increased aid and arms transfers to Israel. In 2016, R.I. Congressman David Cicilline ’83 introduced a bill that promotes cybersecurity cooperation between Israel and the United States and cosponsored a 2017 bill that would allow state and local governments to cease doing business with entities engaged in boycott, divestment and sanctions-related activities. (Neither bill has become law yet.)

In 2016, R.I. Congressman Jim Langevin sponsored the United States-Israel Advanced Research Partnership Act, now a law, that encourages coordinated homeland security and counterterrorism research. More recently, in early February, R.I. Senator Sheldon Whitehouse voted for a Senate measure that would bolster defense assistance to Israel, among other security initiatives. Changing the minds of Cicilline, Langevin and Whitehouse, in light of their voting records, should be the real objective of student activists critical of Israel. Even local legislators have jumped on the Israel bandwagon: In 2018, Rhode Island’s House of Representatives passed a resolution reaffirming the “bonds of friendship and cooperation which have existed between Rhode Island, the United States, and Israel for the past 70 years.”

My point here is not that divestment campaigns can never do good. In practice, though, they’re exceedingly costly, both for the potential performance of Brown’s endowment and for the students who must expend large sums of time and energy to advance them. Activists promoting divestment must squarely confront the strategy’s limitations as a means of reforming corporate behavior.

In reality, divestment works optimally in tandem with concrete demands for changes in policy. Given the avid fondness for Israel exhibited by Rhode Island’s congressional and local representatives, it makes vastly more sense for critics of Israel to devote their time and energy to changing the minds of legislators, not to reshaping Brown’s investment philosophy. Reformulating Brown’s portfolio will not fill Palestinian stomachs; it will not boost Palestinian wages; it will not spare innocent Palestinians from blockades, bulldozers and bullets. But it will hurt low-income, marginalized students dependent on endowment returns for financial aid and the University’s ability to carry out its educational mission.

Anuj Krishnamurthy ’19 has written this piece in a personal capacity, and his views do not represent those of the Elections Board of the Undergraduate Council of Students, of which he is a member. He can be reached at Please send responses to this opinion to and other op-eds to

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  1. “Reformulating Brown’s portfolio will not fill Palestinian stomachs; it will not boost Palestinian wages; it will not spare innocent Palestinians from blockades, bulldozers and bullets.”

    You forgot to mention: divestment will not help launch any rockets at Israeli civilians, it will not supply suicide belts to be strapped to retarded children, it will not pay a stipend to a suicide bomber’s family, it will not pay for the killing of gay Palestinians, it will not supply knives for stabbing attacks. So what good is it?

    • And it won’t stop the ethnic cleansing of Palestinians.

      • Out of where? Ethnic cleansing would mean a mass deportation of Arabs out of Israel. That isn’t happening.

        • Palestinians are distinct from Israeli Arabs, and you know that. Yet you wish to conflate the two.

          • I thought you were conflating the two, sorry. Because there certainly isn’t any ethnic cleansing of Palestinians out of the West Bank or Gaza. I didn’t think you meant something as obviously wrong as that.

  2. ToBeDetermined says:

    I think there is actually an important point made here that we, as a community, need to decide how much our morals are worth. To me 2.5 million dollars (the estimated yearly profit outlined in this article from so-called sin stocks) is not enough to make complicity in the murder, dehumanization, degradation, and forced displacement of an entire people worth it. I, myself, can think of no sum that would be worth that cost. To the authors credit this highlighted question is indeed the question at hand. It is with horror however that I’m faced with the blinding exceptionalism of the author. I hope that, as a whole, the Brown community doesn’t share the author’s notion that the tuition of 33 students at Brown is worth such complicity.

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