Two weeks ago, the Board of Trustees rejected SU Prison Divest’s September 2016 proposal for Stanford to divest from companies profiting from the US private prison industry.
The Board, which is responsible for overseeing Stanford’s $22 billion endowment, determined that divesting from companies tangentially related to the prison industry did not meet the standard that the Statement on Investment Responsibility sets for divestment — that of social injury as resulting directly from specific action or inaction by a company. The Board noted that Stanford does not currently invest in any companies that directly operate private prisons. Furthermore, it refused to divest from corporations that invest in private prisons but do not operate them, companies that benefit from labor performed by prisoners, and companies that provide support services to prisons.
In short, the university determined that it would be unreasonable and impractical to demand divestment from companies that were only tangentially related to the industry.
Despite this, a new student group, Students for the Liberation of All Peoples (SLAP), has taken on SU Prison Divest’s cause, unfurling a banner at the Homecoming football game calling for prison divestment and organizing for further action on the issue. This Tuesday, activists published an op-ed in the Daily opposing the Board and calling for divestment.
The article’s moralizing claims are rhetorically strong but devoid of substance. Divestment has absolutely no impact on the companies supposedly involved with private prisons, and instead threatens the financial stability of our endowment, which provides crucial benefits to students such as financial aid and funding of university operations. The symbolic effect of divestment is minimal, and if anything, it should be individuals, not institutions that take on protest of the prison industry.
For divestment to be successful, it must actually harm the company from which Stanford divests. But the economics are clear: divestment has no impact on either a company’s stock price or operations. The rationale for this is simple, even for the less financially-minded. An example: the current market price for a share in AT&T’s stock is 35 dollars. Suppose SLAP gets its way, and Stanford decides to divest from AT&T and sells its shares for 30 dollars. What happens then? An investor who doesn’t have ethical concerns will take up the bargain, buying the shares for 30 dollars apiece and then selling them for 35 dollars to one of the thousands of investors who do not share the same moral framework of the Board of Trustees. The market price stays the same, and the company is unaffected. For every socially-conscious investor, there are dozens of opportunists who impute no moral reasoning into their investment decisions.
Indeed, an entire industry has been built around “unethical” investments since they produce higher financial returns. Often called sin stocks, these investments outperform other stocks by 2.5% per year. The Barrier Fund is a mutual fund that invests exclusively in companies involved in the alcohol, tobacco, gambling or defense industries — it has beaten the S&P 500 by an average of two percentage points per year since 2002.
One only needs to look at Columbia University’s divestment from private prisons in 2015 for more specific evidence. Upon pressure from Columbia Prison Divest, the university divested from G4S, the world’s largest private security firm, and Corrections Corporation of America (CCA), the largest private prison company in the US. However, divestment had no impact on these companies. Columbia only held 220,000 shares of G4S stock--just 0.015% of G4S’ market cap. Similarly, CCA had a market cap of $4.01 billion at the time. Both firms remained highly profitable and continued to grow.
Thus, the op-ed is misleading us when it writes that the Board “institutionally perpetuates this system of violence, dehumanization and modern-day slavery that harms marginalized communities.” “Perpetuate” may be a catchy buzzword, but in reality, Stanford does not directly invest in a single prison operation company, and its decision to purchase a few stocks of companies that may indirectly support prisons has no material effect whatsoever on the success of private prisons. If activists' aim is to reduce these companies’ profitability by lowering their share prices, then they are severely misguided.
A stronger argument, however, can be made for the moral and symbolic effects of a university stance against the private prison industry and its purported supporters. The op-ed makes this argument, arguing that “with its investment, Stanford signals its belief that this violent racist system should continue to exist. Divestment is not a magic bullet, but it is a powerful tool to challenge the status quo of placing profits over people.”
Embedded in these statements is the assumption that the “technicalities” and “bureaucratic processes” that the op-ed criticized the Board for focusing on are less important than ending anything related to the prison industry.
Though divestment may clean the conscience of SLAP and other activist groups, ignoring these “technicalities” will hurt the material well-being of countless others. Divesting from the litany of companies tangentially-related to the prison industry would have deleterious effects on the growth of our endowment, which helps to provide the funding necessary for more generous financial aid programs and other initiatives that reduce the cost of tuition for students. In fact, the endowment alone comprises about 50% of funding for University financial aid at any given time, offsetting tuition for a majority of Stanford students. The endowment also funds university operations and pays part of faculty salaries, which means that students do not have to pay for these as a part of their tuition. Maintaining stable annual returns to allow for such generous student support is a difficult task. In the 2015-16 fiscal year, though the endowment grew 0.8%, it was ultimately not enough to support university operations after taking inflation into account.
Thus, though the language of “profiting off human suffering” may make for powerful moral sermonizing, it is a ridiculous characterization of Stanford’s endowment and the Board of Trustees. The Stanford Board of Trustees potentially invests in large companies like Bank of America and Wells Fargo not because they are racist and believe in the prison industrial complex, but because such companies generate good returns on investment that allow our endowment to grow. As Harvard President Drew Faust said in her statement against fossil fuel divestment, barring investments in major industries and companies would, “especially for a large endowment reliant on sophisticated investment techniques, pooled funds, and broad diversification — come at a substantial cost.”
Prioritizing morals can also create a cascading list of demands that know no end - environmentalists may object to oil drilling, vegetarians may oppose meat-packing, and socialists may oppose exploitation of workers. A university endowment, which provides Stanford with financial stability, need not and should not destroy itself to cater to the demands of only a few dozen campus protesters.
Prison divestment activists framed Stanford’s “financial support” for the private prison industry as a “choice.” However, if they truly want to reject complicity in the prison industry, they should be held to the same standards as the university. That means refusing to use Microsoft Word for homework or flying Boeing planes to get to school since both companies are supposedly prison labor beneficiaries, according to SU Prison Divest’s initial divestment proposal. Using such products, according to activists’ standards, would be “unconscionable.” However, the fact that no students would pursue such protest proves the internal contradictions of pro-divestment politics.
The private prison industry and broader prison industrial complex are vices to modern society. The Stanford community should be, and is already actively engaged in the national policy discussion surrounding reform of the criminal justice system. As the Board of Trustees noted, the Stanford Criminal Justice Center, Law School outreach through the Criminal Defense Clinic and Community Law Clinic, and student activities like the Prison Education Project do incredibly meaningful work surrounding prison reform. Time is invaluable when it comes to pursuing social justice, and SLAP and other activists should devote their own time to more useful things than pushing the university to divest from women’s underwear companies.