Divestment is closely related to the concept of divestiture. In fact, the two terms can be—and often are—used interchangeably. For purposes of this essay, however, the term "divestment" is used to describe actions taken to encourage or effect the dissolution of business enterprises owned by multinational corporations in foreign countries, particularly where those foreign countries operate under repressive regimes.

Divestment as a social demand may be traced as far back in history as the quasi-governmental British East India Company, which facilitated the trade of Indian opium into China during the 18th and 19th centuries as a way of offsetting a persistent British trade deficit with China. No less a figure than Queen Victoria (1819-1902) led demands that British commercial groups cease all trade in the addictive drug, due to the vicious hardship and misery opium consumption caused the Chinese.

Such demands made on social or moral grounds are directly related to the degree of freedom in a society. Opposition of this kind flourished in democracies such as Great Britain, France, the Netherlands, and the United States during the early 20th century.

By the 1960s, the onus of action was shifted from governments to individual corporations. An excellent example is provided by the involvement of American corporations in South Africa. The South African government was dominated by a minority of whites who used laws to disenfranchise the black majority under a policy of strict racial separation known as apartheid. Apartheid, which placed limits on personal mobility and ownership among other things, enriched the white minority at the expense of the black majority.

Groups within American society, particularly on college campuses, called upon American corporations to suspend or abandon commercial activity in South Africa as a way of pressuring social change in that country through economic pressure. Specifically, they called for corporations to divest South African operations entirely. These demands were based on the assertion that engagement in South Africa aided the white minority regime and its racial policies.

Companies whose South African operations were profitable generally resisted calls for divestment on the grounds that they were using engagement as a means to influence change in South Africa. While there is evidence that this engagement did have that effect, it is also true that engagement helped to perpetuate the status quo by providing the economy with additional capital and the government with tax revenue.

Opponents of engagement in South Africa mounted numerous campaigns to pressure corporations toward divestment. Some groups implored investors, including pension funds and banks, to sell their shares in companies involved in South Africa. Others adopted exactly the opposite strategy, using the rights associated with share ownership to query management, disrupt shareholder meetings, and sponsor shareholder resolutions. Another strategy involved calls for worldwide boycotts of all products produced by companies involved in South Africa, coupled with damaging publicity campaigns.

Divestment, as a component of more general economic sanctions, was widely embraced by the South African opposition, led by Nelson Mandela (1918-). These sanctions caused economic difficulties in South Africa that led to a political backlash of the non-Boer white minority. This resulted in new government leadership that instituted policy changes that led to the abolition of racist laws.

Following the purposeful divestment of securities of firms doing business in South Africa in the late 1970s and 1980s, socially responsible investing (SRI) became a widespread movement embracing issues such as the environment, tobacco, violence, animal rights, and other areas. Funds managed by professional and nonprofit associations, boards of education, and other groups began to divest their holdings in companies that did not meet their criteria of social responsibility. Socially responsible mutual funds began to emerge as part of the SRI movement, and after underperforming the Standard & Poor's 500 at first, they began to show improved rates of return.

Many criteria have been used to select socially responsible companies for investment purposes. Investment firms and computer programs offer services to match companies to a specific investment profile based on a client's social criteria. As of 1997 an estimated $1.2 trillion, or 10 percent, of institutional investments in the United States were invested using some type of social screen.

SEE ALSO : Corporate Divestiture

[ John Simley ,

updated by David P. Bianco ]


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Also read article about Divestment from Wikipedia

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