Is Divestment Legal?

My first commenter (thanks Brandon!) brought up an important point about whether or not divestment activities directed at Israel might be prosecutable under federal anti-boycott law.
Just as background, the Arab League (which boycotted Jewish businesses in what is now Israel starting in the 1920s) created a formal boycott office (created and still located in Damascus) in 1946. This office originally coordinated a primary boycott (the Arab states refusing to do business with Israel). But soon this grew into a secondary boycott (refusing to do business with companies in other countries who do business with Israel) and a tertiary boycott (requiring companies who want business in the Middle East to certify that they do not have clients, suppliers or partners either located in or doing business in the Jewish state).

These secondary and tertiary boycotts (which effectively gave foreign governments veto power over what American businesses could and could not do) eventually made this an issue for the US government which passed anti-boycott legislation in the 1970s. During the Carter administration (believe it or not) the Justice Department hit businesses which formally complied with the Arab boycott office with heavy fines. Threat of further prosecution, associated bad publicity, and the courageous stand of some companies who publically defied and denounced the boycott dramatically diluted it’s effectiveness (as did the Oslo Accords – at least temporarily). While some companies (especially in Europe) still avoid the small Israeli market to assuage the larger Arab one, anti-Israel boycotts has been off the agenda of US companies for many decades.

The question is whether or not divestment constitutes taking part in the illegal Arab League boycott of Israel. Fred Taub at the Web site DivestmentWatch makes a case that it does, but point of fact we don’t know because no one has actually divested, an action required to trigger a lawsuit or US Justice Department investigation. While it’s obviously a good thing that divestment has failed time and time again, if some institution is ever dumb enough to pull the divestment trigger, it would be intriguing to see where a suit or investigation would go. Fred’s research seems to indicate that such a prosecution would require proof that linked divestment proponents to national Middle East boycotters, a relationship divestment groups vehemently deny, but one that has never been thoroughly investigated or researched.

At the very least, this demonstrates one other unsavory aspect of those who are trying to convince, force or trick universities, cities, churches and unions into joining the divestment bandwagon. Because, at the end of the day, it will be those institutions (not divestment activists) that would face prosecution in the event that divestment is judged to fall under American anti-boycott law. At the very least, these groups should alert school and other officials of this risk they might be taking by following the divestment crowd’s advice. But that assumes the divest-niks actually care about the institutions they are trying to manipulate, rather than just using them (and potentially placing them in jeopardy) for their own narrow political ends.

Hampshire

Divestment has always been more about symbolism than economics. After all, boycotting a company or country can have a direct impact on the top (and thus the bottom) line. But you can only divest in a company by selling your shares of its stock, which requires someone to buy them. And unless the world knows WHY you have sold a particular stock, your choice becomes just one more “sell” decision taken by investors millions of times a day for millions of undisclosed reasons.

This is why divestment campaigns are all about getting prominent institutions (such as universities, cities, churches and unions) to make divestment decisions, no matter how minimal in economic terms, tied to public declarations that these actions are specifically about Israel or the Israeli-Arab conflict. After all, a student organization calling for boycott, divestment and sanction (BDS) against Israel is just part of ongoing campus political noise. But Harvard University or the Presbyterian Church tying its name to a divestment call packs political power, allowing anti-Israel groups to punch way above their weight by leveraging the reputation of someone else.

But what happens when an institution refuses to play along? You then end up with strange cases like the recent divestment brouhaha at Hampshire College.

Hampshire, a small, progressive liberal arts college in Western Massachusetts, has one of the smallest endowments in the country. But it stands as a symbol having been the first college to publically divest that small endowment from companies doing business in South Africa in the 1980s. Hampshire as a symbolic prize meant that divestment activists, in the form of a student group called Students for Justice in Palestine (SJP), kept up its divestment crusade years after divestment had moved on at most other schools.

College administrators were respectful and polite to SJP, even if they made it clear they had no intention of joining SJP in denouncing the Jewish state as the next South Africa. But during the course of an outside consultant’s review of school investment holdings, Hampshire decided to sell shares in a particular fund identified as invested in companies that did not meet the school’s ethical investment guidelines (policies that included support for unions, and statements on issues such as Sudan/Darfur, but no stance regarding Israel). SJP, which had asked the school to divest in companies doing business with Israel (some of which turned out to be in the fund selected by Hampshire’s outside consultant), quickly declared victory, announcing to the world that Hampshire had become the first US college to openly divest from the Jewish state.

Given the importance of this alleged “victory,” it was curious why SJP made these public pronouncements on its own, rather than standing alongside college administrators and investment managers to announce this supposedly historic decision. The reason for SJP’s independent action quickly became clear when the administration announced that its investment decisions had nothing to do with Israel or the Middle East, and that SJP was deliberately misleading the public for its own political ends.

This confusion continued for several weeks as Hampshire College administrators tried to have it both ways, allowing the student group to declare victory while assuring the press and alumni that the school had not divested. Much is made of Alan Dershowitz’s call for a boycott of donations to Hampshire (where Dershowitz’s son attended), but in fact the prominent Harvard attorney only clarified that the school could not straddle this issue, leading Hampshire President Hexter to declare in no uncertain terms that (1) the school had not divested in Israel; (2) the school maintained investments in the very companies SJP claimed were being boycotted and would continue to invest in them in the future; and (3) that SJP was inappropriately speaking on behalf of the college, unacceptable behavior that could have consequences for the student group.

By then, SJP had already sent out press releases and public statements saying Hampshire had done what it clearly had not, taking advantage of the administration’s initial lack of clarity to encourage similar decisions at other schools. While they eventually modified their statements, moving from unequivocally declaring Hampshire was on their side to saying that SJP simply believed this to be the case (despite administration denials) with all their hearts.

On the one hand, this campaign of deception was successful with Hampshire continuing to be held aloft as an example for other institutions to join Boycott, Divestment and Sanction (BDS) campaigns against Israel. At the same time, the behavior of SJP has put other schools on notice that being polite and respectful to student groups calling for divestment reviews caries a risk since these groups have proven themselves willing to do and say anything (including manipulating institutions and deceiving the public, regardless of the cost to a university) to gain their own political ends.

While the recent Hampshire fiasco offered groups like SJP a temporary perceived victory, it may have also spelled defeat for any other similar divestment project in the future by broadcasting a warning regarding the excesses and dishonesty of divestment’s promoters. Having seen the results of Hampshire falling for divestment’s bait-and-switch, what are the chances that other colleges will fall into the same trap?

Academic Divestment Campaigns

As described in this (admittedly longish) backgrounder, the divest-from-Israel crowd got its first major ink in 2003-2004 when a petition signed by 1400+ students and professors at Harvard and MIT was picked up by the media as the beginning of a major anti-Israel divestment “movement” on college campuses. Given our current interactive-media age (which tends to mix up cause and effect), the publicity the Harvard-MIT petition generated stimulated similar campaigns on other campuses which the media wrapped into a single unstoppable program.

Student groups which coalesced around the divestment tactic were able to take advantage of what we call in the private sector a “low barrier of entry.” With free online petition software and the “new media” era of blogs and social networks emerging, it literally cost them nothing to start a petition-driven divestment campaign on any college campus where – as a friend once stated – you could get 200 signatures on a petition calling for the repeal of the law of gravity.

The trouble was that once these projects got started, the celebratory rhetoric of divestment campaigners (designed to create a sense of momentum which could propel a discussion of divestment to other institutions) needed to produce results. And, unfortunately for divestniks, the people making financial decisions at every university were not undergraduates, or graduate students, or tenured faculty, but grown-ups: college administrators and financial managers who had fiduciary responsibility to their institutions and enough common sense to not make sweeping financial decisions based on the latest political fad.

In truth, by the time then Harvard President Lawrence Summers took the podium at the University to denounce divest-from-Israel campaigns as “anti-Semitic in their effect, if not their intent,” the air was already coming out of the balloon for divest-from-Israel campaigns. A counter-petition at Harvard generated over 10,000 signatures from people deploring divestment proposals, and to this date not one school has divested from a single stock from a company doing business in the Jewish state.

Given this poor track record, why are divestment projects heating up again on college campuses? Partly, it’s that “low barrier of entry” issue noted above, and partly it’s because these are tactics that have succeeded in generating publicity (albeit with no associated political impact) in the past. The fact that these campaigns are based on fantasy (as in Hampshire College, to topic of my next entry) or threats and intimidation (as in Europe) only points out that even acts of political impotence can be highly annoying, especially for those institutions who find themselves caught in the divestment cross-hairs.

Academic Divestment Campaigns

As described in this (admittedly longish) backgrounder, the divest-from-Israel crowd got its first major ink in 2003-2004 when a petition signed by 1400+ students and professors at Harvard and MIT was picked up by the media as the beginning of a major anti-Israel divestment “movement” on college campuses. Given our current interactive-media age (which tends to mix up cause and effect), the publicity the Harvard-MIT petition generated stimulated similar campaigns on other campuses which the media wrapped into a single unstoppable program.

Student groups which coalesced around the divestment tactic were able to take advantage of what we call in the private sector a “low barrier of entry.” With free online petition software and the “new media” era of blogs and social networks emerging, it literally cost them nothing to start a petition-driven divestment campaign on any college campus where – as a friend once stated – you could get 200 signatures on a petition calling for the repeal of the law of gravity.

The trouble was that once these projects got started, the celebratory rhetoric of divestment campaigners (designed to create a sense of momentum which could propel a discussion of divestment to other institutions) needed to produce results. And, unfortunately for divestniks, the people making financial decisions at every university were not undergraduates, or graduate students, or tenured faculty, but grown-ups: college administrators and financial managers who had fiduciary responsibility to their institutions and enough common sense to not make sweeping financial decisions based on the latest political fad.

In truth, by the time then Harvard President Lawrence Summers took the podium at the University to denounce divest-from-Israel campaigns as “anti-Semitic in their effect, if not their intent,” the air was already coming out of the balloon for divest-from-Israel campaigns. A counter-petition at Harvard generated over 10,000 signatures from people deploring divestment proposals, and to this date not one school has divested from a single stock from a company doing business in the Jewish state.

Given this poor track record, why are divestment projects heating up again on college campuses? Partly, it’s that “low barrier of entry” issue noted above, and partly it’s because these are tactics that have succeeded in generating publicity (albeit with no associated political impact) in the past. The fact that these campaigns are based on fantasy (as in Hampshire College, to topic of my next entry) or threats and intimidation (as in Europe) only points out that even acts of political impotence can be highly annoying, especially for those institutions who find themselves caught in the divestment cross-hairs.

Getting Started

Word has it that the odd crowd of Israel-dislikers who tend to perpetually form groups that contain the words “Peace” and “Justice” in their titles has decided to strap electrodes onto the neck bolts of divestment one more time, not realizing that even Frankenstein’s Monster has a shelf life.

To date, these efforts have amounted to students holding press conferences at Hampshire College to announce that the school has divested from Israel when it hasn’t, and other students barricading themselves into the cafeteria at NYU until forced out by school security (and personal hygiene).

As these examples attest, divestment advocates have had a pretty tough time of it since 2004 when divestment was riding high in the Presbyterian, Methodist and other Mainline Protestant churches, and divest-from-Israel campaigns were cropping up in universities, municipalities and unions across the country. Today, the “movement” is pretty much in ruins. Again and again, the churches have voted down divestment by overwhelming majorities, and not one school or city has sold a single share of stock related to the Jewish state.

Still, it is clear that the guys and gals intent on beating this dead horse have no intention of giving up, and the tactics they are choosing (such as building take-overs, which follow similar activities on UK college campuses last year) are getting aggressive and louder. What better time, then, to bring some background, perspective and (I hope) insight and humor into what might unfold on campuses this year with regard to the divestment issue.