Examining divestment

As a young alumnus, I have a lot of sympathy for these efforts to apply “Princeton in the nation’s service” to University investment decisions. But I also worry about the legal and moral risks that these proposals raise.

The first risk is that the divestment proposals could be illegal. All philanthropic organizations have to specify in their charters a charitable purpose — some public service the organization provides that justifies the tax exemptions and other privileges it receives. (In Princeton’s original charter, this purpose was “the Education of Youth in the Learned Languages and in the Liberal Arts and Sciences”). That purpose, whatever it is, governs how a charity may use its resources. It’s a quid pro quo: In return for tax benefits, a charity promises to work for a specific public good.

Thus for example, if Princeton’s trustees decided one day that we would all be better off if the University sold the campus to developers and used the proceeds to save a patch of Amazonian rainforest, they would be in serious breach of their legal obligations. Saving the rainforest is a worthwhile cause, but it’s not the University’s charitable purpose.

That’s an easy case. Yet divestment raises the same basic legal problem. A charity may invest money for only one reason: to maximize the resources it has available for its charitable purpose. Investing for any other reason — even another charitable purpose — means that the charity will likely forego gains it could have used to further its core mission. It also means risking legal action. Universities accused of fiduciary duty breaches have faced lawsuits from alumni or donors to enforce the terms of the charter as well as investigation by the state attorney general’s office, which in most states, is the agency responsible for supervising charities.

If the University adopts the faculty divestment proposal, it would be allocating its resources out of a desire to help prevent gun violence, not to maximize investment returns for use in education. Preventing gun violence is a worthy motive that fits well with Princeton’s values — and one that I myself support. But it bears only an indirect relationship to the University’s charitable purpose of education and research. Therein lies the legal hazard.

This op-ed isn’t a legal brief. I have not read the contemporary version of Princeton’s charter, nor do I know what justifications the University asserted for past divestment decisions, most notably to sell stock in South African companies during apartheid. The law on social investing is further complicated by the fact that some state courts and legislatures have allowed certain kinds of divestment while others have not. In this case, only a New Jersey state court could give a definitive answer as to whether the current divestment proposals are legal or not. My goal here is merely to point out that the question is not as simple as it might seem at first glance.

In any case, underlying these legal issues is also a moral risk. There are a lot of deserving causes that the University could use its immense wealth to support, whether through investment or divestment. Many of them are at least tangentially related to education. But to pursue any of them would entail diverting resources — even if only a small amount — away from Princeton’s main reason for being. The more liberally we construe the University’s basic mission of teaching and learning, the more we risk siphoning off resources from that mission to support causes for which there is not the same broad social consensus either on or off campus. That is the central hazard of divestment decisions: the danger of hindering the mission we all agree on in order to further the social or political causes of a particular constituency. Do we have the mechanisms in place to make such decisions wisely? I’m not so sure.

William Sullivan is a 2009 graduate and a student at Yale Law School. He can be reached at william.sullivan@yale.edu.