Trustees approve new standard and process for divestment consideration

On Jan. 29, the Cornell University Board of Trustees approved a standard that will guide its decisions on divesting university funds for socially responsible reasons.

The new standard establishes that the board will consider divesting its endowment assets from a company only when the company’s actions or inactions are “morally reprehensible,” constituting apartheid, genocide, human trafficking, slavery or systemic cruelty to children, including violation of child labor laws. The board also agreed on a process for review of divestment recommendations.

Many activities that cause social harm do not descend to the level of moral reprehensibility, said Robert Harrison ’76, chairman of the board. “Other avenues besides divestiture may be more effective and not merely symbolic,” he said. These include research; educational initiatives; actions taken by the university to address the issue on campus – for example, in the fossil fuel debate, Cornell’s sustainability initiatives such as LEED certification, Lake Source Cooling and carbon neutral building, among others; and faculty and students providing professional and scholarly consultation to regulatory agencies or corporations, he said.

The board’s vote on the standard and process was prompted by an October 2015 board of trustee discussion, at which David Shalloway, the Greater Philadelphia Professor in the Department of Molecular Biology and Genetics, representing the university’s governance groups (the Faculty Senate and the Employee, Graduate and Professional Student, Student and University assemblies), asked the board to divest from the top 100 oil companies over the next 20 years. The board said it was not ready to vote on the request but asked the Executive Committee to review peer institutions’ investment and divestment policies and to bring recommendations to a meeting of the full board in January.

On Jan. 29, the board applied the new standard and process, and voted to refrain from divesting from fossil fuels.

“Cornell’s overriding responsibility is to maintain itself as a neutral forum for analysis, debate and the search for truth,” said Donald Opatrny ’74, chair of the board’s Investment Committee. “The university’s endowment must not be regarded primarily as an instrument of political or social power; its principal purpose is to provide income for the advancement of the university’s educational objectives.”

However, the university is prepared to express censure in certain cases, said Joanne DeStefano, Cornell’s executive vice president and chief financial officer. “In extraordinary circumstances, the trustees may determine that direct financial investment in particular companies associates Cornell with actions or inactions that violate the university’s most deeply held values and, therefore, should be avoided, regardless of potential financial return,” she said.

For example, in 2006, Cornell divested from obligations in Sudan, i.e., bonds of the Sudanese government and stocks of oil companies operating there, as a result of its illegal and morally reprehensible engagement in genocide.

The new standard states the board will consider divestment only when:

  • A company’s actions or inactions are “morally reprehensible,” and
  • The divestiture will likely have a meaningful impact toward correcting the specified harm and will not result in disproportionate offsetting societal consequences; or
  • The company contributes to harm so grave that it would be inconsistent with the goals and principles of the university.

The processes for how the board will consider divestment recommendations are as follows:

Without a resolution from an assembly or the Faculty Senate:

  • The Executive Committee, with input from the Investment Committee and the president, deliberates on whether the divestment criteria are met, then makes a recommendation to the full board;
  • The full board votes whether to divest. This decision is final.

With a resolution from an assembly and/or the Faculty Senate:

  • The resolution is submitted to the president, with reasoning that clearly documents the nature and magnitude of the company’s policies or practices that allegedly cause substantial harm;
  • The process will proceed only if the president agrees with the resolution, or if the resolution is passed by all five constituent governance groups (with or without the president’s agreement);
  • If the resolution proceeds, it is submitted to the board’s Executive and Investment committees, and the full board is notified;
  • The Executive Committee, with input from the Investment Committee and the president, deliberates on whether the criteria for divestment are met and makes a recommendation to the full board;
  • The full board votes whether to divest. This decision is final.

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John Carberry