Although hundreds of U.S. corporations do business in South Africa, U.S. corporate investment there represents a small fraction of both U.S. corporate assets and the South African economy. It is thus not clear that South African divestment would have a material impact on South African policies or would benefit black South Africans.
The real issues for pension fund trustees are how divestment affects investment portfolios and the discharge of fiduciary duty. Statistical analysis confirms common sense: Divestment leads to the concentration of investment portfolios and introduces a risk of failing to earn the rate of return on an unconstrained portfolio. Divestment increases the cost of administering an investment program, too.
To pursue a policy of divestment with fiduciary funds is to ignore the “exclusive purpose” and diversification mandates of trust stewardship. Trustees may be held personally liable for additional costs and investment losses arising from divestment actions.
Although trustees make the decision to divest, investment managers are the ones who generally implement it. Inasmuch as divestment could hurt portfolio performance, it poses an ethical dilemma for investment professionals, who must choose whether to comply with or resist divestment directives.
