Thursday, July 5, 2012

PCUSA Divestment: anti-semitism, bad economics and politics, and a breach of fiduciary duty

H/T to Jon at Divest this, for pointing out this essay.

Stephen Bainbridge is the William D. Warren Distinguished Professor of Law at the UCLA School of Law in Los Angeles, where he currently teaches Business Associations, Advanced Corporation Law and a seminar on corporate governance. In past years, he has also taught Corporate Finance, Securities Regulation, Mergers and Acquisitions, and Unincorporated Business Associations. Professor Bainbridge previously taught at the University of Illinois Law School (1988-1996). He has also taught at Harvard Law School as the Joseph Flom Visiting Professor of Law and Business (2000-2001), La Trobe University in Melbourne (2005 and 2007) and at Aoyama Gakuin University in Tokyo (1999).

From his essay: Here we go again: PCUSA considering Israel divestment: Anti-semitic, bad economics and politics, and a breach of fiduciary duty

Once again, the Presbyterian Church (USA) is considering divesting from certain companies that do business with the Israeli government. As I explained the last time the church went down this road, it's a bad, anti-semitic idea:
Let's start with a basic question: Will the PC(USA)'s decision "work"? In other words, do divestment campaigns tend to achieve their proponent's goals? The clear answer from the empirical literature is "no."

A London Business School Institute of Finance and Accounting working paper called "The Effect Of Socially Activist Investment Policies On The Financial Markets: Evidence From The South African Boycott concluded:

"We find that the announcement of legislative/shareholder pressure of voluntary divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the public significance of the boycott and the multitude of divesting companies, financial markets seem to have perceived the boycott to be merely a 'sideshow...'"

In sum, divestment may make activists feel all warm and fuzzy, but the evidence is that
(1) it has no significant effect on the target of the divestment campaign but
(2) likely does harm the activists' portfolios...

As for whether the divestment proposal is anti-semitic, I use a standard proposed by Jay Lefkowitz:

A more nuanced standard, and one that properly recognizes that legitimate criticism of Israel is perfectly appropriate, was articulated last year by Natan Sharansky. A member of the Israeli cabinet who for years had been a prisoner of conscience in the Soviet gulag, Mr. Sharansky defined one current expression of anti- Semitism by three features: the application of double standards to Israel, the demonization of Israel and the delegitimization of Israel.
Applying it back in 2004 to the last time the PC(USA) got into the divestment game, Lefkowitz made a persuasive case that the Presbyterian divestment plan was anti-Semitic:

The recent action by the Presbyterian Church sadly satisfies Mr. Sharansky's test. The church has singled out Israel, alone among all the nations of the world, for divestment. It has demonized Israel's treatment of the Palestinians, and it has delegitimized Israel's right to self- defense...

Nothing's changed in the meanwhile to change that conclusion. If the PC(USA) in its finite wisdom (that's not a typo--as a collective, the PC(USA)'s wisdom is not just finite, it is minuscule) decides to go forward, it will once again be committing anti-semitism, bad economics and politics, and a breach of fiduciary duty simultaneously. That's quite a hat trick.

Read this important essay in its entirety here

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