April 10, 2000

Committee recommends divestiture of tobacco-related stocks

ANN ARBOR—The University of Michigan should divest itself of stock it holds in tobacco manufacturing companies, concludes a report from the Ad Hoc Advisory Committee on Tobacco Investments.

The eight-member committee, formed in September 1999, unanimously recommends that the U-M Regents approve a resolution that will direct Robert Kasdin, executive vice president and chief financial officer, to "sell all of the University's currently owned shares of stock (and not to purchase any new shares) in companies that, either themselves or through their subsidiaries, manufacture significant quantities of cigarettes or other tobacco products."

Charged by Kasdin to "consider whether the holding of such securities is antithetical to the core missions of the University of Michigan and, therefore, merit divestiture," the committee reached its conclusions in less than six months. The committee noted that divestiture of tobacco interests held by the University should be completed within a year.

Kasdin said the committee's recommendations will be presented to the Regents at their May 18-19 meeting. A special session of public comments will be held at 9:30 a.m. May 19 for members of the community to share their opinions with the board. (NOTE: The public comment session was subsequently postponed to June 15.)

Speakers can sign up for public comments by visiting the Web at http://www.umich.edu/~regents/publformb.html or sending e-mail to public.comments@umich.edu. Those who wish to direct comments to Regents without registering to speak at the public forum may also send e-mail to public.comments@umich.edu.

In discussing the issues, committee members held an open meeting so that the University community had an opportunity to be heard. They also read approximately 200 e-mail messages expressing views on the subject. In both the public and electronic forums, the report noted, an overwhelming majority favored divestment and concluded that ownership of tobacco manufacturers' stock was antithetical to the core mission of the University.

While support for divestiture was clear in the responses received, the decision of the committee was by no means a clear and easy path, noted the report. Endowment investments generally should be based solely on financial factors such as risk and return, according to University policy, and activities of any company are not a relevant concern in that investment.

However, in 1978 the University broke from that rule, finding the South African situation to be an exceptional case. The Regents ultimately decided to divest from companies doing business in South Africa, noting that the "system of apartheid and the oppressive practices of the Government of the Republic of South Africa are immoral and unconscionable."

The committee spent some of its time reviewing documents that arose from that issue. It also studied reports from several other universities that had dealt with issues of socially responsible investing, read materials from the Centers for Disease Control and Prevention (CDC) regarding the health effects of tobacco use, studied summaries of internal tobacco industry documents, and examined various materials from the Investor Responsibility Research Center (IRRC).

In the committee's studies, two questions became most important in reaching a decision. First, what was it about tobacco and the tobacco companies that might warrant singling them out for divestment? Second, is the ownership of tobacco securities really antithetical to the core mission of the University to the extent that divestiture is warranted?

The committee researched the questions at length, concluding that tobacco is a significant and well-documented health risk, not only to the smoker but also to others, and that it is addictive. Further, the committee found that tobacco is made attractive to young people by tobacco companies; that tobacco companies have denied the health risk even when internal documents showed they had proof of the risk and addiction; and that the companies would not publicly admit the dangers that are associated with smoking.

In answering the second question, the committee debated first whether the attributes of the products themselves and the activities of the industry were antithetical to the core missions of the University. It concluded that both tobacco and the tobacco companies' activities are antithetical to the University's missions of research, teaching and service. "The brazen dishonesty of the tobacco industry for so many years about a matter of such enormous public health significance is, in the view of this committee, unquestionably antithetical to the core missions of the University."

However, the committee had more trouble with whether the ownership of tobacco stocks in itself was antithetical to the core missions of the University, especially to the extent that it would call for divestment. It concluded that both the magnitude of the misbehavior of the companies involved and the gravity of the public health issue of tobacco use warranted the action.

Reaching its unanimous conclusion to recommend divestiture, the committee also noted that tobacco securities make up only a small portion of the common stock managers' portfolio value, but did not consider the small percentages to be a factor one way or the other in its decision.

The committee recommends that the University, in divesting itself of tobacco-related funds, follow the IRRC's most recent list of tobacco product manufacturers.

Committee members are Kyle D. Logue, chair, professor of law; Kathryn Dominguez, associate professor of public policy; Paul Lichter, chair, Department of Ophthalmology and Visual Sciences; student Heidi Lubin, senior, history; Judith Pitney, executive director of budget and planning, College of Engineering; Helmut Stern, president, Arcanum Corp.; Kevin Toh, graduate student, philosophy; and Kenneth Warner, the Richard D. Remington Collegiate Professor of Public Health, School of Public Health, and director, U-M Tobacco Research Network.

Contact: Julie Peterson
Phone: (734) 763-5800
E-mail: juliep@umich.edu