Student activism is challenging university endowments : The Indicator from Planet Money College campuses nationwide are erupting with protests against Israel's war on Hamas in Gaza. A consistent theme among these actions: a call for university endowment "divestment."

Today, we unpack what that means and how divestment would work. Plus, we hear from an expert who explains why divestment might not have the effect that many believe.

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Protesters want schools to divest from Israel. How would that work?

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And I'm Darian Woods. This morning, another campus protest was broken up.


UNIDENTIFIED PERSON #1: Get back. Get back.

UNIDENTIFIED PERSON #2: Hold the line. Hold the line.

WOODS: Police in Los Angeles cleared out a pro-Palestinian encampment at UCLA, arresting hundreds of people demonstrating against Israel's war with Hamas in Gaza.

MA: And this is just one of the latest examples of a tension that's roiling campuses across the country. And while the places and details might vary, there's a consistent theme across all these protests. And that's a call for divestment.


UNIDENTIFIED PERSON #3: What do we want?


UNIDENTIFIED PERSON #3: When do we want it?


UNIDENTIFIED PERSON #3: And if we don't get it?

UNIDENTIFIED PEOPLE: Shut it down. Shut it down.

WOODS: Today, on the show, we unpack that term, divestment, what it means, how or even if it can work.

MA: And we hear from an expert who explains why divestment might not have the effect many believe.


WOODS: To learn about divestment, we need to talk first about investment.

MA: That's right. Many colleges and universities have big investment funds known as endowments. You might think of them as big piggy banks.

TODD ELY: There are a lot of misperceptions, I think, about endowments out there. And one is that they're just kind of a giant piggy bank. But they tend to be a lot more complicated.

WOODS: Adrian.

MA: OK, OK, scratch that analogy.

WOODS: (Laughter). Todd Ely teaches education finance at the University of Colorado Denver.

ELY: What an endowment really is, you know, at its basic level, is assets that are being invested - right? - to generate some stream of revenue.

WOODS: One important thing to note about the assets being invested here is that contrary to what you might have heard, several experts we spoke to said schools do not put students' tuition dollars into their endowments. Rather, endowments are actually funded by donations to the school, often from alums.

MA: And the goal of these endowments is to invest this money in such a way that it grows and grows. And every year, the school can skim off a few percent of those gains to help pay for things like professorships, building renovations and financial aid for students. In order to grow these endowments, schools invest in all kinds of things, from plain vanilla stocks and bonds to real estate, private equity and hedge funds. And so when protesters are calling for divestment, they're basically telling the people who control the endowments, usually the school's board of trustees, hey, we want you to sell off some of these investments.

WOODS: And that's what we've seen with the recent student protests, although what protesters mean by divestment varies from school to school. For example, protesters at Columbia want the school to divest from companies they accuse of profiting off Israel's military campaign. And they specifically called for divesting from companies such as Google and Amazon because they have contracts with the Israeli government.

MA: Meanwhile, students at Stanford want their school to divest from companies such as Chevron and Hewlett-Packard, which have operations in Israel, and you have protesters at the University of Texas at Austin calling for divestment from weapons manufacturers that supply Israel.

WOODS: Of course, calls for divestment are not new to college campuses. So in recent years, students have found success convincing some schools to divest from fossil fuel companies. But when it comes to divesting from companies with ties to Israel, NYU finance professor David Yermack says things get more complicated.

DAVID YERMACK: Israel is so integrated into the world economy that I think it would be very hard to find any prominent company that didn't have business in Israel.

MA: Though, David says when investment demands are narrowed down to specific companies, that might be easier to achieve.

WOODS: But when we're talking about endowments, colleges don't just invest in individual companies' stocks. In fact, direct investment in stocks has actually declined in recent years.

YERMACK: They own hedge funds, private equity, what are broadly called alternative investments.

MA: This has been a growing trend for university endowments over the past few decades. And what it means is a lot of decisions about what goes in and out of a school's portfolio are actually made by third parties - outside investment managers.

YERMACK: If you invest in a hedge fund, for instance, you really don't know day-to-day what that hedge fund owns or what the private equity funds own. And so you'd have to reach down many layers to ask questions about something that is changing sometimes on a daily basis.

WOODS: Another potential challenge to divestment is that a lot of the money in endowments is actually broken up into smaller funds, which come with donor restrictions. And that also limits the school's ability to tinker with it.

MA: So those are some of the practical obstacles standing in the way of divestment. But let's just put that aside for a second and assume that some protesters successfully convince their schools to divest from certain companies. How effective might that be in accomplishing the larger goal of these protests? For instance, a permanent cease-fire.

We put that question to Witold Henisz. He's a professor at the University of Pennsylvania who studied how social movements and shareholder activism affect companies. And he says if a divestment campaign is simply about taking a moral stance or raising awareness around an issue, it can be effective.

WITOLD HENISZ: Divestment can be part of constructing a broader social and political movement. Maybe the protests build pressure against politicians, for voters, for a wide range of companies, not just those targeted by divestment, and they change the way we think about an issue.

WOODS: But if the goal is to directly pressure companies and sometimes then governments into changing their behavior, Witold says research on divestment campaigns from the past few decades suggests they can actually be counterproductive.

HENISZ: Imagine you care really deeply about something a company is doing and you want the company to change. If you sell your shares or if you force someone to sell their shares who cares about the issue, by definition, the person who buys the shares, the person who's on the other end of the transaction cares less.

WOODS: Witold says this applies even to those fossil fuel divestment campaigns we mentioned earlier.

HENISZ: If the university and many other institutions who cared about the climate transition sold their shares, who would buy it? Who would buy the shares? Maybe the Saudi government or maybe the Russian government or maybe the Koch Brothers. Should we feel better about that?

MA: By contrast, Witold says being a shareholder gives you a seat at the table. And he cites this example of an activist investment firm called Engine No. 1. A few years ago, Engine No. 1 held about $40 million worth of shares in the oil company ExxonMobil, and it wanted Exxon to take climate change more seriously. And even though the company resisted, this activist firm used its seat at the table to agitate for change within the company and actually got three board members installed that pledged to reduce the company's carbon footprint.

HENISZ: And that's what the research shows, that you have much more power holding the shares and exhibiting voice than exiting, than selling the shares.

WOODS: Still, David from NYU says schools have a pretty narrow history as shareholder activists.

YERMACK: I think it's complicated by the fact that many of the CEOs are alumni. And many of the bankers and asset managers who they recruit to help run the portfolio they're not only alumni but often donors themselves. And so universities have to tread very carefully because in the long run, they're looking for alumni support to sustain the finances of the institution over generations.

WOODS: So protesters pushing for divestment face a lot of hurdles. But what about the success stories? What about one of the most well-known examples, the divestment campaign in the 1970s and '80s against South African apartheid? Around the globe, protesters called for schools to divest from companies doing business in the country. And although it took years, many schools eventually did. And this is often talked about as a major reason why South Africa's apartheid government lost support and was later dismantled.

MA: But Witold says the research around this divestment campaign actually tells a more complicated story.

HENISZ: The divestment campaign was not really the centerpiece of the story. It was shifts in opinion by some of the South African business leaders seeing which way their country was headed, the risk of violence, the risk of revolution. Business leaders, in particular, saw the need for change, and divestment was one of many, many signals but not that influential in and of itself.

MA: The push for divestment, though, was influential in getting the world's attention, and that is definitely what protesters across college campuses are doing right now.


MA: This episode was produced by Cooper Katz McKim, with engineering by Robert Rodriguez. It was fact-checked by Sierra Juarez. Kate Concannon edits the show, and THE INDICATOR's a production of NPR.


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