Understanding Divestment

Divestment in legal terms means to strip one's investment from entity. Whereas in financial and economic terms it is also called as divestiture. This means the reduction of one's asset to meet social or financial goals. In the layman language we can also call it as the opposite of investment.
Divestment for Financial Goals

The sale of an asset for financial goals could be more appropriately termed as corporate strategy. Here the company gets into the procedure to sell its business unit. Thereby, it invests or focuses on much more promising and profitable venture in the market. This change in the corporate strategy of a firm, by opting for this arrangement, to focus on a particular subsidiary of their core business is called as divestiture for financial goals. This option generally occurs as the spin-off of the existing business, which means to form a new organization or entity from the larger one. The best examples for such spin-offs are television series based on the pre-existing ones or as a new company formed from a university research group. This term can also be said as sub-series. The other instances which give birth to divestiture for financial goals are before the approval of merger by the Federal Trade Commission. A company can divest its assets to wholly owned subsidiaries.

Here we can take the example of the largest, and likely most-famous, corporate divestiture in history which was the 1984 US Department of Justice-mandated breakup of the Bell System into AT&T and the seven Baby Bells.

Divestment for Social Goals

This term refers to the political or social policy that adhere the investors from reducing their investment in firms, industries or countries.

The most prominent examples that reflect divestiture for social goals are:

- The withdrawal of American firms from South Africa during the 1980s due to Apartheid.

- Discussion over whether it is ethical to invest in companies that sell tobacco.

- The recent selling or commitment to non-purchase of assets implicated in funding the government of Sudan, in acknowledgement of acts of genocide perpetrated in the Darfur conflict. This divestment has taken place both at the state level (including Illinois, New Jersey, Oregon, and Maine) and at many American Universities, notably Harvard University, Stanford University, Dartmouth College, Amherst College, Yale University, Brown University, the University of California, the University of Pennsylvania, and Brandeis University. The Sudan Divestment Task Force has organized a nationwide group which advocates a targeted divestment policy, to minimize any negative effects on Sudanese civilians while still placing financial pressure on the government.

The drawbacks and criticism faced by this agreement to divest for social goals are because of a group of activists who hold the opinion that divestment campaigns are based on a fundamental misunderstanding of how equity markets work. Here John Silber, former president of Boston University, has reached to the conclusion after extensive observation. He has stated that "once a stock issue has been made, the corporation doesn't care whether you sell it, burn it, or anything else, because they've already got all the money they're ever going to get from that stock. So they don't care." Therefore boycotting a company's product could badly affect the business.

Many widespread protests and agitations took fast trend in some cases like;

Presbyterians try to mend the Jewish ties- The Presbyterian Church (U.S.A.), under fire from Jewish groups for its funding of messianic Jewish congregations and a move to divest from Israel, is appealing to members of both faiths to respect whatever "fragility of trust" still exists between them.
On the 27th of April 2005, The Rawalpindi-Islamabad Citizens Peace Committee of Pakistan had called for a total boycott of US and British products to protest declaring war on weak nations. Their release cites: "The local chains pay their American principals a royalty of 5 % on each sale for using their brand names. It is this 5 % that goes to bloat the coffers of the US corporations most of whom are major contributors to the state of Israel. Thus, consuming American fast food goes to strengthen the US and Israeli armed forces, US aggression worldwide and the Israeli atrocities on the Palestinians".

In 2002 to 2004 pro-Palestinian student groups of many colleges and universities had petitioned their schools to divest from companies with ties to the Israeli military. But as per knowledge up to date every university divestment campaign has been unsuccessful in swaying the schools' administrations' investment decisions. Former Harvard President Lawrence Summers famously called those campaigns "anti-Semitic in effect, if not in intent."

It has also come into light that divestment campaigns have brought the notion of "socially conscious investing" into the public eye. Due to such a philosophical notion, investors intentionally invest in companies whose policies they believe to be especially aligned with their own interests, for instance, supporting environmental protection schemes or avoiding businesses that indulge in the alcohol, tobacco, or pornography industries.

This courteous act of divesting from certain sectors of the economy, and investing in others sectors, such investors may intend to provide a market-based incentive for corporate social responsibility.

Further studies reveal that divesting for the use of a concerted economic boycott, with specific emphasis on liquidating stock, to pressurize a government towards policy or regime change. This procedural term was first tested in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott that had been specially designed to pressurize the government of South Africa into abolishing its policy of apartheid. The term has also been applied to actions targeting Northern Ireland, Myanmar, and Israel. The boycotts of Israel, as the series of economic and political campaigns against the State of Israel, in the course of the Arab-Israeli conflict and the Israeli-Palestinian conflict also comprised the economic measures such as divestment. This motion mainly comprised a consumer boycott of Israeli products or businesses that operate in Israel; a proposed academic boycott of Israeli universities and scholars; and a proposed boycott of Israeli cultural institutions or Israeli sport venues.