During the disruptive student protests that roiled higher education in the 2023–24 academic year, a common demand was for divestment from Israel. Nearly every university rejected that demand, often citing fiduciary obligation or principles of institutional neutrality. In response, protesters cited as precedent purported prior divestments from South Africa, tobacco and fossil fuels. This is no small fight. Aggregate university endowment value is nearly $1 trillion, with the 25 largest university endowments accounting for roughly half that total. The trustees at the richest universities faced the most vociferous student protests, but those trustees also bear the largest exposure to personal liability for fiduciary breach.
Things are, for the moment, calmer on university campuses. But divestment is a perennial source of contention. Before the next paralyzing controversy, universities should take stock and get their divestment policies in order. In a new article in the Harvard Business Law Review, we synthesize the law and finance of university endowment divestment. We show that divestment may be legally permissible if it is consistent with the university’s charitable purpose and comes at a reasonable cost. But the charitable purpose of a typical secular university is limited to research and education, and modern endowment practice, which relies heavily on pooled investment with outside managers, tends to make divestment financially and administratively costly. All told, endowment divestment today is hard to square with fiduciary duty.
