Two Decades of Debate: the controversy over U.S. companies in South Africa

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Author/Creator Hauck, David; Voorhes, Meg; Goldberg, Glenn Publisher Investor Responsibility Research Center, Inc Date 1983-00-00 Resource type Books Language English Subject Coverage (spatial) United States, South Africa Coverage (temporal) 1960-1982 Rights By kind permission of the Investor Responsibility Research Center, and with thanks to Glenn S. Goldberg. Description This review of the debate on U.S. economic invovlement in South Africa is a survey from an organization with the objective of providing impartial information to institutional investors. It summarizes actions by students, churches, universities, and other institutional investors, including shareholder resolutions, divestment of stock, and protests. Appendices include the Sullivan Principles initiated in 1977 and the list of companies signing or endorsing the principles by 1982. Format extent 172 page(s) (length/size)

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TWO DECADES OF DEBATE: THE CONTROVERSY OVER U.S. COMPANIES IN SOUTH AFRICA David Hauck Meg Voorhes Glenn Goldberg Investor Responsibility Research Center Washington, D.C.

The Investor Responsibility Research Center was founded in 1972 as an independent, not-for-profit corporation to conduct research and publish impartial reports on contemporary social and public policy issues and the impact of those issues on major corporations and institutional investors. IRRC's work is financed primarily by annual subscription fees paid by more than 170 investing institutions. IRRC is governed by a 21-member board of directors, most of whom represent subscribing institutions. Executive Director: Margaret Carroll. Deputy Director: James E. Heard. Editor: Carolyn Mathiasen. This book is one of a series published by IRRC's South Africa Review Service. Copyright 1983, Investor Responsibility Research Center Inc. 1319 F Street, N.W., Washington, D.C. 20004

CONTENTS INTRODUCTION THE ACTIVISTS' ROLE IN THE DEBATE 7 The Evolution of Activists' Interest in South Africa 8 The Post-Soweto Era I I Anti-Apartheid Activists' Goals and Tactics 16 Anti-Apartheid Activism in the 1980s 22 GOVERNMENT INVOLVEMENT IN THE DEBATE 29 II The Executive Branch and Economic Relations with South Africa 30 The Debate in Congress 41 State Action in the South Africa Debate 47 Municipal Action 58 Outlook 59 SHAREHOLDER ACTIVISM AND THE ROLE OF INSTITUTIONAL INVESTORS 61 The Shareholder Resolutions 62 Responses of Institutional Investors 65 Future Trends 90

THE CORPORATIONS' RESPONSE Early Responses 95 Post-Soweto Responses 97 The Sullivan Principles 97 Other Responses by Business 1 Future Pressures 126 THE CAMPAIGN AGAINST LOANS TO SOUTH AFRICA 127 V EarlyPressures128 Actions After Soweto 131 Shareholder Activism 133 New Voices in the Debate 136 The Banks' Responses 136 Outlook 000 CONCLUSIONS 14 5 '1k' The Effects of the Debate 146 The Future of the Debate 150 APPENDICES 155 Appendix A: Statement of Principles of U.S. Firms with Affiliates in the Republic of South Africa 155 Appendix B: Signers and Endorsers of the Sullivan Principles 159 Appendix C: The Study Commission on U.S. Policy Toward Southern Africa 163 IV

INTRODUCTION Beginning in 1976, a series of events in South Africa heightened, as never before, American awareness of apartheid, the political system through which South Africa maintains white minority rule over 24 million blacks. In June 1976, black students in Soweto, a segregated black township outside Johannesburg, gathered to protest South Africa's racially segregated education system. Without warning, police fired on the crowd of 20,000, mortally wounding several youths. In the next 18 months, blacks throughout the country, catalyzed by the Soweto tragedy, organized demonstrations against apartheid. South African police reacted to the demonstrations by opening fire on several occasions, killing hundreds of demonstrators. Finally, Pretoria in late 1977 moved to still the civil unrest by detaining many of the leaders of the newly born black consciousness movement and banning several anti-apartheid organizations. One of the detainees, black consciousness leader Steve Biko, died several weeks later at the hands of his police interrogators. The reports of these events shocked and angered many Americans and rekindled an ongoing debate over U.S. corporate involvement in South Africa. This debate has been one of the dominant corporate social responsibility issues in this country for nearly two decades, attracting a varied range of participants, including groups with a longstanding commitment to African liberation, churches, civil rights activists, students, trade unions and politicians from all levels of government. These activists have compelled investors, legislatures and corporations to examine the issue and, at times, have gained their cooperation in efforts to reduce the level of U.S. investment in and business dealings with South Africa. The debate: Why has South Africa been singled out for such attention? At the heart of the debate over the presence of American companies in

South Africa is concern about the South African government's apartheid policies and the extent to which U.S. trade and investment affect those policies. Apartheid splits South Africa along racial lines, dividing 14 percent of the land into 10 homelands for the country's 20 million Africans--nearly three-quarters of the total population--and declaring the remainder of the country white. The rights of Africans to live, work, conduct business, obtain training or education and engage in political activity are constrained or non-existent in "white" areas; the rights of coloreds and Asians living in these areas, although greater than those of Africans, are also limited. Opponents of U.S. investment in South Africa say that the presence of American companies there gives a moral legitimacy to the white minority regime, and that it creates a vested American interest in the status quo and the stability of the current political system. They argue that the supply of capital by American banks and businesses eases South Africa's foreign exchange problems and makes the country less vulnerable to international pressures that would stimulate reform. They are also concerned that sales of certain products contribute directly to South Africa's military and security forces. In their view, the withdrawal of investment, an end to strategic sales and a moratorium on loans would deal a severe psychological blow to the morale of the white regime in South Africa and would constrict the historically high rate of economic growth that many analysts consider crucial to its stability. They contend that these pressures, coupled with increasing international isolation of South Africa, could force the government to abandon its discriminatory practices and work out a system for sharing power with blacks. Critics admit that sanctions of this sort could hurt blacks in the short term, but they argue that temporary hardships would be offset by eventual economic and political gains. Supporters of continued business involvement in South Africa say that they too oppose apartheid, but they believe that American companies are, or can become if pressed, a force for progressive change in South Africa, and they urge companies to use their influence to promote reforms both within and outside the workplace. Advocates of continued investment assert that corporations--by liberalizing employment practices in their South African operations--set a positive example for other employers and contribute to the well-being of all races in South Africa. They believe that by increasing economic opportunities for blacks--thus elevating their standard of living and importance to the South African economy--companies are contributing to a process that will lead eventually to the full integration of blacks into society on all levels. In their view, economic disengagement would only aggravate unemployment of blacks and strengthen the resolve of whites to resist external pressures, and would lead to increased repression of internal critics of apartheid because the government would feel, in its growing isolation, less constrained by world opinion in dealing harshly with dissent.

Those calling for an end to American investment in South Africa have sought to advance their cause in a variety of ways. At times, they have approached corporations directly, either through private, face-to-face discussions or public confrontation at annual meetings, through shareholder resolutions or through appeals to depositors to close accounts at banks that lend to South Africa. Activists have also tried to pressure companies in less direct ways by involving institutional investors and legislative bodies in the debate. Some investors--particularly universities--have felt strong pressures to sell the stock they hold in companies doing business in South Africa. Some institutional investors also have joined the debate by frequently voting their shares in favor of South Africa-related shareholder resolutions. At the level of state and local government, activists have urged the passage of bills that would prohibit the investment of public funds in companies or banks with investments in South Africa. In Congress, they have supported bills that would weaken the economic links between the United States and South Africa. Much of this activity is recent. For its first 10 years the debate seldom rose much above a low murmur, and the activists had only limited success in applying pressure on U.S. firms operating in South Africa. From 1965, when activist students first raised the issue of U.S. bank loans to the South African government, through the early 1970s, when the activities of South African subsidiaries of U.S. companies became controversial, anti-apartheid activists received scant support from institutional investors and legislators. In the years after 1976 dramatic changes occurred, though, as events in South Africa galvanized the debate in this country. The effect of Soweto: Demonstrations by black students in the segregated black residential area of Soweto and other black townships in 1976 and 1977 over inadequate education and other grievances against the apartheid system marked the beginning of a period that would change many Americans' perception of South Africa. The harshness of the South African government's reaction caused many persons to question seriously whether U.S. companies in South Africa could be a progressive force for change. On many American campuses there was a vocal outpouring of support for cutting all economic links between the United States and South Africa. Students and some faculty members actively pressed university administrators and trustees to divest from companies with subsidiaries in South Africa. Labor unions for the first time came out in support of withdrawal by U.S. corporations, and support among church groups for withdrawal also jumped. In response to events in South Africa and the heightened public debate in this country, institutional investors began to develop policies to guide their investment and proxy voting decisions on South African questions. And the Carter administration reacted by placing the most sweeping embargo ever on the sale of U.S. goods to the South African police and military. These developments put companies under increasing pressure to pull out of South Africa. Divestment became a more acceptable option for investors, and several churches and universities began to sell off stock they held in companies doing business in Soith Africa. Following Soweto, activist shareholders submitted twice as many South Africa-related resolutions to companies as in previous years and, for the first time, submitted far-reaching proposals calling for companies to withdraw from that country. Although none of the resolutions passed, support for them rose as more institutional investors adopted proxy voting guidelines that directed them to vote their shares against management on certain types of South Africa-related resolutions. Corporations responded to these pressures and their own assessments of the situation in South Africa in one of three ways. Many could comfortably ignore the limited pressures directed at them by the activists and continue doing business in South Africa as they had before. Some companies, particularly banks, decided to reduce the level of their involvement in South Africa; many major American banks, for example, appear to have stopped lending to the South African government since 1978. Still other companies have participated in an effort to show that business can be a progressive force in South Africa. Since 1977, when Rev. Leon Sullivan formulated the Sullivan principles of equal employment opportunity, approximately half of the American companies with operations in South Africa have joined the Sullivan effort and signed the principles that pledge them to promote training and advancement of blacks, improve wages and fringe benefits, recognize representative black unions and assist black community development. While many activists have dismissed the principles as little more than "corporate camouflage," they are nevertheless a unique effort by the American business community. They represent the first time U.S. companies have joined together formally to set and work toward achieving specific labor practice goals and, notably, to permit themselves to be rated on their attainment of those goals within their individual subsidiaries in South Africa. The debate in the 1980s: The character of the debate in the United States has changed in the years since its high water mark in 1977 and 1978, becoming quieter, yet able still to attract major new participants and hold the attention of those institutional investors and companies that have been involved in it since the late 1970s. The vocal and highly visible demonstrations on American campuses of the late 1970s demanding an end to U.S. economic involvement in South Africa have largely disappeared. Other forms of pressure on companies have fluctuated; the number of shareholder resolutions on South Africa, for example, fell in 1981 and 1982 but is up again in 1983. At the same time, the Reagan administration has adopted a more conciliatory approach to South Africa and relaxed some of the Carter-era restrictions on U.S. business dealings with South Africa. But while the debate is now heard less frequently in some arenas, anti-investment activists recently have been able to enlist the support of state and local legislators in attempts to remove public funds from investments in companies doing business in South Africa. The debate has also become institutionalized to a large extent, as a number of investors--particularly universities and churches but also some insurance companies, foundations and public employee pension funds--continue to vote their proxies and make investment decisions guided by policies adopted in the wake of events of the late 1970s. Companies, too, continue to support the Sullivan principles, and no bank that earlier had adopted a policy of denying loans to South African public sector borrowers has reversed its decision. Thus, the debate has now reached something of an equilibrium. While activist pressures against U.S. economic involvement in South Africa have fallen since the years immediately following Soweto, they remain strong enough to discourage any significant retreat by institutional investors and companies from policies and practices adopted in those years. These pressures are also sufficient, at times, to encourage investors and companies not previously active in the debate to adopt their own South Africa policies. But the activists' successes have been counterbalanced by a weakening of their influence at the national level in the two years since President Reagan entered office. This report: This report examines the history and development of the debate in the United States over the involvement of American firms in South Africa, from its early origins in the 1950s through its escalation in the late 1970s and up to the present. The study looks not only at the actions of the activist groups but also at those of institutional investors and companies as they responded both to the issues raised by the debate and to direct pressures from the activists. For this report, IRRC interviewed representatives of nearly every major activist group, several banks, a number of companies active in the Sullivan principles effort and many state and national officials involved in the debate. IRRC also surveyed a number of instititional investors on the policies they have adopted and actions they have taken on the issue of U.S. business involvement in South Africa and conducted follow-up interviews with several of them. Because this report focuses almost entirely on the actors and events of the debate in the United States, the important question of the extent to which U.S. companies have improved their labor practices and influenced the direction and pace of broader social and political change in South Africa is considered only in passing. IRRC has looked closely at this question, however, in a series of publications appearing since 1980 and will continue to do so. In 1980 and 1981, it prepared individual reports covering the wage, fringe benefit, training, advancement, worker representation and black community development practices of the subsidiaries of more than 50 of the major U.S. firms operating in South Africa. Information from these company profiles was summarized in 1982 in IRRC's Recent Developments in Labor Practices in South Africa. Also in 1982, IRRC examined recent policy changes by Pretoria on te political, social and labor relations fronts with an eye toward the difficulties and opportunities these changes created for companies wishing to be a "progressive force" in the country. The two IRRC studies that came out of this examination are The Modernization of Apartheid and Black Trade Unions in South Africa. Chapter I of this report introduces the activist groups involved in the debate over U.S. corporate involvement in South Africa, their positions on the issue, and the actions they have taken in an effort to attain their goals. Chapter 11 discusses the role of Congress and the executive branch in facilitating or hindering American investment in South Africa. It also summarizes actions taken by the newest actors in the debate--state and local governments--to move funds out of South Africa- related investments. Chapter III looks at institutional investors--universities, insurance companies, churches, foundations, bank trust departments and public employee pension funds--and describes their response to the debate. In particular, it focuses on their willingness to support the various forms of shareholder activism--proposing shareholder resolutions, voting on them, communicating their views to management, and selling off or refusing to buy stock in certain companies--that have been used in the debate. Chapter IV summarizes the responses of U.S. firms to these pressures and to changes within South Africa. It pays particular attention to corporate support for the Sullivan principles and attempts to show where that effort at corporate self-monitoring stands nearly six years after its inception. Chapter V is a case study of the campaign against U.S. bank lending to SoutFTATrica which brings together many of the actors and themes examined separately in the first four chapters. The report's Conclusions are an assessment of the impact of the debate on all those involved and predictions of how it is likely to continue to develop. This report was written by David Hauck, director of IRRC's South Africa Review Service; Meg Voorhes, senior analyst at IRRC; and Glenn Goldberg, research analyst at IRRC. William Snider assisted in the research for Chapter III. Desaix B. Myers II, then deputy director of IRRC, conceived the report and worked with the authors through its completion. Gloria G. Henning prepared the manuscript for publication. IRRC acknowledges with gratitude the continuing support of Carnegie Corporation of New York and The Ford Foundation for IRRC research related to investment in South Africa and, in particular, the support of both foundations that helped make this report possible.

I THE ACTIVISTS' ROLE IN THE DEBATE The activist community has played a major role in bringing the situation in South Africa to the attention of the American public. The educational process has been slow, starting in earnest in the mid-1960s when students, religious organizations and civil rights leaders began calling for an end to U.S. bank loans to the South African government. By the end of the 1960s, students on many college campuses were actively protesting the investment of university funds in companies doing business in South Africa. The birth of shareholder activism in the early 1970s added a new dimension to activist efforts as church-sponsored shareholder resolutions sparked debate on the South Africa issue at several major U.S. corporations and among institutional investors. For the most part, activist involvement in the South Africa debate was highly variable--rising and falling in response to events in South Africa and issues such as the Vietnam war--until the mid-1970s, when the Soweto demonstrations and the banning of black consciousness organizations sparked a significant increase in the level of activist group pressure. Student and shareholder activism increased substantially, as did activity in the American black community. In addition, the Carter administration, in line with its foreign policy emphasis on human rights, spoke out frequently in opposition to apartheid. The election of Ronald Reagan threw many activist groups on the defensive. Activists are now attempting to unify the anti-apartheid community and substantially broaden their base of support in order to regain momentum.

The Evolution of Activists' Interest in South Africa A few groups have a long history of involvement in the South Africa debate. As early as 1912, the National Association for the Advancement of Colored People (NAACP) played a role in organizing the African National Congress, then a small group of educated Africans who urged an end to racial discrimination in South Africa through non-violent moral and political appeals. In 1952 an organization called Americans for South African Resistance was formed to coordinate U.S. activities with South African liberation movements, and to support the civil disobedience campaign that was under way in South Africa to protest the "pass" laws. The following year, the American Committee on Africa was established to take over the work of Americans for South African Resistance and to aid in other African struggles for independence. 1960s activism: A wider range of activists took up the issue in the mid-1960s after events such as the 1960 police shooting of 67 African demonstrators in Sharpeville made headlines in American newspapers. At the same time, the widening civil rights struggle in the United States and the growing student disenchantment with the war in Vietnam stirred protest groups to take action on a range of contemporary public policy issues that came to include South Africa. Church involvement--Religious organizations were among the key actors in the South Africa debate as it developed in the 1960s. Several church groups began to examine the role of U.S. corporations and banks in South Africa during a series of meetings in 1965 sponsored by the International Division of the National Council of Churches. At that time, a few Protestant churches began considering the question of whether U.S. economic involvement in South Africa provided support for apartheid. Later in the decade, the issue of bank loans provoked concrete action from church organizations. In 1967, a few church bodies, including the Episcopal Church and the United Presbyterian Church, pressured banks lending to the South African government through letters and meetings with top management. In 1968, several national church organizations conditionally voted to close their accounts at banks participating in a $40 million line of credit to the South African government if the loan was renewed in 1969. (The loan was not renewed, however, and the church accounts remained open.) Student protests--Concern about U.S. bank loans to South Africa moved quickly to other protest groups in the United States. In 1969 one church activist wrote, "The condemnation of American banking support of the South African government is now spreading rapidly into American universities, black communities, and the United Nations." Although this statement may have exaggerated the speed with which the South Africa issue was spreading in the United States, it is true that student activists picked up on the issue in the early stages of the debate. In fact, the first act of civil disobedience by the Students for a Democratic Society

(SDS) was a 1965 demonstration at Chase Manhattan's Wall Street headquarters protesting the renewal of U.S. bank loans to the government of South Africa. Some student activists believed that the South Africa issue played an important role in the development of a more activist climate on U.S. campuses. Arthur Waskow, a member of the SDS and one of 17 people arrested at the Chase Manhattan demonstration, wrote in the February 1966 issue of Liberation, a New Left publication: "A number of students who took part in the Chase demonstration reported that on their campuses, some faculty and students responded to information about American business support of apartheid with an even deeper sense of moral outrage than they ordinarily gave either racial inequality within the United States or the war in Vietnam." Student groups continued to protest U.S. business activity in South Africa throughout the 1960s, focusing their efforts in the latter part of the decade on the investment policies of individual educational institutions. Student protests demanding divestment of stock in companies active in South Africa occurred on several campuses. In April 1968, 250 students at Princeton demanded that the university sell its stock in corporations operating in South Africa; in May 1968, 300 students at the University of Wisconsin at Madison took over the administration building and demanded that the university sell its shares of Chase Manhattan stock; and at Cornell in 1969 there were a number of protests concerning the university's stock holdings in banks that lent money to the South African government. Most institutions responded to these protests by refusing to sell any stocks; a few established selective divestment programs; and some sold stock in companies with strong links to the South African government. Black and civil rights groups--Civil rights activists were a third pressure group involved in the early stages of the South Africa debate. The struggle for civil rights legislation in the mid-1960s had a spillover effect that precipitated activist concern about abuses of civil rights in other countries. The Congress on Racial Equality (CORE), the Student Nonviolent Coordinating Committee (SNCC), and the NAACP, three of the primary actors in the civil rights struggle, organized and participated in a number of protests of U.S. bank activity in South Africa. In addition, the 1969 Black Manifesto of the National Black Economic Development Conference included a demand that churches liquidate their South Africa-related assets. Dr. Martin Luther King Jr., head of the Southern Christian Leadership Conference, was also critical of U.S. economic involvement with South Africa. In 1967, he said: The tragedy of South Africa is not simply its own policy; it is the fact that the racist government of South Africa is virtually made possible by the economic policies of the United States and Great Britain, two countries which profess to be the moral bastions of our Western world.

One of the early leaders in the South Africa debate within the civil rights community was the Lawyers' Committee for Civil Rights Under Law, an organization formed in 1963 to combat racism and discrimination in the United States. Because the domestic struggle for civil rights is "inextricably linked" to the worldwide struggle for human rights, said the committee, it established in 196Z Southe..-.A frica Pro SS;to ensure that defendants in political trials in ou Africa and Namibia received the necessary resources for their defense and a competent attorney of their own choice. The Southern Africa Project also used the legal process in the United States to focus attention on the situation in South Africa by attempting to establish new precedents concerning the legal interest of U.S. citizens in foreign policy matters. In 1972 the project unsuccessfully challenged a Civil Aeronautics Board order that authorized South African Airways to serve a new route between Johannesburg and New York. It based the challenge on the grounds that the order violated the Federal Aviation Act, which prohibited the CAB from issuing a permit to a foreign air carrier that discriminates among its passengers on a racial basis. The early 1970s and shareholder activism: The tactics of religious organizations in the South Africa debate took an important turn in 1970 when the Securities and Exchange Commission ruled that shareholders could submit public interest shareholder resolutions on specific social responsibility questions. One of the first church-sponsored shareholder resolutions asked General Motors in 1971 to cease its manufacturing operations in South Africa. The resolution received the support of only 1.29 percent of the shares voted, but the considerable publicity that the resolution generated helped to foster the activist cause. (For a discussion of later South Africa-related shareholder resolutions, see Chapter II.) After the GM meeting, corporate activity in South Africa quickly developed into the most consistent target of church activists. In 1971, the National Council of Churches established a Corporate Information Center (CIC) to produce and distribute to other church organizations information on the social impact of corporate behavior. The following year, the World Council of Churches called for the withdrawal of all investments from South Africa and began to publicize the investments of individual U.S. corporations there. In 1974, the CIC merged with the Interfaith Committee on Corporate Responsibility to form the Interfaith Center on Corporate Responsibility, a group comprising both Protestant denominations and Catholic organizations. The Interfaith Center serves as a coordinator for the churches in their efforts to influence corporate behavior on a variety of social responsibility questions. In addition to the use of shareholder resolutions to pressure companies, the center has organized letter writing campaigns, met with management, called press conferences and testified before Congress in an effort to restrict the activities of U.S. corporations in South Africa.

The Post-Soweto Era The Soweto riots in 1976 and Steve Biko's death and the banning of many individuals and activist organizations in 1977 provided the single most important catalyst to the efforts of anti-apartheid activists in the United States who were organizing at colleges and universities and in civil rights groups, trade unions and religious organizations. Many activist organizations attempted to influence the South Africa policy of the U.S. government, which had also responded to events in that country by expanding its level of activity. Moreover, the international community, particularly the Third World countries, worked through the United Nations and other international bodies to press for a wide range of sanctions against South Africa. Heightened student activity: After Soweto, students throughout the country vigorously protested the investment of university endowment funds in companies doing business in South Africa. More than 700 students were arrested in the spring of 1977 for their South Africa protest activities. Student leaders formed a number of regional organizations to coordinate their protest activity on South Africa, particularly in the Northeast and on the West Coast. Perhaps the most influential of these groups was the South Africa Catalyst Project, established in 1977 by 20 Stanford University community members to improve the organizational skills of campus activists and to provide information on the role of U.S. business in South Africa. The project published a monthly newsletter describing campus activity on the South Africa issue, and it printed a handbook entitled "Organize," which explained the basic skills required in organizing a campus protest. Student protests in the post-Soweto era received wide publicity and produced a larger number of concrete responses from university trustees and administrators than the protests in the late 1960s and early 1970s. Before Soweto, student demands that universities divest their stocks in companies and banks doing business in South Africa were largely ignored. In the aftermath of Soweto, however, a few universities responded to pressure from students and others by divesting all their South Africa holdings; many more adopted selective divestment policies based on varying sets of criteria. Another common response by universities was the establishment of advisory committees composed of students, faculty and, in some cases, alumni to advise on investment and shareholder issues. (For details on these responses, see Chapter II.) New church involvement: The turbulent events in South Africa and the resulting critical publicity in the United States produced a noticeable increase in church group involvement in the South Africa debate. The earlier reluctance of some church groups to get involved in the issue dissipated in the wake of events in South Africa during 1976 and 1977. Church groups testified before congressional and UN committees, met with several major U.S. corporations doing business in South Africa and expanded their constituency education efforts. Church groups became most active, however, on the shareholder front; the number of shareholder resolutions pertaining to South Africa more than doubled, to a total of 18, from 1976 to 1977, and the types of resolutions proposed by church shareholders increasingly called for companies either to withdraw from South Africa or, at the very least, not expand their operations. Before 1977, most church shareholder resolutions were limited to requests for information on the companies' South African subsidiaries. Individual church congregations, particularly in large black communities in the United States, began to take up the South Africa issue in the latter part of the 1970s. One black minister who was active in the South Africa debate in Washington, D.C., told IRRC that Soweto "was the turning point" in church involvement. Soweto, he said, "accelerated our understanding and knowledge of what the South African system was really all about." A number of religious leaders in the black community spoke to the South Africa issue from the pulpit. Many churches--white as well as black--held seminars on South Africa and invited anti-apartheid activists to speak to church members. Jerry Herman of the American Friends Service Committee said that a number of predominantly black churches "opened up their pulpits to us." Herman added, however, that most of the activist work in the black churches took place in the large cities in the Northeast. "We did not have much of an input in the black communities and churches in other parts of the country," said Herman, "because we didn't have the resources." Labor union activism: As other activist groups intensified their efforts following Soweto, some labor unions, which had confined themselves to statements condemning apartheid, also began to consider taking more concrete actions. Several unions closed accounts in banks that made loans to the South African government and still more talked of gaining control over the much larger pool of money in pension funds and directing it away from investment in companies involved in South Africa and into what they saw as more socially responsible investments. But by 1982, unions had made minimal progress in increasing their say over how these funds are invested or over how the proxies of the shares held by the funds are voted. Although prevented from exercising the economic muscle represented by the pension funds set up for their members, American unions through the AFL-CIO are in the midst of plans to become more active in the one area where they are uniquely qualified--providing assistance to the growing black trade union movement in South Africa. Efforts in this area have been fairly limited. In response to the growth of trade unions for South Africa's black workers in the 1970s, the AFL-CIO brought 20 South African black trade union leaders to the United States in 1979 and 1980 for two-month training sessions in collective bargaining, organizing tactics and other union skills. Funding for the training programs came from the U.S. Information Agency.

Following these training programs, the African-American Labor Center--a project of the AFL-CIO that assists labor unions in Africa and whose budget comes largely from the U.S. government--offered to put South African black unions organizing at American subsidiaries in touch with unions represented at those companies' U.S. plants. During 1981 and 1982, about five South African unions that, according to an AALC official, "were having trouble with American subsidiaries," accepted the offer. When asked if the American unions pressured the companies in response to this request from South Africa for help, the director of the AALC told IRRC that "they may have met with management and expressed their concern over the situation." But, he added, "if anyone thinks Ford workers in Michigan, for example, will go on strike to support black workers in South Africa, they should definitely have a rethink." Continued growth by the South African black trade union movement has encouraged the AFL-CIO to embark on a more ambitious program of assistance. In 1981, the federation launched a special fund to finance training for South African union members, provide for the legal defense of unionists arrested by the South African government and coordinate all U.S. labor activities in support of trade union development in South Africa. Since then, Nana Mahomo of the African-American Labor Center has visited many union locals to explain the conditions of black labor in South Africa and the need for AFL-CIO affiliates to support the program. In late 1982, he reported that his efforts and those of other union officials "have been modestly successful in getting money for the South Africa program." In September 1982, four officials from the AFL-CIO visited South Africa to meet with their counterparts in the black trade unions and assess how the U.S. labor movement could be of help. Although no specific program had been proposed as of the end of 1982, the most likely area of activity would be providing training assistance to South African unions. Growing involvement by black and civil rights groups: Members of the black and civil rights community were especially outraged by the increased level of repression that the South African government directed against blacks. The NAACP stepped up its longstanding effort to discourage U.S. involvement in South Africa and, following a 1977 trip to South Africa, an NAACP task force made a number of recommendations on U.S. policy including support for economic sanctions against the South African government and U.S. companies doing business there; support for shareholder resolutions calling for the withdrawal of American investments and operations in South Africa; and encouragement of withdrawal of accounts from banks making loans to South Africa. The Southern Africa Project of the Lawyers' Committee for Civil Rights Under Law also expanded its activities following the events in

South Africa in the mid-1970s. The project provided various forms of assistance to the defense in political trials in South Africa, including financial assistance to defray attorneys' fees; informed observers to attend important trials; and expert witnesses to present testimony. Although several black churches and civil rights groups made important contributions to the South Africa debate in the post-Soweto era, there was a feeling in the black community that the U.S. government was not considering the foreign policy priorities of black Americans. At its 1976 Black Leadership Conference, the Congressional Black Caucus argued that for too long U.S. policymakers had neglected Africa and the Caribbean and the views of black Americans. To fill that void, a special task force created by the Black Caucus formed TransAfrica in 1977. Southern Africa immediately became one of the top priorities for the new organization, which sought to bring the American black community into the debate and to press for economic sanctions against South Africa. After a slow start while it tried to raise funds and hire staff, TransAfrica managed to bring the views of the anti-apartheid community into the highest levels of government through its participation in meetings with the President, the Secretary of State and members of Congress. As the unofficial black lobby on a broad range of foreign policy matters, TransAfrica was consulted by the Democratic Carter administration, which was keenly aware of the importance of the black vote in the 1980 presidential primary. During the Carter administration, TransAfrica's contribution to the South Africa debate was significant. Even those organizations opposed to TransAfrica's goals have recognized its importance to the anti-apartheid cause. One such group concluded in 1980: TransAfrica is the only lobby group in Washington that has effectively gained support from a cross section of activists on the Southern Africa issue. It has managed to frame Southern African issues in such a way as to induce grass roots and leadership support from American blacks and gain support and assistance from sympathetic white activists, through both church and student groups. Activist lobby efforts: The increase in government repression in South Africa in 1976 and 1977 prompted the U.S. government to take a closer look at its policy in the region. In this new atmosphere, the Washington Office on Africa, formed in 1972 by a number of church organizations and the American Committee on Africa to monitor the situation in Rhodesia, began to devote substantial time and energy to lobbying the U.S. government on South Africa. According to Ted Lockwood, the former executive director of the Washington Office, "Steve Biko's death gave us the impetus to participate more actively in the South Africa debate." The Washington Office has been most active in Congress where it has presented testimony, lobbied members and prepared issue briefs on Southern Africa for congressional staffers. By the end of the

1970s, for the first time, the Washington Office and TransAfrica gave anti- apartheid activists a coherent lobbying presence in Washington. The lobbying efforts probably helped to strengthen the Carter administration's rhetoric against South Africa, but produced few fundamental policy changes. (See the section on executive branch policy, Chapter II.) Pressure from the international community: At the same time that churches, labor unions, blacks and civil rights groups were becoming more involved in the South Africa debate, the international community raised its profile on the issue. In 1977 the UN General Assembly passed a mandatory arms embargo against South Africa that one UN official described to IRRC as "a landmark of UN action." In addition to the mandatory embargo, third world states have been pushing the UN, thus far unsuccessfully, for a complete program of economic, political and military sanctions against South Africa. In order to implement a program of sanctions, the UN has attempted to mobilize world opinion against South Africa by working with anti-apartheid groups in Europe and the United States. The UN Centre Against Apartheid, which serves as a support group to other UN bodies that deal with South Africa, has been the primary UN contact with the anti- apartheid community. A spokesman for the Centre told IRRC that working through pressure groups "is the best way for us to get our view across." The Centre has taken an active interest in student activity on the South Africa issue, sponsoring a major student conference in 1979, and a number of liberal academics have testified before UN committees or written special reports on some aspect of the South Africa issue. In short, the UN has provided anti-apartheid activists with a highly visible platform. The African-American Institute is another organization that has played an important role in communicating to the United States the views of the international community on the situation in South Africa. AAI is a private organization--funded largely by the U.S. government, corporations and philanthropic foundations--whose objective is to strengthen American understanding of African issues and to assist African development. AAI holds a number of conferences on African political and economic issues, arranges meetings between African leaders and U.S. business and government officials, publishes information on a variety of Africa-related subjects and sponsors education and training programs for African students. Donald Easum, the president of AAI, says "we try to work the South Africa issue into all our conference programs." Members of the African National Congress (ANC) and the Pan African Congress (PAC), the two most influential liberation movements working against the South African government, are frequent participants in AAI- sponsored events. The South Africa issue also comes up, says Easum, in his conversations with U.S. business leaders, particularly officials from companies that contribute to AAI and have operations in South Africa. In these conversations, Easum argues that investors must think about the consequences of investing in South Africa if they have plans to do business in other parts of the continent.

Anti-Apartheid Activists' Goals and Tactics The ultimate goal of the activist community is the abolition of apartheid and the opening up of the South African political system to black participation. On this, all the various members of the activist community are agreed. Given the highly industrialized economy and powerful South African defense force, though, complete elimination of apartheid is a long-term proposition, and in the meantime activists have been pursuing other mid-term goals. The mid-term goal that has the support of the largest number of activists is to place economic pressure on the South African government by forcing U.S. banks to end loans and companies to end sales of strategic goods and withdraw from the country. The proponents of these forms of economic pressure believe that they would weaken the South African economy and thereby contribute to and assist the forces for change within the country. Other activists, while agreeing with the long-term goal of seeking fundamental change in South African society, argue that achieving the withdrawal of U.S. companies is not the best way to effect such change. Rather, they believe, U.S. firms in South Africa must be pressed to become active agents for progressive change, not only within their own operations but, especially, in the broader South African society as well. Once an activist group has identified the mid-term goal that it wishes to pursue, it has to decide on a set of tactics to use. The two tactics used most frequently are lobbying institutional investors to sell the stocks of U.S. companies with operations in South Africa--divestment--and shareholder activism. Lobbying for divestment is generally advocated by activists who seek an end to strategic sales and the withdrawal of U.S. companies from South Africa--although in some cases, after a company has resisted calls to become a progressive force for change or continues to provide direct support to the South African government, even those who do not support withdrawal in principle may lobby for divestment. Shareholder activism, on the other hand, cannot be linked with any particular activist goal. Both the activists seeking corporate withdrawal and those pushing business to become active agents for change have pursued their divergent goals through shareholder resolutions. Although there are differences among activists in the goals and tactics they pursue, the anti-apartheid community remains relatively cohesive. Most activists told IRRC that their differences should not be surprising, given the controversial nature of the South Africa debate. Most important, say the activists, is that all anti-apartheid groups are pursuing the long-term goal of eliminating apartheid and creating a just system for all South Africans. The withdrawal debate: Many activists, including the American Committee on Africa, TransAfrica, a number of church groups and several state and local union organizations, believe that the withdrawal of U.S. companies and an end to U.S. bank loans to South Africa is the most effective form of pressure for changing the apartheid system. Those who take this position argue that the withdrawal of U.S. companies would greatly affect the South African economic and political system because of the strategic role of U.S. lending and investment in the country. ACOA notes in its publication, "South Africa: Questions and Answers on Divestment," that U.S. investment is "concentrated in the most crucial sectors of the South African economy-- automobiles, oil and energy and computers. If U.S. technology were no longer available to South Africa, argues ACOA, "the impact on the economy would be enormous." Activists pushing withdrawal maintain that the removal of U.S. companies from South Africa would not only damage the South African economy, but would be a significant step in the international isolation of South Africa. Isolation, argue the activists, could force the South African government to carry out significant reforms in the apartheid system or might disrupt the country to such an extent that the twin goals of eliminating apartheid and sharing political power with blacks advocated by liberation groups would be made easier to attain. Advocates of withdrawal contend that even the most progressive work place reforms initiated by U.S. corporations in South Africa do not touch the real issues confronting that country. In a 1979 publication on divestment, ACOA argued that "a close look at corporate reformist strategy demonstrates that it is aimed at pacifying critics of South Africa in the United States. Corporate reforms do not address the issue of land distribution in South Africa nor the problem of political disenfranchisement." ACOA added that reformist strategy assumes that what U.S. corporations can do for the small number of blacks they employ "is more important than the repression of the 22 million blacks they do not employ, whose repression their very presence helps to maintain." Proponents of withdrawal have concentrated their efforts on companies that sell strategic or high technology goods to the South African government. They argue that these companies cannot help to change the South African system because their products play a critical role in maintaining that system. In his book, "Automating Apartheid," Tom Conrad of the American Friends Service Committee wrote, "The growth of the computer age in South Africa has been closely linked to the consolidation and expansion of the white power structure." Some activist groups, however, particularly churches, support withdrawal but also concentrate on other forms of economic pressure. Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility, told IRRC that "most U.S. companies will not withdraw their investment tomorrow. There are, however, many significant forms of economic pressure short of companies winding up their investment in South Africa." An example of such pressure, according to Smith, would be "if a company committed itself to a policy of non-expansion in South Africa." Pressure to work for change: Others active in the debate, including some of the national offices of U.S. unions, have chosen to press U.S. companies in South Africa to work against the system of apartheid rather than seeking their withdrawal. They argue that there are reform-minded factions in South Africa that may respond positively to pressures coming from the business community. The AFL-CIO has generally favored putting pressure on companies to improve the labor practices of their South African subsidiaries--specifically, to recognize unions representing black workers. In fact, the AFL-CIO has endorsed the goal of withdrawal on only one occasion. In 1978, its executive council announced that "U.S. corporations should immediately divest themselves of South African affiliates, and sever all ties with South African corporations." The resolution was a reflection of the executive council's concern over the Soweto demonstrations and Pretoria's repression of the black consciousness movement and was motivated in part by the speech of an exiled South African journalist-- Donald Woods--that, in the words of one participant, "got the delegates pretty worked up." Since 1978, however, the AFL-CIO has not repeated its call for American companies to withdraw. Several of the activists who take this position say that the minimum step companies should take in order to play a more active role in South African society is to sign and implement the Sullivan principles of equal employment opportunity. There are now 146 companies that have signed the principles since they were drawn up by Rev. Leon Sullivan in 1977. (See Appendices.) In addition, a number of church groups have pressured companies to go beyond the Sullivan principles. Audrey Smock of the United Church of Christ told IRRC that her organization and other church groups are pushing companies to play a more active role in the political arena. She specifically noted a letter the United Church sent in November 1982 to all the companies doing business in South Africa in which it owns stock, asking them to play a more active role in protecting trade union leaders from South African government repression and to oppose a pending piece of legislation that would further tighten "influx control" laws that regulate the movement of black South Africans in urban areas. The Interfaith Center on Corporate Responsibility sent a similar letter to 80 additional companies in January 1983. Tactics: Since the 1965 student demonstrations at Chase Manhattan's Wall Street headquarters protesting that bank's loans to the South African government, activist groups have employed a variety of tactics in an effort to bring about the end of apartheid. Many of the tactics, such as demonstrations, shareholder activism, and lobbying for the divestment of stocks and bonds in U.S. companies and banks doing business in South Africa, have been aimed at U.S. corporations and other symbols of U.S. involvement in the apartheid system. In addition to actions focused on U.S. firms, activists have supported South African liberation movements and worked to create greater awareness of conditions in South Africa through public education efforts. Divestment--One of the major tactics of activist groups working to get companies to withdraw from South Africa is lobbying for divestment. Proponents of divestment argue that sale of securities in banks and companies active in South Africa dramatically publicizes the human rights questions surrounding the role of U.S. investment in that country, and that such publicity will have an effect on corporate attitudes toward investing in South Africa. The South Africa Catalyst Project stated: The erosion of public confidence (the so-called "hassle factor") is the strongest weapon the divestment movement possesses. The increased political costs of continued investment in South Africa, when weighed against the relative insignificance of their South Africa operations, may well prompt U.S. corporations to withdraw from South Africa. The "cost" of doing business in South Africa for American corporations was also considered by the American Committee on Africa in its 1979 publication, "South Africa: Taking Stock of Divestment." It noted that "corporations must increasingly count the costs of remaining in South Africa when faced with the possible loss of investors, loss of future markets for their goods and a decline in stock value." Some activists contend that divestment is justified on moral grounds alone because it is socially irresponsible for investors to profit from holdings in companies that operate in a country where racism is institutionalized. Jerry Herman of the American Friends Service Committee told IRRC that investors "don't have a right to benefit from other people's suffering." Most activists believe that the divestment campaign has had a significant effect on the domestic debate. In particular, they cite the importance of divestment as an organizing tactic for anti-apartheid activity. Jerry Herman argues that divestment is "an extremely effective tool to get people moving on South Africa. People need and want something to do on South Africa, and divestment provides them with such an opportunity." The activist community claims that the divestment campaign has had a number of successes in recent years. Gail Hovey of the American Committee on Africa cited the total and partial divestment of stock by a number of educational institutions since Soweto as the biggest overall achievement of the divestment campaign to date. She noted, however, that in the last few years the divestment campaign has been most active on the state and municipal levels and has scored a number of significant victories. (See Chapter II.) With divestment activity taking place at universities, church organizations and now state and local governments, said Hovey, "corporations are beginning to think about the cost of investing in South Africa." She cited General Electric's recent decision to withdraw from a mining venture in KwaZulu, a black "homeland" in South Africa, as being motivated by "political pressures." She claimed that the selective divestment legislation recently passed in Connecticut, where GE has its headquarters, was an important factor in its decision to pull out of the mining venture. Divestment has also been used as a lever by activists who want to force companies to become agents for progressive change in South Africa. The recently approved legislation in Connecticut, for example, requires the state to divest its holdings in companies that do not perform in the top two categories of the Sullivan principles ratings system or that sell strategic products to the South African government. In other words, Connecticut, by threatening to sell its investments in certain companies, hopes that this will prompt those companies to improve or alter their policies and play a more progressive role in South Africa. Similarly, many institutional investors, particularly universities, have investment policies that prohibit new investment or require the divestment of stocks or bonds held in companies that have not signed or are not aggressively implementing the Sullivan principles. They hope that such a policy will prompt companies to step up their efforts to improve the living and working conditions of black South Africans. Shareholder activism--The other major tactic used by many activists in the debate is to approach companies directly by means of shareholder resolutions and meetings with management. Like divestment, shareholder activism does not affect a company's balance sheet but can deplete that more elusive commodity, the firm's public image. Churches have used the shareholder activism approach far more than most other activist groups have, in large part because the churches' ownership of stocks gives them an entree to the head offices of companies that many other activist groups lack. Generally speaking, church activists also are more willing to accept the efficacy of dialogue with companies and the possibility of convincing management in face-to-face meetings of the need to change policies and practices. But church groups are not the only activists to use the tactic of shareholder resolutions. Since the late 1970s a few universities have sponsored resolutions, and in 1982 and 1983, the public pension funds of the state of California co- sponsored South Africa-related resolutions at Xerox. Because of the variety of positions held by church and other shareholder activists on the role of U.S. companies in South Africa, their resolutions have ranged from those calling on companies to withdraw their investment from the country to a few calling for the signing and implementing of the Sullivan principles of equal opportunity. Between these two poles, shareholder activists have introduced several kinds of resolutions that often draw support from those that feel all U.S. firms should withdraw from South Africa and also those that believe many companies, if pushed, can contribute to the pace of change there. In this intermediate category are resolutions calling on companies to stop selling computers, oil and other strategic goods to Pretoria; to stop making loans to the South African government and its state-owned corporations; and to forgo further expansion in the country until apartheid ends. Many advocates of withdrawal see these actions as steps toward the goal of getting all U.S. companies to pull out of South Africa. On the other hand, some shareholder activists view the same actions as steps a company must take before it can begin to be a force for change in South Africa. Although many activist groups have used shareholder resolutions in a number of ways to achieve anti-apartheid goals, several groups oppose that tactic, contending that working with companies is a waste of time and energy. Gail Hovey of the American Committee on Africa told IRRC that "we don't concentrate on shareholder activism because we don't think it is the most effective method for influencing events in South Africa." She added that the record of corporations shows that they have not been persuaded by the arguments put forth by shareholder activists. Jerry Herman of the American Friends Service Committee agrees with Hovey that the results of the shareholder activism campaign have been disappointing. Activist response to the Sullivan principles--The tactic that has provoked the greatest disagreement within the activist community is that of encouraging companies to sign the Sullivan principles of equal employment opportunity. Most activists, particularly those who favor withdrawal, believe the principles serve only to distract attention from the real issues confronting South Africa. A spokesman for the UN Centre Against Apartheid told IRRC, "The struggle in South Africa is for the establishment of a new society, not for the improvement of labor conditions at U.S. companies." Another activist argued that the principles were nothing more than an insincere response by companies to divestment pressures. Randall Robinson, executive director of TransAfrica, told IRRC that he thinks Rev. Sullivan has realized that "he might have been had by the corporations." However, a few groups have not disassociated themselves from the Sullivan effort. As noted earlier, some who believe that business should act as a progressive force for change in South Africa generally believe that signing and aggressively implementing the Sullivan principles is one step--albeit a minor one- -that companies can take to alter the apartheid system.

The activists' position on the Sullivan principles is complicated by the fact that other participants in the domestic debate think that whether a company has signed the principles is an important issue. Timothy Smith of the Interfaith Center told IRRC that many institutional investors "take very seriously" a company's failure to sign the principles. Members of Congress and state legislators have introduced bills to regulate U.S. corporate activity in South Africa that incorporate the Sullivan principles. A law requiring the divestment of stock in companies that have not signed, or that have been rated unfavorably by Sullivan, is on the books in Connecticut, and similar legislation may be considered in other states. This prospect leaves activists who oppose the Sullivan principles with a difficult decision on how to respond to state action that embraces the principles. Many activists who spoke with IRRC indicated that doing nothing at all would be preferable to the "backward step" of legislating or further institutionalizing the Sullivan principles into the domestic debate. But as the case in Connecticut shows, activists may be willing to compromise on the Sullivan principles if some of their other major concerns are considered at the same time. Anti-Apartheid Activism in the 1980s With the election of Ronald Reagan, some of the optimism of the post-Soweto era faded in the activist community. A number of activists told IRRC that they have scaled back their objectives somewhat because they have spent so much time fighting proposed Reagan administration policy changes. At the same time, conservative organizations that favor expanded business and other ties with South Africa are playing a more active role in the formation of U.S. policy toward South Africa. Some anti-apartheid activists believe, however, that their efforts will ultimately be strengthened by the Reagan administration because widespread opposition to its proposed policy changes will ultimately help to unify, expand and strengthen activist efforts. Plans are already under way to improve the communication among activists and expand their base of support to other social and political activist groups. Activist response to the Reagan administration: With Reagan's election, activists found themselves completely isolated from executive branch decision- making over U.S. policy toward South Africa--a sharp contrast to the access some of them enjoyed during the Carter administration years. Activists have also found themselves on the defensive as the new administration, in pursuit of a policy of "constructive engagement," began to reexamine and relax Carter-era restrictions on U.S.-South African relations. (For details on Reagan administration policy toward South Africa, see Chapter 11.) As a result, a number of activists contend that they have not had an opportunity to pursue their own agendas because the Reagan administration has sidetracked their efforts. Ken Zinn of the

The Original "Statement of Principles" In March 1977, 12 U.S. corporations announced that they had signed a statement of principles governing activities in South Africa which was drawn up under the direction of Rev. Leon Sullivan, a member of the board of directors of General Motors. Since then, Sullivan has refined and expanded the principles on several occasions, most recently in November 1982. The current statement appears in Appendix A. The March 1977 statement included a commitment by each corporation to: I. Non-segregation of the races in all eating, comfort and work facilities. II. Equal and fair employment practices for all employees. III. Equal pay for all employees doing equal or comparable work for the same period of time. IV. Initiation of and development of training programs that will prepare, in substantial numbers, blacks and other non-whites for supervisory, administrative, clerical and technical jobs. V. Increasing the number of blacks and other non-whites in management and supervisory positions. VI. Improving the quality of employees' lives outside the work environment in such areas as housing, transportation, schooling, recreation and health facilities. Washington Office on Africa admitted that the activist community "has put certain things aside because we know they won't fly in the administration or in Congress." Zinn cited abandoned activist plans to push for economic sanctions against South Africa in the United Nations as one such example. Another activist told IRRC that there had not been much time in 1981 for the activist community to take the initiative on South Africa "because we were fighting the Reagan administration efforts to repeal the Clark amendment," which prohibits U.S. covert activity in Angola. "Between the Clark amendment, the easing of export regulations, and the general strengthening of ties between the United States and South Africa," he said, the activist community has generally "found itself on the defensive."

Conservative organizations: Reagan's election, perhaps more than any other in the post-war period, swung the political pendulum in Washington to the side of the conservatives. On the South Africa issue, this meant that conservative organizations whose supporters believe in expanded U.S. business activity in South Africa now had the ear of administration policymakers. Two groups in particular have expanded their influence in the South Africa debate since Reagan's election--the Heritage Foundation and the South Africa Foundation. The Heritage Foundation, a conservative public policy research institute formed in 1973, has taken up South Africa on a number of occasions. Heritage Foundation scholars have been particularly interested in strategic questions such as the importance of ensuring the availability of certain minerals from southern Africa and fighting Communist influence in the region. While the Heritage Foundation does not have an organizational viewpoint on the broad question of U.S. relations with South Africa, the analysts who work there share the view of the American business community that business should remain in South Africa because it serves as a positive force for social change. The Heritage Foundation distributes its research to a wide audience of government leaders, businessmen and opinion-makers. A number of Heritage Foundation scholars served on the Reagan transition team and are now in positions of influence inside the administration or remain advisers in their roles outside the administration. Another group that benefited from Reagan's election was the South Africa Foundation, an organization funded by private and corporate sponsors in South Africa that encourages greater contact--on all fronts--between the United States and South Africa. By serving as a sort of counter-lobby to the liberal activists, the South Africa Foundation has played a highly visible role in the domestic debate since it opened an office in this country in 1968. John Chettle, director of the South Africa Foundation in the United States, believes that close relations between the government and the private sector can provide the United States with a greater opportunity to influence events in South Africa than the divestment approach offered by most activist organizations. The South Africa Foundation believes that a dearth of reliable information on South Africa has enabled anti- apartheid activists to become more effective than they ought to be. As a result, the foundation attempts to "provide facts" about South Africa to the opinion-makers in the United States in an effort to counter what it calls the "misinformation" frequently provided by activist groups. According to the South Africa Foundation's chief executive, its director general, if public opinion of South Africa were more favorable, "it would be more difficult for anti-South African activists to manipulate UN agencies and blackmail governments on the South Africa issue." Cooperative efforts: The inability of the anti-apartheid community to alter U.S. policy toward South Africa fundamentally during the Carter administration and the shifting political balance away from liberal values that marked the 1980 election prompted activists to reevaluate their approach to South Africa. Many activists have stressed the need to improve cooperation among the diverse activist groups in the domestic debate. Some contend that opposition to Reagan administration initiatives on South Africa has served as a unifying force in the anti-apartheid movement. Salih Abdul-Rahim of TransAfrica told IRRC that he has seen a different attitude among certain activists since the Reagan administration took office. The activist community "has stopped splitting hairs over issues such as the Sullivan principles," Abdul-Rahim said. Since Soweto, anti-apartheid activity has attracted activists from a wider range of backgrounds and activism is no longer restricted to "radical" students and "leftist" religious leaders. Thus, activists have recently determined that they must increase the level of coordination among these divergent groups in order to effect change in business and government attitudes. The formation in 1977 of the Campaign to Oppose Bank Loans to South Africa was an attempt by activists to pool their resources to promote a halt to bank loans to South Africa. The activist community undertook a similar effort in 1980 when it formed the Campaign Against Investment in South Africa to bring the divestment movement to state and local governments throughout the country. CAISA brought together elected officials and trade union, civil rights, church and local community-based anti-apartheid groups in an effort to take state and local monies out of companies and banks doing business in South Africa and to reinvest it in companies and projects that might strengthen the local economy. In a further effort to improve communication and cooperation within the activist community, the American Friends Service Committee has organized a series of informal "coherence meetings." Jerry Herman of AFSC says these meetings are an attempt to improve the overall organization of the anti-apartheid community. For a variety of reasons, said Herman, "we have not been able to establish a national anti-apartheid organization that can address some of the common problems of the anti-apartheid movement." Herman hopes that these meetings will help to fill the leadership void in the activist community. Other activists share Herman's assessment of the need for cooperation. Jean Sindab of the Washington Office on Africa told IRRC that it is necessary to remember that although the activist community is diverse, "the overall number of people interested in the South Africa issue is small." "As a result", says Sindab, "we need to build a stronger coalition of activists or face the risk of seriously weakening the movement." Linking issues: The activist community has attempted to broaden its base by linking the South Africa issue with other contemporary public policy issues. Student activists, for example, recognized the need to expand into other constituencies at the end of the 1970s as student turnover and the relative quiet in South Africa led to a gradual decline in the level of student involvement in the South Africa issue. Writing in late 1979, Josh Nessen, student coordinator for ACOA, argued that U.S.-South Africa nuclear links provide "a concrete basis for unity with the anti-nuclear movement." Nessen asserted that the linkage of these issues would enable the anti-nuclear movement and the divestment movement to be "mutually supportive" rather than to "detract from one another." The linkage of anti-apartheid efforts with other domestic and international struggles was a major subject of discussion at the October 1981 National Student Anti-Apartheid Conference. Student activists focused on the need to couple South Africa with the issue of racism in American institutions. According to a report on the conference published by ACOA, activists were told that "failing to focus on campus/domestic racism can isolate anti-apartheid committees, making them seem solely concerned with 'far away' events and 'popular' issues." Student leaders offered the following proposal to "build formidable bridges" between activist organizations: -- Attempt to form coalitions with other organizations that are sympathetic to the African liberation movement. -- Show support for other progessive organizations. -- Identify speakers who can make the connections between various struggles and bring them to campus. -- Expose cases of police repression in the United States and relate it to state repression in South Africa. The larger activist community has also picked up on the earlier efforts of students to link up the South Africa issue with other public policy questions. Jean Sindab of the Washington Office on Africa told IRRC that anti-apartheid activists have attempted to broaden their appeal by putting an "African handle" on the nuclear issue. She said "we want to get these people involved in the nuclear issue on our mailing list" in order to educate them on South Africa. Randall Robinson of TransAfrica told IRRC that his organization is attempting to focus attention on the military and nuclear links between the United States and South Africa and the threat they pose to other countries in the region. Perhaps the most interesting linkage approach has been the effort to bring the South Africa issue down to the state and local level. CAISA, which serves as the umbrella organization in the state and local divestment movement, has attempted to tie South Africa to the issue of responsible state investing. A number of state officials have begun to look at the possibility of divesting their South Africa- related holdings and reinvesting those assets to benefit the local economy through in-state investment strategies designed to create housing, employment and tax revenues. In Massachusetts, the South Africa issue is being couched in terms that attempt to touch the self-interest of the average citizen of the state. The legislature passed a bill in December 1982 that requires the state to divest approximately $100 million of pension fund assets invested in companies doing business in South Africa and banks making loans to the South African government. These South Africa-related assets are to be reinvested, "as much as reasonably possible," in "institutions or companies which invest or conduct business in Massachusetts." Some activists have made state and local action on the South Africa issue a top priority. TransAfrica, for example, has spoken with more than 300 black elected officials, asking them to sponsor divestment legislation. There have been other efforts to bring the South Africa issue to the local level. Some activists have argued that the presence of U.S. business in South Africa--with its abundance of inexpensive labor--has taken jobs away from American workers. A spokesman for the American Committee on Africa summed up the feelings of the activist community when he said the state and local level debate "has been enormously effective in expanding our constituencies," and continued concentration on the local level is the likely direction of activist efforts in the 1980s.

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II GOVERNMENT INVOLVEMENT IN THE DEBATE The level of U.S. government participation in the South Africa debate has grown substantially since events there in the mid-1970s stirred executive branch and congressional concern. In the aftermath of Soweto, as anti-apartheid activists began to keep a close tab on U.S. policy toward South Africa, government officials responded by keeping a more watchful eye on a range of South Africa- related issues--including the role of U.S. corporations in South Africa. Despite the intensified federal interest in the South Africa debate, the anti- apartheid activists' hopes for some sort of fundamental changes in the nature of U.S.-South Africa relations have not materialized. For the most part, as is generally the case in foreign policy matters, members of Congress have looked to the executive branch for leadership on the question of South Africa. But except for some changes in trade policy and the level of anti-apartheid rhetoric, the federal government under both the Carter and Reagan administrations has maintained normal diplomatic and commercial relations with South Africa. Moreover, the Reagan administration has eased certain trade restrictions set in the 1970s, although it maintains that the changes are merely in the tone and not the substance of U.S. policy toward South Africa. Activists, frustrated by their inability to persuade the executive branch or Congress to impose significant limitations on U.S. economic ties with South Africa, have turned their attention to state and local governments. Legislation seeking to limit the investment of state funds in companies doing business in South Africa has been introduced in more than one-third of the 50 states and enacted in three. The introduction of bills in some of these states is only a token gesture by a single concerned state legislator, but in a number of legislatures lengthy hearings and debate have accompanied the consideration of South

Africa-related legislation. Moreover, U.S. business and the South African government have stepped up their lobbying efforts in state capitals, giving some indication of the significance they attach to the state-level debate. The Executive Branch and Economic Relations with South Africa The executive branch of the federal government--particularly the Commerce and State Departments--plays a critical role in establishing the ground rules for American business activity in South Africa. As is true vis-a-vis most non- Communist countries, U.S. policy neither encourages nor discourages investment in South Africa. At the same time, however, as one way of expressing U.S. disapproval of apartheid it does place some restrictions on trade and on the use of Export-Import Bank loan facilities. For the most part, trade restrictions have been aimed specifically at the South African military and police and more generally at the government, particularly those government departments most responsible for the administration of the apartheid system. While official U.S. policy has been designed since 1964 to avoid giving the impression of closeness to the South African government, succeeding administrations have varied the details of this approach. Chester Crocker, Assistant Secretary of State for African Affairs and principal architect of the Reagan administration's policy, has said that the ability of the United States to promote constructive change in South Africa will be enhanced through a policy of "constructive engagement," rather than through the tactics of "confrontation" and "public denunciation" that he claims characterized the Carter administration. Crocker outlined the administration's constructive engagement approach in a speech before the American Legion in Hawaii on Aug. 29, 1981: The United States seeks to build a more constructive relationship with South Africa, one based on shared interests, persuasion and improved communication. At such a time, when many South Africans of all races, in and out of government, are seeking to move away from apartheid, it is our task to be supportive of this process so that proponents of reform and nonviolent change can gain and hold the initiative. Commerce Department officials contend that while the Reagan administration approach to South Africa may differ from that of the Carter administration, there has been no fundamental difference in the government's attitude toward apartheid. Urath Gibson, the South Africa desk officer for the Africa Marketing Division of the Commerce Department, says that the Reagan administration "is no closer to apartheid per se than was the Carter administration." She says the difference is that Carter "felt a need to take a strong vocal stand in opposition to apartheid whereas the Reagan approach seeks a more open dialogue with the South Africans." Nevertheless, since Ronald Reagan took office in 1981 changes have occurred in both the substance and the rhetoric of U.S. policy toward South Africa. The bulk of these changes have occurred in the area of commercial policy where the Reagan administration has eased many of the trade restrictions imposed under President Carter. In addition, there has been a growing level of direct U.S. government involvement in South Africa itself. The following sections sketch the evolution of commercial policy, policies on loans and trade financing, policy on investment and labor practices, and U.S. aid to South Africa. Commercial policy: Despite the apparent neutrality of the stated U.S. government policy of neither encouraging nor discouraging investment in South Africa, other policy guidelines clearly set South Africa apart from other business partners. For example, Commerce Department policy of avoiding the impression of closeness to South Africa has had some tangible effects. A Commerce Department official explains that in practice this policy has meant that the United States could not open a trade center or hold a trade fair in South Africa. U.S. commercial relations with South Africa are set apart in other ways. For example, Commerce Department policy specifies that firms should be "informed of the economic and socio-political aspects of an investment in South Africa and of the domestic reaction amongst the firm's stockholders which could be anticipated from such a venture." Sally Miller, director of marketing for the Africa Region of the Commerce Department's International Trade Administration, explains that this policy was adopted in 1964 for firms that have not entered the South African market. "Because South Africa is such a unique country," she said, "this policy helps them go there with their eyes open." Thus, the U.S. government, although not "discouraging" trade or investment with South Africa, gives businessmen who are considering such moves some reason for caution. Trade restrictions--The imposition of trade restrictions on South Africa is the most obvious way in which U.S. economic relations with South Africa are different from relations with nearly every other non-Communist country. In an effort to restrict trade in certain goods that contribute to the sustenance of the apartheid regime, the U.S. government instituted a policy in 1976 to restrict sales of computers and computer technology to the South African military and police, as well as to government agencies handling atomic energy. All companies with general distribution licenses for computer sales to South Africa were informed that future sales to these agencies would require a validated license, which requires assurances on each export that the item will not be diverted to an unauthorized destination or use. In June 1977, the validated license requirement was extended to computers destined for the South African government department, now called the

Department of Cooperation and Development, responsible for administering the laws regulating the movement and residence rights of Africans. These restrictions, which were never declared as an outright embargo, nevertheless effectively ended almost all sales of computers and computer-related items to the listed South African entities. Implementation of these restrictions was applauded by critics of the South African government, who contended that high technology goods, particularly computers and advanced electronic equipment, are a vital part of the apparatus the South African government has developed to enforce apartheid. Additional restrictions--The 1976 and 1977 restrictions on U.S. computer exports were expanded in February 1978 when the Commerce Department embargoed exports of all U.S.-origin goods and technology--not only computers--to the South African police and military. The purpose of the embargo was to strengthen the mandatory arms embargo imposed in response to that country's crackdown on political dissent and to the death in detention of South African black consciousness leader Steve Biko in the fall of 1977. The 1978 Commerce regulations required purchasers of U.S. exports to certify that goods purchased would not be sold or used in any way by the military or the police. The regulations also stated that: "Parts, components, materials and other commodities exported from the United States may not be used abroad to manufacture or produce foreign-made end products where it is known...the end products will be sold or used by military or police entities" in South Africa and Namibia. Finally, the Commerce Department placed restrictions on the transfer of certain types of technical data that could be used in a strategic manner by the South African government. The new regulations represented the first time the United States had chosen to apply controls to all goods that might be used by specific institutions in a foreign country, regardless of the nature of the goods or their possible use. Grey area sales--The new restrictions were also an attempt to tighten up on "grey area" sales to the South African military and police. "Grey area" items encompass materials of a non-military nature that can be converted on short notice to military or police use. Light airplanes, specialized computer systems, and certain electronic components and strategic spare parts are all considered to be "grey area" items. In 1977, a high ranking State Department official said: "Even if an item has no clear and direct application to combat or to internal security operations, it may not be appropriate to permit the sale of that item to the South African military. The sale of some items, although of no use in combat, may nevertheless strengthen apartheid or encourage the belief that we are not serious in our opposition to apartheid." Thus, by prohibiting the sale of all goods to the South African military and police, regardless of the nature of the goods and their possible uses, "grey area" items were, in theory, no longer an enforcement problem.

Reagan administration approach--The Reagan administration has eased many of the Carter administration's restrictions on trade between the United States and South Africa. In June 1981, the administration amended the 1978 regulations to permit the sale of medical supplies and anti-hijacking equipment to the police and military on a case-by-case basis. The Commerce Department says that the amendments affecting medical exports were made for humanitarian purposes and reflect congressional intent that exports to meet basic human needs not be restricted for foreign policy reasons. The international civil aviation amendments reflect the general U.S. policy of seeking to prevent international terrorism and supporting the specific U.S. commitment to ensure the safety of international air transportation. In February 1982, the Reagan administration further relaxed restrictions on trade with South Africa by permitting the sale of additional non-military goods to that country's military and police. A report by the Commerce Department's Office of Export Administration said that the change will permit U.S. exporters to sell to South Africa several ''general purpose items" readily available from other sources- -food, nonmilitary clothing, chemicals, industrial equipment, certain home electronic and personal communications equipment, word processors, calculators, copy machines and personal computers. The revised Commerce regulations also specify that most applications for the export of aircraft and helicopters for civilian uses will be considered favorably on a case-by-case basis, subject to a license condition that the aircraft or helicopter will "not be put to military, paramilitary or police use." Anti-apartheid activists immediately expressed concern about the sale of any type of aircraft to the South African military or police, and were alarmed by the Reagan administration's subsequent decision to grant export licenses to four U.S. aircraft manufacturers that are competing for a $12 million contract to sell six planes to the South African Air Force for use as air ambulances. Rep. Howard Wolpe (D-Mich.), chairman of the House Subcommittee on Africa, disagreed with the administration's decision to grant the licenses, arguing that "the notion that these planes don't have military utility is simply a deceptive proposition. They are designed to help the military--that's why they're being sent to the military." Defending the policy, a Commerce Department official told IRRC that use of aircraft for medical purposes can be considered "a civilian use." The administration also modified the policy on licensing computer sales to South Africa in February 1982 to "permit certain sales to the military and police and to specific government agencies." At that time, the Commerce Department extended the validated license requirement to cover the export of computers not only to the South African police and military and the Department of Cooperation and Development, but also to the Departments of the Interior, Community Development, Justice and Manpower. In September 1982, the Commerce Department added to this list of government agencies "administrative bodies of the homelands that carry out similar functions." At the same time, however, the Commerce Department made clear that the validated license requirement was not intended to ban computer exports to the affected agencies. Instead, it specified that applications for validated licenses to agencies other than the police and military were to be considered favorably on a case-by-case basis provided that the computers "not be used to enforce the South African policy of apartheid." Computer sales to the South African military and police were to continue to be denied, the Commerce Department announced, except on a case- by-case basis for sales that "would not contribute significantly to military or police functions." While the general direction of Reagan administration policy on South Africa has been toward easing trade restrictions, it is too early to tell whether the revised policy guidelines governing computer sales in particular represent a tightening or an easing of export policy. On the one hand, the Reagan administration has made it potentially more difficult for additional South African government agencies to obtain U.S. computer technology by requiring U.S. exporters to apply for a validated license. However, depending on how the validated license requirement is administered by government officials, the specified South African government departments and the police and military may find the procurement of U.S. computers to be an easier exercise than it was under the Carter administration. A Commerce Department official responsible for granting computer export licenses indicated to IRRC that the revised computer regulations represent a real toughening up of Commerce policy. He said that the South African government agencies were singled out in the regulations because "they would be the agencies most likely to use computers to enforce apartheid." He added that by specifying these particular agencies the government was saying to exporters that "if you're going to sell to these departments, you sure as hell better be careful how the equipment is going to be used." Despite the possible tightening of certain computer exports, the overall Reagan administration trade policy toward South Africa has been one of easing export restrictions as a central element in the constructive engagement approach. According to Bohdan Denysyk, deputy assistant secretary of commerce for export administration, the easing of export regulations does not mean the administration is condoning apartheid. Denysyk told the Associated Press that "we are taking small steps toward them; they should be taking small steps toward us." The administration hopes that the improved relationship between the United States and South Africa will encourage cooperation in reaching a settlement in the five-year effort by the Western powers to work out a formula that would bring the South African-controlled territory of South West Africa to independence as the state of Namibia. Nuclear export policy--The most recent development in U.S. export policy toward South Africa was the administration's May 1982 decision to ease export controls of nuclear-related technology to South Africa. Commerce Secretary Malcolm Baldridge, in a letter that month to Sen. Charles Percy (R-Ill.), reaffirmed certain aspects of past U.S. policy. He said that American policy would continue to prohibit nuclear cooperation as long as South Africa refuses to adhere to the treaty to halt the spread of nuclear weapons or to accept international inspection of all its nuclear plants. Baldridge added, however, that "this administration has adopted a more flexible policy with respect to approvals of exports of 'dual-use' commodities and other materials and equipment which have nuclear-related uses in areas such as health and safety activities." Administration officials have said that the revised policy should not be interpreted as a change in the non-proliferation goals of past administrations. A Commerce Department official told IRRC that the language of the export regulations has not changed; rather, past interpretations "may have been too narrow." He added that the new policy applies only to "non-sensitive things such as non-nuclear equipment for a power station." As far as nuclear items themselves are concerned, he said, "exports of those items are definitely out." Nevertheless, the application of the "dual-use" provision of the administration's policy has provoked considerable controversy. Gay McDougall of the Lawyers' Committee for Civil Rights Under Law argues that one of the reasons for the committee's concern is that "we don't know what Baldridge meant in his letter to Percy concerning dual-use items." The recent sale of a Control Data 170/175 computer to the South African government-controlled Council on Scientific and Industrial Research has caused considerable concern among anti-apartheid groups. Ken Zinn of the Washington Office on Africa told IRRC that the March 26, 1982, decision to grant a license application to Control Data came over the objections of the Defense Department and the Nuclear Regulatory Commission which argued that the computer could "greatly aid Pretoria's nuclear weapons program." The most recent controversy in the nuclear export policy debate occurred in September 1982 when the Reagan administration announced that it was reconsidering a request by a South African company to permit the export of sophisticated metallurgical equipment that could be used in the manufacture of nuclear weapons hardware. An earlier decision by an interagency Subgroup on Nuclear Export Coordination (SNEC) prohibited the export of the equipment because of proliferation concerns that surround South Africa's nuclear development program. At the Commerce Department's urging, a new interagency review has begun, with Commerce officials arguing that the military significance of the equipment has been overstated. Commerce vs. State--The disagreement over nuclear export policy toward South Africa is symptomatic of other policy differences that have occurred in recent years between the Commerce Department and other executive branch departments over U.S. commercial policy toward South Africa. The most consistent debate has taken place between officials at the Commerce and State Departments. The Commerce Department has traditionally pushed for an expansion of trade relations between the United States and South Africa. Officials at the State Department have generally been less willing to ease the U.S. policy of placing restrictions on certain forms of commercial cooperation with South Africa. There is some indication, however, that under the Reagan administration the Commerce Department view has received more careful consideration than in the past. A Commerce official told IRRC that during the Carter administration, "whatever State wanted in economic and commercial policy toward South Africa, it got." Under Reagan, the official noted, the top people in Commerce "have shown a willingness to stand up to the careerists at State who were hell bent that there be no change" in trade policy toward South Africa. Response to export changes--Critics of the administration see the partial relaxation of controls on exports to South Africa as detrimental to U.S. policy interests in southern Africa. Wolpe called the relaxation of controls "a very tragic foreign policy mistake" and contended that "it appears this administration is no longer as concerned about human rights in South Africa as previous administrations and that our commercial policies toward that nation are being reshaped to coincide with constructive engagement." However, Ian Butterfield, an analyst for the Heritage Foundation, disagrees with those who argue that a modification of export guidelines will damage U.S. interests in the region. He maintains that an easing of export restrictions "could provide Pretoria with the appropriate incentives to cooperate in the Namibia negotiations without damaging the U.S. stance against apartheid." Loans and trade financing: The U.S. government has no stated policy governing private bank loans to South Africa and changes in bank policies toward lending have been prompted by forces outside the executive branch. (For a discussion of the activist campaign against bank loans to South Africa, see Chapter V.) In contrast to the free hand that commercial banks enjoy in their South African operations, U.S.-backed loans by the Export-Import Bank are subject to a number of restrictions. Since 1964, the Eximbank has followed a policy of not making direct loans to the South African government or to South African companies--a policy that the National Security Council developed because it viewed the low interest rates of Eximbank loans as a form of economic assistance to South Africa. In addition, in 1977, following the demonstrations in black townships of the preceding year, Eximbank's board of directors determined that South Africa's creditworthiness had slipped. As a result, the bank decided to guarantee only loans with repayment periods of three and one-half years or less; previously, it would guarantee loans with maturities of as long as 10 years.

In 1978, Congress amended the Export-import Bank Act to place three important restrictions on the bank's trade promotion activities. The amendment, known as the "Evans Amendment" after its sponsor, Rep. Thomas Evans (R-Del.), prohibited the Eximbank from granting financial guarantees or insuring any credits that would contribute to the maintenance of apartheid by the South African government. The amendment also barred the Eximbank from guaranteeing any credits to the South African government or its agencies (including public corporations) unless the President of the United States determined that significant progress had been made toward the elimination of apartheid. Finally, it specified that no Eximbank facilities could be used to support any export to a private South African buyer unless the Secretary of State certified that the buyer had endorsed and was carrying out the goals of nonsegregation and equal employment outlined in the Sullivan principles. Until 1982, the State Department had been unable to devise procedures under the 1978 amendment for the "certification" of South African purchasers of U.S. goods that were acceptable to both governments. As a result, the bank's exposure has been falling steadily, from $137 million at the end of 1979 to $58.5 million in mid-1982. The South African government rejected one certification plan whereby a lengthy questionnaire would have been used in conjunction with an on-site inspection by U.S. embassy officials. Pretoria argued that such a procedure would require an unacceptable "extraterritorial" reach of U.S. law. The deadlock was broken in 1982 when it became apparent to U.S. officials that the South Africans were not opposed to the on-site inspections per se, but only to giving the impression that U.S. law had validity within South Africa. As a result, the two countries were able to reach an informal agreement in August 1982, which provided that U.S. inspectors would be permitted on-site visits to South African private corporations desiring Eximbank facilities as long as the officials did not appear to be enforcing U.S. law in South Africa. A State Department official described the agreement to IRRC as one of "tone more than substance." He contended that the agreement was reached because of the more cooperative posture between the United States and South Africa since the Reagan administration introduced its policy of constructive engagement. Another official indicated that there has been a "fair amount of interest" in Eximbank financing from prospective South African customers since the agreement was reached. The major question now, he said, is "how much financing Exim has available" in the wake of recent budget cuts. IMF loan to South Africa--The Reagan administration angered anti-apartheid activists in November 1982 when the United States voted to support South Africa's request for a $1.1 billion loan from the International Monetary Fund, a Washington-based multilateral organization that collects contributions from and extends loans to member governments that have balance of payments problems. The weight of a country's vote within the IMF loan is determined by its contribution to the Fund. Thus, the United States, as the largest contributor, controls nearly 20 percent of the votes. Most Western European countries and Canada joined the United States in approving the loan over the widespread protest of African, Middle Eastern and other Third World governments. The vote on the loan was 51.6 percent in favor and 19.2 percent against, with the rest abstaining. The Reagan administration said it supported the loan--which the South African government had requested in the face of declining gold prices and weaker worldwide demand for other exports--because South Africa, as a member of the Fund, had a right to draw on IMF resources. The Reagan administration argued that economic criteria should be the determining factor in deciding upon an IMF loan. Treasury Secretary Donald Regan, in response to a letter from 35 members of Congress opposing the loan, argued that the United States should not "introduce political considerations into the IMF." The New York Times reported that Richard D. Erb, the U.S. representative to the IMF, condemned apartheid in the debate preceding the vote, but insisted that the Fund's lending rules should be applied impartially. The Reagan administration's decision to approve the loan came over the vigorous objections of anti-apartheid activists who argued that the loan would contribute to the apartheid policies and continued military buildup of the South African government. In a letter to The New York Times, a number of church groups active in the South Africa debate stated that the loan "can only further enable the Pretoria government to maintain apartheid and enforce its police and military apparatus to the detriment of the black majority." Rep. Wolpe, chairman of the House Subcommittee on Africa, expressed his opposition to the loan in a letter to Treasury Secretary Regan. He said his greatest concern was that the U.S. support for the loan "would be perceived by the South African government as an endorsement of its spending priorities and would be viewed by the non-white community within South Africa as support for an unjust status quo." Other opponents of the loan argued that the Reagan administration's contention that the IMF must remain apolitical does not stand the test of history. Rep. William H. Gray III (D-Pa.), vice chairman of the Congressional Black Caucus, said the Reagan administration "has already politicized the IMF and other international funding institutions by opposing loans to Nicaragua, Vietnam and Grenada, and by insisting on a loan to El Salvador in spite of opposition from Western European nations and IMF staff." Congressional liberals say that the Reagan administration's decision to support the loan for South Africa is likely to spark considerable interest in the 1983 congressional debate over the level of U.S. funding for the IMF. Policy on investment and labor practices: As noted earlier, the United States has adopted an essentially neutral stance toward investment by

U.S. companies in South Africa, with both Democratic and Republican administrations vigorously opposing legislative attempts to limit or ban investment. Joseph Denin, deputy assistant secretary of commerce for finance, investment and services, for example, expressed the Reagan administration's disapproval of a bill sponsored by Rep. Gray seeking to ban new U.S. investments in South Africa. Denin told a congressional hearing in 1981 that "restrictions on investment or reinvestment in South Africa could lead U.S. companies to conclude that investment by them elsewhere in the world carries with it greater risks of potential U.S. restrictions and, therefore, act as a disincentive to foreign investment." In recent years, the U.S. government has devoted increasing attention to the issue of U.S. corporate labor practices in South Africa. Both the Reagan and Carter administrations have argued that U.S. business, through progressive labor practices, can be a positive force for social change. As early as 1974 the labor attache at the U.S. Embassy in Pretoria talked to U.S. firms about the importance of improving labor practices. In the same year, the U.S. government took the position that U.S. companies in South Africa should deal and work with unregistered black trade unions. (It was not until 1979 that South African law officially permitted Africans to join government-registered unions.) Sally Miller of the Commerce Department says the U.S. government is still working to improve the lot of black workers. For example, says Miller, the Commerce Department "has contacted corporate headquarters in the United States if a South African subsidiary is not treating its workers fairly," and it has asked U.S. firms "to be advanced" in their South African labor policies. In addition, the Commerce Department provides corporations interested in investing in South Africa with examples of "enlightened employment practices" drawn from U.S. firms' operations. The Commerce Department also encourages companies to adopt progressive labor practices through its support of the Sullivan principles. When the Sullivan principles were first announced in 1977, the U.S. government adopted a cautious attitude toward them. However, in 1979, to the surprise of many officials at Commerce, Assistant Secretary of State for African Affairs Richard Moose threw the U.S. government's support behind the principles. Sally Miller says she has never seen any explanation for the change in policy. She believes that initially the government was reluctant to endorse the Sullivan principles because they were "a private sector initiative that placed the South Africa issue on a higher moral ground" than the government gave the issue. A State Department official told IRRC that the U.S. government delayed support for the principles largely to "see how the principles evolved and to see what kind of reaction they received from the South African government." Although the Reagan and Carter administrations have officially supported the principles, they have resisted congressional efforts to require all U.S. companies in South Africa to sign them. In response to a bill introduced by Rep. Stephen Solarz (D-N.Y.) to make signing the Sullivan principles mandatory, Joseph Denin of Commerce said the proposed legislation "conflicts with our policy on codes of conduct for multinational enterprises." He added that "we have long maintained that, with certain narrow exceptions, such codes should be voluntary in nature, balanced in the obligations they impose on enterprises and government, and equally applicable to all firms, regardless of the nationality of ownership." U.S. government aid to South Africa: An interesting development in U.S.-South Africa relations since Reagan's election has been the growth of U.S. government- supported assistance programs inside South Africa. While not directly touching on the commercial relations between the two countries, these programs affect U.S. companies indirectly by opening new areas of involvement in fields such as education and training. Previous administrations have been hesitant to get involved in such programs for fear of giving the impression that they were working in cooperation with the South African government. By far the largest U.S. government program in South Africa is a scholarship program designed to bring South African students to the United States for undergraduate or graduate education. The $4 million program began in 1982 with 81 students enrolled in American universities. Government funding of the program, which administration officials say will continue, is to be supplemented by contributions from corporations and universities that have agreed to provide full or partial scholarships for the South African students. A second U.S. government-funded education program operating in South Africa is designed to prepare black South Africans for their joint matriculation exam, which is required before entering college. A State Department official described the program as being "similar to an American crash course for the SAT or GRE exam." The program, which received a $300,000 appropriation in 1982, has been developed by the University of San Diego and operates through a number of community-based organizations throughout South Africa. On the training front, the administration is reviewing a proposal by the Agency for International Development to implement a management development and training program for black entrepreneurs, to provide help in areas where their skill level is low--such as financial accounting. AID officials told IRRC that the National African Federated Chambers of Commerce is being considered by AID to act as the implementing agency for this program. It is too early to tell how much money such a program would require, an AID official said, but he said AID was considering a two- to three-year project. He emphasized that if the proposal were accepted, AID would be "working directly with black businessmen and not with an official organ of the South African government."

The Debate in Congress The level of congressional involvement in the debate over U.S. business ties to South Africa has been inconsistent, rising and falling in response to events in South Africa--Sharpeville in 1960, the student demonstrations in 1976, Steve Biko's death and bannings of black consciousness groups in 1977 and the 1982 death in detention of Neil Aggett, a white physician active in organizing for a black labor union. While congressional interest has been stirred up by such events, congressional action has been limited largely to support for executive branch initiatives. As is the case with most foreign policy issues, the number of congressmen active in the South Africa debate remains small, and the lack of a sizable group of voters concerned about U.S. involvement in South Africa and willing to convert that concern into pressure on their elected representatives further hampers those members most active on African issues. For the most part, congressional initiatives on South Africa have been of an educational or political rather than a legislative nature. Bills seeking to limit business with South Africa have been proposed in the last two decades, but the executive branch, under both Democratic and Republican administrations, has consistently opposed such efforts and all but one have gone nowhere. The single piece of binding legislation to be approved by Congress was a bill passed in 1978 limiting Export-Import Bank facilities available to companies trading with South Africa. Given the conservative mood in Congress, the important domestic issues facing the country, and the lack of a clear political constituency, it is unlikely--absent dramatic development in South Africa--that the level and nature of the congressional debate will change appreciably in the next few years. The evolution of interest: Congressional participation in the South Africa debate is relatively recent. It was not until the 1970s that the House and Senate began a serious examination of U.S. policy toward South Africa and the role of American business there. Rep. Charles Diggs (D-Mich.), chairman of the House Subcommittee on Africa, held a number of hearings between 1971 and 1973 on U.S. business involvement in South Africa. In the Senate, in 1976, a series of hearings designed to explore the concerns about the role of U.S. business in South Africa was organized by Sen. Dick Clark (D-Iowa), chairman of the African Affairs Subcommittee. An aide to Clark told IRRC that Clark's primary purpose in holding the hearings was to "raise the level of consciousness of his colleagues in the Senate." Despite the early efforts of Diggs, Clark and a few others, it was not until the events in Soweto in 1976 and the death in detention of Steve Biko the following year that the South Africa issue gained a degree of immediacy in Congress. Ted Lockwood, former executive director of the Washington Office on Africa, told IRRC that Biko's death "struck a nerve in members of Congress." A number of bills relating to South Africa were introduced between 1977 and 1980, many of them seeking to limit economic ties between the two countries. Rep. Newton Steers (R-Md.) introduced a bill to request the President to review those U.S. policies that encourage investment in and trade with South Africa, and to consider steps to end such support; Rep. Stephen Solarz (D-N.Y.) introduced two bills in 1978 to prohibit new investments by U.S. companies and banks in South Africa; and Rep. Charles Rangel (D-N.Y.), a member of the Congressional Black Caucus, introduced legislation in 1979 that would have restructured foreign tax credit provisions to the disadvantage of American firms in South Africa. None of the proposals was approved by the House. Many of the bills on the South Africa issue have been offered as "non-binding resolutions" that lack the power of law and merely recommend a policy. Frequently they are intended to send a signal to the South Africans that members of Congress are unhappy with that country's human rights performance. In 1977, the House approved a non-binding resolution that denounced South Africa for the death of Steve Biko and for certain repressive measures that Pretoria had used against opponents of apartheid. The majority of these resolutions, however, have failed to make their way out of committee. To some extent, this has been a function of the lack of support for the resolutions, but it also reflects the limited amount of time Congress can devote to highly specific foreign policy issues. The Congressional Black Caucus, an 18-member organization of black House members, has sponsored much of the South Africa-related legislation introduced in Congress, even though its primary focus is on domestic issues. An aide to Rep. William Gray III (D-Pa.), chairman of the Caucus's Foreign Affairs Committee, argues that South Africa is a "top priority" of the Caucus. Nevertheless, the Caucus has been unable to activate Congress as a whole on the South Africa issue, and an aide to one Caucus member conceded that its ability to influence policy has been severely limited since the election of Ronald Reagan. As a result, she says, the primary role of the Caucus in the South Africa debate will be "to continue to educate other members of Congress and the public about the realities in South Africa so the issue does not lose prominence." The only piece of binding legislation approved by Congress has been the 1978 "Evans Amendment" to the Export-Import Bank Act of 1945 that placed additional restrictions on extending Eximbank facilities to South Africa. But some observers contend that the Evans Amendment is not an accurate indicator of the level of congressional interest in South Africa. Pauline Baker, staff director of the Senate Africa Subcommittee from 1978-80, says it would be "a mistake to view the Evans amendment as an indication of widespread anti-apartheid sentiment in Congress." The Evans amendment was an "aberration," she says. "It was the last act of the 94th Congress and members did not debate the issue fully because most of them wanted to go home."

For a short period in 1979 and 1980 it appeared that the South Africa issue would play a more prominent role on Capitol Hill. The formation in 1979 of the Ad Hoc Monitoring Group on southern Africa, an informal, bipartisan group of 45 U.S. House and Senate members who joined together to review U.S. policy toward southern Africa and the role of American business there, appeared to provide a significant boost to the congressional debate. However, after an initial period of activity that featured meetings with Rev. Sullivan and representatives of a number of companies active in the Sullivan process, the activity of the monitoring group has slowed. According to Lorrie Gavin, an aide to one of the group's coordinators, "time and staffing limitations have prevented the group from playing a more active role." She added, "We have been reacting to emergencies--such as the recent death in detention of trade union leader Neil Aggett--as opposed to working on legislative initiatives." But shortages of time and staff may not be the major reason the group has not proposed legislation dealing with U.S.-South Africa relations. Gavin pointed out that because of philosophical differences among task force members it would be difficult, if not impossible, to organize them behind a single piece of legislation. In 1982, the Ad Hoc Monitoring Group limited itself to sending letters to Pretoria protesting Aggett's death and to President Reagan and Secretary of State Alexander Haig seeking U.S. government support for their effort to persuade the South African government to commute the death sentences of three young blacks convicted of guerrilla activity. Senate vs. House: The level of interest in South Africa is clearly stronger in the House than in the Senate. An aide to Sen. Edward M. Kennedy (D-Mass.) told IRRC that "the House is the place for South Africa." According to Richard Moose, Assistant Secretary of State for African Affairs during the Carter administration, "there is a big difference in the level of activism in the two houses .... House members take a more detailed interest in South Africa." Some aides point out that senators have a larger load of committee work than House members and that, consequently, a member of the Senate Foreign Relations Committee may not be able to spend as much time and effort on foreign policy issues as a member of the House Foreign Affairs Committee. While senators may spend as much time on foreign policy issues as House members, assert other aides, the issues they devote most of their attention to are those most in the public eye, such as the situation in the Middle East and U.S.-Soviet relations. An aide to Sen. Paul Tsongas (D-Mass.), a former House member and now a member of the Senate Foreign Relations Committee, said that while few policy hearings on southern Africa are held in the Senate, administration officials do make themselves available for "private discussions" with interested senators. In both the Senate and the House, active members of the Senate on South Africa have generally been those with personal rather than constituent interest. The 1978 and 1980 defeat of two senators with personal interest in Africa, George McGovern (D-S.D.) and Clark, has further lowered the level of visible interest in the Senate.

The House Subcommittee on Africa is the focal point for much of the congressional debate over U.S. policy toward South Africa. Although the subcommittee's responsibilities include all of sub-Saharan Africa, it devotes more time to South Africa than to any other country. In testimony before the subcommittee, John Chettle, U.S. director of the South Africa Foundation, claimed that the subcommittee spent a disproportionate amount of time on South Africa. He said that in the period from 1970-80, "more than 70 percent of the subcommittee's hearings were directed toward the situation in just three countries, South Africa, South West Africa and Rhodesia." Criticism of the House subcommittee also comes from the Senate. Phil Christensen, staff director of the Senate Subcommittee on Africa, argues that the House subcommittee's preference for a large number of congressional hearings and hard questions to government officials "1creates ill will" between the House and the Reagan administration. There is less hard-nosed debate on the South Africa issue in the Senate, says Christensen, "given the collegial nature of the body." Johnnie Carson, staff director of the House Subcommittee on Africa until 1982, disagrees with Christensen's assessment of the subcommittee's role. He believes that hearings provide Congress with an opportunity to develop a "constructive critique of the shortcomings and assets of administration policy." An aide to Solarz said it is "laughable" to say that the House plays too active a role in the South Africa debate. "Congress should be faulted for not having done more," he asserts. Carson added that the primary way members of the subcommittee have learned about the situation in South Africa "is through the numerous hearings we have held where we invite members of government, academia, business and so on to share their knowledge and experience with the members." Despite the increase in the number of hearings the House has held on South Africa, many members remain ill-informed about the nature of the South Africa debate, he argued. One aide told IRRC that even after 10 years of House activity on South Africa, "education is still the critical factor for members of Congress." Constituent and lobbying pressure: Most Hill staffers agree that there is little or no political incentive for the average member of Congress to press on the South Africa issue. The average member probably receives fewer than 10 letters a year from constituents concerned about apartheid. Even among members most active in the debate, the amount of mail received is light. An aide to Rep. Solarz told IRRC that "there is not much pressure to act on South Africa, and the few letters we receive commenting upon Solarz's position on South Africa usually come from business interests outside the district." An aide to Rep. William Goodling (R-Pa.), the ranking minority member of the Subcommittee on Africa, told IRRC there is "very little interest in the South Africa issue in southern Pennsylvania." A staffer for Rep. Jim Santini (D-Nev.), who while chairman of the Mines and Mining Subcommittee was outspoken on the subject of U.S. dependence on southern Africa's strategic minerals, gave virtually an identical response. He said, "the people of Nevada are simply not concerned about South Africa." A few aides spoke about the negative political effect that taking an active role on foreign policy issues such as South Africa can have on constituent attitudes toward legislators. One Senate aide reported that a constituent had asked the senator on a trip home, "Why don't you help the local community instead of Zambia or Zimbabwe." One potentially significant development in the black community has been the introduction of a "network system" to encourage state and federal legislators to become more active on the South Africa issue. This system was developed in the last few years by black leadership groups such as TransAfrica and the Congressional Black Caucus so they can deal more effectively with issues of concern to the black community. Using this network, black leaders have encouraged black voters in congressional districts with a black population of 10 percent or more to contact their representatives and make their voices heard on U.S. policy toward South Africa. TransAfrica has developed an "action alert" system whereby coordinators are assigned to each congressional district--there are 50 such coordinators at present--to mobilize the black community on issues that black leadership groups deem important. It is too early to tell whether this network will have an effect, but because 156 congressional districts fall within the 10 percent criterion the potential exists for black voters to exert increased influence on the South Africa debate. A number of activist organizations opposed to U.S. corporate activity in South Africa have attempted to influence the debate in Congress. Although these groups have played an important educational function in the debate by bringing the issue to the attention of a wider audience of politicians and voters, their efforts have produced few legislative achievements. Phil Christensen maintains that there is "no significant lobby" on the South Africa issue. Despite the efforts of the activist community to influence the debate, says Christensen, "their impact is nil." A House aide added that many anti-apartheid activists spend too much time talking to congressmen who already share their views on South Africa--"a lot of preaching to the converted." What is needed, he believes, is a greater degree of effort to lobby moderate Democrats and Republicans who are usually the key actors on tough foreign policy issues. Business involvement: Neither business itself nor representatives of business have spent much time lobbying in Congress on the South Africa issue. Realizing that little is happening in Congress that will adversely affect corporate interests in South Africa, business has opted to maintain a low profile on the issue. One House aide told IRRC that the business community does not get involved in the debate "unless it feels threatened." That view was echoed by an official of the U.S. Chamber of Commerce. He said the tactics of business have always been to "lie low" in the debate. He added that the South Africa issue is one in which companies "do their own work" as opposed to relying on the Chamber or some other organized body to do their lobbying. Congressional response to Reagan administration policy: Congress, frustrated by the lack of progress in the negotiations during the Carter administration to establish the independent status of Namibia, was willing to give the new administration an opportunity to implement its constructive engagement policy toward South Africa to encourage cooperation on Namibia and on other issues of concern. Sen. Nancy Kassebaum (R-Kan.), chairman of the Africa Subcommittee, said that "in order to persuade South Africa to heed American representations on such subjects as an internationally recognized settlement on Namibia, acceptance of the nuclear non-proliferation treaty, and domestic political reforms in South Africa itself,...the greatest possible level of public unity must be shown by those responsible for American foreign policy." Even liberal Democrats such as Tsongas remained relatively silent during the first part of the Reagan administration. On March 24, 1982, Tsongas said on the floor of the Senate that "the policy of constructive engagement has unfolded for over a year now, and I have sought as one senator to temper my criticism of the approach so as to leave the administration with both time and political space to conduct their experiment." But he added that constructive engagement is "only as good as the skill of its practitioner. If the administration abandons limited signals in favor of unqualified embrace, then constructive engagement degenerates into what is in essence a pro-South Africa policy. I do not believe that Congress should permit that to happen." There are signs that other senators share Tsongas's concern about the direction of the administration's South Africa policy. Republican Sens. Rudy Boschwitz (Minn.) and Larry Pressler (S.D.) have joined Tsongas in expressing their displeasure with the administration's Feb. 26, 1982, decision to ease export controls on U.S. goods headed for South Africa's military and police. A Senate resolution sponsored by all three senators stated that "in accordance with prior regulations, export license applications for any helicopters, airplanes or computers for the South African military and police entities should be denied ...." The resolution never came to a vote in the Senate, but the willingness of a few Republican senators to criticize administration policy may have signaled an end to the relatively free hand the administration had enjoyed in pursuing its South Africa policy. In addition, members of Congress, both Democrats and Republicans, have been especially critical of the administration's decision to adopt a more "flexible" export policy on dual-use commodities that have nuclear-related uses. The administration's South Africa policy did not enjoy as long a honeymoon in the Democratic-controlled House as it did in the Republican-controlled Senate. House members have protested a number of executive branch initiatives-- particularly the relaxation of export controls, the apparent increase in nuclear cooperation with South Africa and the visits of high ranking South African military officials that previously had been prohibited. One Democratic House aide said, "The situation in South Africa is declining and there is a feeling of distrust among some House members of Reagan's ultimate aims in Southern Africa." The response of most House Republicans, though, has been supportive. "There is certainly a sympathetic understanding of the administration's approach on the part of Republican members," said a Republican staff aide. He maintains that this understanding reflects the realization of most Republican members that "long-term solutions are required for Southern Africa's problems...and this is one of the primary goals of constructive engagement." Two bills on U.S. business activity in South Africa were approved by House subcommittees in 1982, but neither came up for a vote in the full committee before the 97th Congress adjourned. House staffers told IRRC that probably neither bill would have been approved by the full Foreign Affairs Committee in any case. One bill, introduced by Solarz, would have (1) established a set of legally enforceable fair employment standards, along the lines of the Sullivan principles, that would apply to any American firm with more than 20 employees in South Africa; (2) prohibited loans by banks to the South African government or its state-owned corporations, except for loans made for educational, housing or health facilities that are available on a totally nondiscriminatory basis in areas open to all population groups; (3) required disclosure of all U.S. bank loans to any South African company; and (4) banned the importation into the United States of the South African krugerrand or any other gold coin minted or offered for sale by the South African government. Another bill, introduced by Gray, would have prohibited any "U.S. person" from making any new investments in South Africa, and would also have barred any reinvestment of earnings or profits by persons currently investing in South Africa. Solarz was also the author of an amendment to the 1982 foreign aid bill that provided "not less than $4 million" in scholarship funds for undergraduate or professional education in the United States for South African students. The program began in the fall of 1982 and funds were also authorized for the program in fiscal 1983. The program is intended for South Africans who face legal discrimination in obtaining entrance and access to university and professional training in their own country. The House Subcommittee on Africa estimates that the program will be supplemented by more than $2 million in university contributions, and approximately $300,000 from corporations. State Action in the South Africa Debate The public focus on the federal government in the debate over U.S. corporate involvement in South Africa often has obscured the increasing involvement of state legislatures in the issue. Legislation has been introduced in more than one-third of the 50 states that seeks to limit or prohibit the investment of state monies in corporations or banks that do business in South Africa. One state, Connecticut, has put in place a law requiring it to divest from corporations operating in South Africa that sell strategic products to the South African government or have unacceptable labor practices. And in Massachusetts, a bill was approved at the end of 1982 that requires the divestment of approximately $100 million in pension fund assets from the state's two public pension funds. Even in generally conservative states such as Kansas and Nebraska, legislatures have approved non-binding resolutions that seek to limit the states' economic relationship with companies that do business in South Africa. As is the case with congressional action, however, actions on the state level have been limited, and most state initiatives have served an educational rather than a legislative function. In addition, the number of legislators actively involved in the South Africa debate remains small. But in a time of economic concerns and rising unemployment, anti-apartheid activists and legislators have begun to succeed in linking the South Africa issue with the emerging support for "alternative investment." Some state legislators are now looking at the possibility of divesting South Africa-related holdings and using the assets to "invest at home," through in- state investment strategies designed to create housing, employment and, ultimately, higher tax revenues. The increase in the level of activity in state legislatures is due in large part to the increase in time and energy that church, labor and other activist organizations are devoting to the anti-apartheid effort in state capitals. In response, corporations and other opponents of divestment legislation have stepped up their lobbying efforts and, on at least two occasions, South African interests have paid for state officials to visit South Africa. Early action: California was the first state to consider the South Africa debate in its legislature. In the early and mid-1970s, bills were introduced in both the state Assembly and Senate seeking the divestiture of state monies from companies and banks doing business in South Africa. None of the bills was approved, although a non-binding resolution seeking an end to krugerrand sales managed to pass the Assembly. State action on the South Africa issue began in earnest after events in South Africa in 1976 and 1977 sparked anti-apartheid sentiment in the United States. Massachusetts, Michigan, New York and Wisconsin followed California's lead in considering what action they should take to influence U.S. firms investing in South Africa. All four states were the homes of a number of active anti-apartheid and civil rights groups, many of which were based on college campuses. The first concrete action to result from this new interest came in 1977 when the Massachusetts Senate passed a symbolic resolution that encouraged corporations licensed in the state to end their business involvement in South Africa. Legislation was also introduced in Wisconsin in 1977 that called on the board of regents of the University of Wisconsin system to sell immediately all investments in companies doing business in South Africa. The legislation was withdrawn when the Wisconsin Attorney General said that state university investments in companies doing business in South Africa were in violation of state law, which prohibits investments in any company that "practices or condones through its actions discrimination on the basis of race, religion, color, creed, or sex." In February 1978 the Board of Regents voted to begin the process of divestment. Also in 1978, Michigan passed a resolution condemning South Africa and urging Congress and the President to impose unspecified sanctions against Pretoria. Growth in state activity: The early educational and legislative efforts of a few states brought the issue of South Africa to the attention of a wider audience and laid the groundwork for moving the debate into other states around the country. Legislation has since been introduced in more than 20 states that would limit in some fashion state economic relationships with companies or banks that do business in South Africa. While the number of states taking a look at the issue has grown, the number of legislators actively involved in the South Africa debate remains small, and the responsibility for organizing state legislative activity has fallen on the shoulders of black legislators who hold only a few seats in most state legislatures. In about two-thirds of the states that have taken up the question of economic ties with South Africa, black legislators initiated the debate. Most legislators active in this area have learned about the South Africa issue from anti-apartheid activist groups that now are making a concerted effort to generate support in state legislatures. The Campaign Against Investment in South Africa (CAISA)--a joint project of the American Committee on Africa, American Friends Service Committee, Clergy and Laity Concerned, Connecticut Anti- Apartheid Committee, Interfaith Center on Corporate Responsibility, TransAfrica, United Methodist Church Office for the UN and the Washington Office on Africa--has held several workshops and conferences for state and local legislators on various state and municipal actions that can be taken against investment in South Africa. In June 1981, CAISA brought together 42 legislators from 22 states to discuss both the general issue of socially responsible investment and the narrower issue of divestment from South Africa. One activist told IRRC that South Africa-related legislation has been introduced in "virtually all of the 22 states" represented at the conference. A few months before the conference, TransAfrica began a nationwide campaign to encourage black elected officials on the state and local levels to consider sponsoring divestment legislation. In less than two years, TransAfrica has met with more than

300 black officials for this purpose. These efforts have had some success; legislation was introduced in states such as Texas that had never considered the South Africa issue. But activists have not been involved in all the states considering South Africa legislation, nor do they have the resources to raise the debate effectively in all the states. A number of activists told IRRC that financial and personnel limitations have generally prevented them from playing a larger role in the state-level debate throughout the country. For the most part, activist efforts have focused on those states, particularly in the Northeast, that in recent years have shown an interest in South Africa. In the future, activists say they will attempt to visit states that are unfamiliar with the South Africa issue in order to broaden their base of support. Jerry Herman of the American Friends Service Committee told IRRC that he and other activists are planning to visit for the first time with state leaders in North Dakota, South Dakota, Idaho and Wyoming to raise their consciousness on South Africa. One activist told IRRC that in a few states that have recently taken up the South Africa issue, the introduction of South Africa legislation was nothing more than a "token" gesture. She said that some state legislators have agreed to introduce an anti-apartheid bill, but have made no genuine commitment to push for the bill's passage. She contends that such legislators do nothing to help the activist cause. "The legislator who is really important to the anti-apartheid movement," she argues, is the one who is "willing to get involved in the political bargaining over the issue." A spokesman for TransAfrica took a somewhat different approach toward state- level legislative activity on South Africa. He indicated that, in addition to passing South Africa-related laws, one of the major objectives of the state-level debate is to expand into new constituencies. He said the introduction of legislation on the state level is largely an exercise in "trying to get one's foot in the door." "Our objective on the state level," he added, is to "get as many states as we can to address the South Africa issue in any limited way so we can broaden our educational network." Some anti-apartheid activists point out that their participation in state and local politics is a new area of activist concern and one that must be given time to develop. Jennifer Davis, executive director of the American Committee on Africa, said in late 1982 that "we are beginning to reach outside our boundaries and our traditional support groups" in the state level debate. This reaching out to other groups not previously involved in the South Africa debate is necessary in part because "We are not very good at technical questions such as the economic impact of divestment on states that take such action," said Davis, "so we must look outside our ranks for help." Davis believes that the anti-apartheid movement will face stiffer challenges as it makes more inroads in state capitals. "We are going to have to deal with much more complex and tough competition as we are more successful in the states," she predicted. Concrete actions: In terms of legislative accomplishments, the record of the state- level divestment movement has been mixed. The experience on the state level is similar to that in Congress where "sense of Congress" resolutions occasionally gain a sympathetic vote, but binding legislative proposals usually go nowhere. Given the variety of economic and budgetary problems confronting most state governments, it is not difficult to understand why South Africa is not a high priority on most state legislative calendars. Moreover, there is not an identifiable political constituency for the South Africa issue on the state level. Although grass roots and national anti- apartheid groups have stepped up their activity, concern over U.S. investment in South Africa generally has not filtered down to the wider community. Nevertheless, three states--Massachusetts, Michigan and Connecticut-- approved bills in 1982 that affect their economic relationship with South Africa. Activists believe that the success they have enjoyed in these states will prompt other states to follow suit. Massachusetts--The first major South Africa initiative in Massachusetts took place in 1979 when the state legislature approved a bill that prohibits the investment of all pension fund contributions after that date in companies and banks doing business in South Africa. Immediately after the passage of that bill, anti-apartheid activists began to pressure the legislature to go even further and require the divestiture of all state pension fund assets--not just future contributions--in companies doing business in South Africa. Finally, after two years of debate on the issue, the legislature, with the widespread support of religious organizations--including the influential Catholic Church of Boston-- black and civil rights organizations and organized labor, approved a bill in the final days of 1982 that requires the divestiture of all state pension fund assets and their reinvestment in local enterprises. It is estimated that $100 million of the state's total pension fund assets of $1.5 billion will be affected by the legislation. Final approval of the bill was complicated when the outgoing governor Edward King, vetoed it on the grounds that it would have an adverse financial impact on the pension fund. The Boston Globe reported that King was following the advice of the state treasurer's office, which warned him that selling the bonds affected by the legislation before maturity probably would cause a loss that could leave the state liable to pensioners' suits. The legislature was unconvinced by the governor's argument, and on Jan. 4, 1983, it voted to override his veto. Many supporters of the divestment bill contend that the veto override showed the strength of the anti-apartheid community in Massachusetts and should serve as a morale booster for other activist efforts. Robert Schaeffer, an aide to state Sen. Jack Backman, cosponsor of the bill, said that "we were successful because we proved to the legislature that the anti-apartheid movement is a potent political force." He added that "we were even able to answer all of the technical questions such as the economic impact of divestment," which, in the past, provided some problems for activists. Jerry Herman of the American Friends Service Committee commented that the victory in Massachusetts, highlighted by the veto override, "will push activists to do a little more in other state legislatures." Michigan--The Michigan legislature also has been the site of heavy anti-apartheid activity. In 1980 the legislature adopted a bill that prohibits the deposit of surplus state funds in banks that make loans to the South African government, national corporations of South Africa, or subsidiaries or affiliates of U.S. firms operating in that country. To remain an approved depository of surplus state funds, a bank must file an annual affidavit attesting that it has no outstanding loans to the South African borrowers named in the bill. A spokesman in the state treasurer's office told IRRC that no surplus state funds have been affected by the legislation because all the banks in which Michigan makes such deposits have met the requirements of the law. The legislature's most recent action came in December 1982, when it approved a bill that prohibits state universities and community colleges from "making or maintaining an investment after April 1, 1984," in companies doing business in South Africa. Michigan State University had already severed its financial ties with South Africa in 1978 when its board of trustees voted to sell its holdings in all companies doing business in South Africa unless the companies "have adopted and are implementing positive measures to withdraw" from that country. Supporters of the recently approved bill note that Michigan State's decision to divest its South Africa-related holdings had no adverse impact on its financial situation. When Michigan State divested from South Africa, said state Sen. Perry Bullard, sponsor of the Michigan bill, "it made a handsome profit of over $1 million for the university portfolio. This demonstrates that there is no practical need to continue investments that support apartheid." Not all state-funded colleges and universities supported the bill, however. The University of Michigan, which will have to divest approximately $60 million of its holdings because of the bill, vigorously opposed its passage. A university official expressed two major objections to the legislation. He said the bill would "selectively impose an investment policy...that the state of Michigan is apparently not willing to pursue in its own investments." In addition, he contended that the bill would act "as a further disincentive to the very companies this state is attempting to attract to Michigan or is currently dependent upon to bring about economic diversification and revitalization." A better policy for the state to follow, he argued, would have been one that required companies to become signatories to the Sullivan principles of equal employment opportunity and to demonstrate progress toward the goals set forth in the principles.

Some officials of the University of Michigan have indicated that they may challenge the bill in court. The Michigan Daily, the University of Michigan's campus newspaper, reported that a number of university officials believe the bill is unconstitutional. Regent Thomas Roach was quoted as saying that the regents have "complete power and authority over the funds of the university and the state legislature can't dictate the way we do that." Connecticut--The state-level action that has provoked the greatest interest on the part of activists, business and state government officials occurred in June 1982 when the Connecticut legislature approved, and the governor signed, a bill placing additional restrictions on the investment of state funds in companies with operations in South Africa. Connecticut presents the best example to date of the interplay among well-organized local support for divestment, state politicians and companies. From 1980, when the first South Africa investment bill passed, to 1982, when a tougher bill was approved, Connecticut was unique in the extent of discussion -carried out among anti-apartheid activists, state politicians, business representatives and labor union officials. Not surprisingly, the bill that emerged represented a compromise among the various positions in the debate. It managed to incorporate elements from the "business as a progressive force" point of view as well as aspects of the activists' arguments that businesses in South Africa lend support to the apartheid system. Significantly, the bill directed the state treasurer to take action against those companies that fail to show that they are in fact acting as a force for change in South Africa. The 1982 bill directs the state treasurer to "disinvest all state funds currently invested in any corporation doing business in South Africa and to invest no new state funds" in any corporation unless it: has signed the Sullivan principles and received a performance rating in the top two categories of the three-category rating system used to evaluate the performance of U.S. companies in South Africa; -- does not supply strategic products or services for use by the South African government, police or military; and -- has recognized the right of all South African employees to organize and strike in support of economic or social objectives, free from the fear of dismissal or blacklisting. The bill is tougher than an earlier state law, enacted in 1980, which required state divestment from any corporation operating in South Africa that has not signed the Sullivan principles, but is less than the anti-apartheid activists ideally wanted-- total state divestment from all companies operating in South Africa. The activists had succeeded in 1981 in getting a bill passed that required total divestment, but it was vetoed by Gov. William O'Neill, who argued that it would have punished "a number of firms which have been engaged in meaningful actions to support the human rights of South Africans" and that it could affect "the investment returns available to the state's funds in a negative fashion." Several anti-apartheid groups accused O'Neill of bowing to corporate pressure; many of the largest Connecticut- based corporations lobbied the governor and other state officials in an effort to defeat the proposed legislation. In the wake of public protest over his veto of the proposed legislation, the governor appointed a Task Force on South African Investment Policy, headed by Henry Parker, the state treasurer. The task force was assigned to review "the state's current legislation with the objective of strengthening the Sullivan principles concept," to work "closely with business and corporations which do business in South Africa, and to analyze the impact of divestiture on state pension investments." The membership of the task force was a microcosm of the forces involved in the state's debate over the South Africa divestment issue. It included representatives from many of the Connecticut-based corporations that had urged the governor to veto the 1981 bill, as well as two union representatives--from the state AFL-CIO and the United Auto Workers--one of whom was also the chairman of the Connecticut Anti-Apartheid Committee. Both the Anti-Apartheid Committee and local unions had been instrumental in the introduction and passage of the 1981 bill. Another member of the task force was the state representative who had sponsored the 1980 bill requiring divestment from non- Sullivan signatories and who had also supported the 1981 bill. Despite the divergent points of view among task force members, they were able to agree on a set of investment criteria to recommend to the governor. In recommending that companies be rated in the top Sullivan categories as a minimum requirement for inclusion in the state's portfolio, the task force agreed that although the Sullivan principles have limitations, they provide "the most comprehensive and comparable information on U.S. corporate activity in South Africa." The task force's recommendation that the state treasurer divest from any company that sells strategic goods to the South African government was based on the task force's definition of strategic products as "articles designated as arms, ammunition and implements of war, and data processing equipment and computers sold for military or police use or for use in connection with the pass system." To the dismay of anti-apartheid activists, petroleum products--oil, gasoline and diesel fuel--were not included in the definition. In recommending that companies be required to recognize the rights of all South African employees to organize and strike in support of economic or social objectives, the task force noted that the growth of African participation in labor unions is "the most important development in South Africa in the last three years." It concluded that "some companies, while supporting the right to organize, take refuge in current South African practice to fire employees for exercising their right to strike."

In coming up with the recommendations, an important consideration for the task force was the financial implication of divesting state funds. In assessing the financial consequences of divestment, the task force selected three investment firms to "perform individual and aggregate studies" on the Connecticut portfolio to determine "the impact, if any, divestiture would have on the state's trust funds." The general conclusion was that "the measure of risk increased as the available universe of common stock selection was shrunk," and that South Africa-related divestment would subject the portfolio to greater risks than would less stringent divestment measures. Two of the three consultants noted, however, that hypothetical "sanitized" portfolios--portfolios that excluded the stocks of companies doing business in or with South Africa--actually outperformed the state's existing portfolio over the three- and five-year periods just ended. The task force also asked several outside managers of Connecticut funds to assess the impact of divestiture. The money managers who were consulted said that "their ability to meet their investment objective could be hampered if the restrictions were imposed." Clearly mindful of their future liability if the state's new investment policy resulted in a lower rate of return, the managers concluded they could make some adjustments in the portfolio, but they could "no longer be accountable for...the investment results and maintain the investment style they were hired for." A move toward 'alternative investment': Perhaps the most significant development in state divestment campaigns is the growing emphasis on "alternative investment." An increasing number of states are considering ways of shifting state funds now invested in corporations that do nearly all their business outside the state to investments that create employment, expand housing and bolster the tax base within the state. Anti-apartheid activists are attempting to expand into new and broader constituencies by linking the call to divest from companies doing business in South Africa with the growing sentiment in favor of alternative investment. Proponents of alternative investment claim that in-state investment can be accomplished without sacrificing competitive returns. A 1981 study on pension fund investments by the Conference on Alternative State and Local Policies, a privately funded research center that publishes reports and holds conferences on issues concerning state and local economic development, says that a pension fund can achieve portfolio performance "nearly identical" to what it would otherwise achieve if it divested its holdings for a social responsibility concern such as South Africa. The study concludes that divestment "can be a politically and financially viable option, especially when combined with a constructive investment strategy." It notes, however, that it would be inaccurate to assume that divestment will never produce negative effects, "or that an unlimited number of companies can be excluded." Nevertheless, it contends that if a pension fund chooses to "seriously commit itself to the constructive investing/divesting idea, it can find and devise some investments that both meet fiduciary obligations and make a net social impact." The only law that links South African divestment to in-state reinvestment is the bill recently approved in Massachusetts that requires the divestment of state pension funds from bonds or stocks in U.S. companies and banks operating in South Africa and their reinvestment "as much as reasonably possible in institutions or companies which invest or conduct business operations in Massachusetts." Labor unions active in the Massachusetts debate argued that the "invest at home" provision was needed because a number of U.S. companies are leaving Massachusetts to take advantage of the cheap labor and anti-union climate in South Africa. According to the Massachusetts Coalition for Divestment from South Africa (Mass Divest), Goodyear, Westinghouse and American Can have closed their Massachusetts plants since 1970 while maintaining active operations in South Africa. "By investing in these companies," says Mass Divest, "our state pension fund is not only hurting black South Africans, it is also hurting the working people of Massachusetts." Other state legislators have made an effort to employ the alternative investment approach to South Africa-related bills. Oregon state Rep. Wally Priestly is continuing efforts he began in 1981 to enact legislation that would prohibit the investment of state funds in firms required by foreign law to discriminate on the basis of race, color or national origin and would mandate benefit to the state economy as an objective of investment. In presenting the original bill in 1981, Priestly argued that investment within the state "tends to strengthen the state's economy, preserves and creates employment and diminishes the state's involvement in less desirable activities elsewhere." Although the bill never made it out of committee in the state assembly when it was first introduced in 1981, it has gained support among a variety of anti-apartheid, church and civic organizations, several of which banded together to form a statewide coalition called Oregonians for Responsible State Investments, which is more optimistic about its chances in 1983. The alternative investment approach to divestment may also be employed in at least one other state. In March 1980, the Nebraska legislature approved a non- binding resolution sponsored by state Sen. Ernie Chambers, which calls upon the Nebraska Investment Council to remove from the approved list for investment of Nebraska trust funds any corporation or bank that invests in South Africa. The investment council subsequently concluded--without the benefit of a financial impact study--that it cannot comply with the bill and at the same time "fulfill its fiduciary obligation to produce the best investment return." Chambers told IRRC that he will introduce another version of his bill as binding legislation, and intends to couple that legislation with an "invest at home" bill in an effort to counter the financial arguments of the investment council concerning its fiduciary obligations.

Response to state initiatives: The growth of activity on the state level has alarmed some U.S. companies involved in South Africa as well as South African interest groups themselves. Although most companies prefer to play a quiet role for fear of publicizing their interest and investment in South Africa, some corporations have stepped up their efforts to defeat divestment legislation. In Connecticut, for example, the business community was vigorously opposed to the 1981 bill that would have required the divestiture of all state funds from companies and banks doing business in South Africa. Nor were they too happy with the compromise proposal reached in 1982 by the governor's task force, according to state treasurer Parker. He thinks that now that the bill has passed, companies will once again maintain a low profile on the South Africa issue and hope that the state does not enforce the bill too tightly. Parker told IRRC that "some companies will put their heads in the sand" because of the new bill, "but our concerns won't go away." Supporters of the bills approved recently in Michigan and Massachusetts told IRRC that a number of U.S. companies with interests in South Africa attempted to influence the debate in those states. They said that Ford Motor Co. lobbyists were active in both states to push for a compromise proposal--similar to the one adopted in Connecticut--that would have exempted companies that have signed and are adhering to the provisions of the Sullivan principles. An aide to Michigan state Sen. Perry Bullard told IRRC that high-level Ford executives "were down to lobby Bullard on at least two occasions to change his position." South Africans themselves have expressed considerable concern about the growth of state-level activity. In response to Nebraska's approval of a divestment resolution in 1980, the Rand Daily Mail, one of the leading English-language newspapers in South Africa, wrote, "Nebraska's vote could well set a bandwagon rolling with incalculable consequences." As a result, the South African government and business community are stepping up their efforts to present their side in the South Africa debate. In one case, the South African government in 1981 paid for a visit to South Africa for five Wisconsin state legislators which preceded the legislature's consideration of a broadly worded bill that would have prohibited the investment of state funds in stocks or obligations of companies having any business dealings in or with South Africa. Any hopes for the bill's passage were effectively killed when the state investment board concluded that the state would lose money as a result of the divestment and restricted investment opportunities required by the bill. The legislators defended their South African trip as vital to the state's commercial interests abroad. But Meg Skinner, chairman of the Madison Area Committee on Southern Africa, argues that Pretoria brought the legislators to South Africa as a way of slowing the gains made by the anti-apartheid movement in Wisconsin. Similarly, the Southern Africa Forum, an organization supported by a number of South African corporations that is active in bringing influential foreign visitors to South Africa, paid for the February 1982 visit of Oregon state treasurer Clay Myers. Myers opposed a bill introduced in the Oregon House in 1981 prohibiting the investment of state funds in firms required by foreign law to discriminate on the basis of race, color or national origin. A spokesman for People for Southern Africa Freedom, an Oregon-based anti- apartheid group, was highly critical of this visit and told IRRC that the South Africans "are no doubt aware of Myers's pro-investment stance, and consequently this junket can be seen as a friendly request to continue the good work." A spokesman for Myers told IRRC that the state treasurer's trip was not a "fact finding" mission. Rather, he said, the trip was intended to be both a ''vacation" and a chance to examine "human rights issues in South Africa which Myers feels strongly about." In what was the most direct involvement by the South African government in the state level debate, the South African ambassador to the United States, Donald Sole, sent an eight-page telegram to Connecticut Gov. William O'Neill in May 1982 outlining his government's opposition to the divestment bill that was then pending. Sole said he regretted that a bill "based on distorted premises, bearing little resemblance to the current situation in South Africa...is under consideration in Connecticut." If the citizens of Connecticut are "sincere in wishing to promote continuing constructive change in South Africa," added Sole, "they should invest more, not less, in South Africa." A spokesman for the South African embassy told IRRC that the telegram sent to Connecticut was not indicative of any organized effort by the South African government to counter the state level divestment movement. But he added that some of the South African consulates around the United States "have had contact with state legislators." Municipal Action The South Africa debate has also been heard in a few municipalities throughout the country. In some cases, investment in South Africa was successfully linked with the alternative investment approach as a way of introducing the debate in the local community and gaining broader support. In 1980, the voters of Berkeley, Calif., approved a referendum that required the removal of approximately $4.5 million of public monies from banks doing business in South Africa. A special task force created for the purpose of designing a scheme to carry out the divestment submitted a plan that called for coordination of the divestment with an alternative investment strategy that would benefit the local economy. Two smaller California municipalities--Cotati and Davis--also passed bills that prohibit the investment of city funds in companies and banks doing business in South Africa. Cities in states that have considered divestment legislation are the ones most likely to take up the issue. For example, in 1980, Hartford, Conn., passed a bill similar to the state's which prohibited investment of city pension funds in companies that had not signed the Sullivan principles. And in 1979 in Cambridge, Mass., a non-binding referendum passed advising the city not to invest in banks and other financial institutions making loans to South Africa. A Cambridge official told IRRC that the city had divested "some of its holdings" but that further divestment would depend on market conditions. The most significant achievement for anti-apartheid activists on the municipal level occurred in Philadelphia in 1982. The Philadelphia City Council passed a bill prohibiting the city's pension funds from investing in companies doing business in South Africa or Namibia, or in any bank or financial institution making loans to these governments. It is estimated that the bill, which sets a two year deadline for selling off the stock, will affect $80 million of the fund's $675 million portfolio. However, in response to the concerns of the city Finance Department that the bill could severely damage the pension funds, an amendment was added that would allow the pension board to ask for an extension of the two year divestment period. Outlook Although Congress and the executive branch have generally been viewed as the principal participants in the governmental debate over U.S. corporate activity in South Africa, the introduction and passage of divestment bills in states and localities throughout the country attests to a new activism on this issue at the state level. While it is too early to tell whether the South Africa issue will become a permanent feature in state capitals, the recent approval of divestment bills in Connecticut, Massachusetts and Michigan is likely to spur considerable anti- apartheid activity in other states and propel the state level action to center stage in the governmental debate over South Africa. As activists become more visible at the state level, they will have to confront concerns voiced by state financial officers and many legislators over the economic viability of divestment. Activists will be assisted in their efforts by the alternative investment approach, which they argue, perhaps overoptimistically, will enable the state to divest its South Africa-related assets and, at the same time, reinvest those assets in enterprises that benefit the state's economy.

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III SHAREHOLDER ACTIVISM AND THE ROLE OF INSTITUTIONAL INVESTORS Nowhere during the last decade has the role of U.S. companies in South Africa been more consistently the subject of debate then on the floor of corporations' annual meetings. It is the use of this forum by shareholders concerned about South Africa that has brought institutional investors into the debate over U.S. investment there. In 1970 a decision by the Securities and Exchange Commission that shareholders should be allowed to submit public interest resolutions for votes at annual meetings opened a new avenue for shareholders to question companies about activities in South Africa on social and political grounds. Since then South Africa has been the topic raised most often in shareholder resolutions, and the annual meeting has provided anti-apartheid activists with one of the most effective means of presenting their concerns. In II years, proponents have submitted 224 South Africa-related resolutions to 88 corporations. Resolutions proposed by shareholders have called for a wide variety of responses from companies involved in South Africa. Early resolutions tended to focus on disclosure of information about a company's involvement in South Africa, and later resolutions have ranged from requests that a company sign the Sullivan principles of equal employment to demands for withdrawal and an end to operations. Other requests have called for no new investments, the cessation of strategic sales to the government and an end to bank loans to the South African government or its agencies. Support for these resolutions among institutional investors and other institutional shareholders has varied, but it has tended to increase over time. The most marked increase occurred between 1976 and 1978 when world attention was focused on South Africa by the policies of the South African government in suppressing black demonstrators in Soweto.

At no time has any South Africa-related resolution opposed by management received the support of more than 12 percent of the shares voted. Nevertheless, the shareholder process has had a measurable impact on both companies and institutional investors. A number of corporations have made considerable efforts to respond to shareholder concerns about operations in South Africa. Twenty-five percent of the resolutions submitted to corporations involving South Africa- related issues have been withdrawn after proponents and management reached an agreement satisfactory to each. Prodded by shareholder resolutions, companies have signed the Sullivan principles, offered to publish reports and, in a few cases, agreed to restrict new investment in South Africa or to limit sales. Even where shareholder activism has failed to change corporate policy, the process has served to focus the attention of U.S. managers on the operations of their subsidiaries in South Africa, which often has led to improved labor practices. Shareholder resolutions on South Africa have also focused the attention of institutional investors on concerns about U.S. investment there. Although some institutions have had a longstanding interest in South Africa that predates the controversy over U.S. business activities--churches through their missionary work or involvement in civil rights activities, foundations through their program interest, universities through student or faculty activity--most had not, and the shareholder resolution process introduced many institutional investors to the debate over U.S. investment in South Africa. It provided both a stimulus to their involvement in the debate and a means of participating. The Shareholder Resolutions The last decade has seen an increase in the number of resolutions raised, the variety of proponents and the issues raised by the resolutions themselves. The primary sponsors of shareholder resolutions on South Africa have been church groups coordinated by the Interfaith Center on Corporate Responsibility. The number of South Africa-related resolutions submitted to companies grew from one in 1971 and seven in 1972 to a peak of 38 in 1980, and much of the increase can be attributed to the growth of the Interfaith Center's activities. But the churches have not been alone in submitting proposals. Educational institutions have also raised resolutions--the University of Minnesota, Bryn Mawr and Haverford in 1978 and Oberlin and Wesleyan in subsequent years. In addition, although by 1982 the number of shareholder resolutions had declined somewhat from the 1980 high, church proponents succeeded that year in enlisting a major institutional investor, the California state retirement funds, as a cosponsor of a resolution asking Xerox not to expand its operations in South Africa or sell its products to South African military and police there. The funds, with $23 billion under management, were by far the largest shareholder ever to sponsor a resolution.

The range of resolutions on South Africa submitted by shareholders each year demonstrates the varied nature of concern over the role of companies there. Resolutions calling for corporations to sign the Sullivan principles, for example, reflect the belief that U.S. corporations can be a positive force for change; at the other extreme, proponents introduce resolutions asking companies to halt operations and to withdraw completely from South Africa. Some resolutions focus on concerns about the strategic role played by the computer, oil and automotive industries in the South African economy and aim to restrict sales or manufacturing in these areas; others, reflecting a belief that foreign capital is of particular interest to the South African government, call for an end to bank loans. The following section sets out the various resolutions that have been proposed during the last II years, sketching the major characteristics of each and the level of shareholder support. The nine types of resolutions are described in descending order of shareholder support: Sullivan principles--The resolutions most often supported by investors or agreed to by corporations are those that call on a company to endorse the Sullivan principles of equal employment opportunity or, in the case of signatories, to comply fully with the principles. Fifteen of the 22 such resolutions were withdrawn by sponsors after they had reached satisfactory agreements with management. The seven that came to votes were supported by an average of 6.7 percent of the shares voted. Proposals involving the Sullivan principles represent the one area in which groups other than churches have taken the initiative in proposing resolutions; colleges and universities have been the primary proponents. Stop loans--Shareholder resolutions that call upon banks to refrain from making new loans and avoid renewing existing ones to the South African government or its agencies consistently have received a relatively high level of support from shareholders. These resolutions first appeared in 1977, and the 21 that have come to votes since that time have received an average support of 5.4 percent of the vote. Seven additional stop loan resolutions have been withdrawn after the proponents reached agreement with management. Namibian involvement--Support has also been relatively strong for resolutions concerning current or potential corporate involvement in South Africa's protectorate, Namibia. Many of these appeared in the early years of shareholder activism on South Africa. International controversy over the right of South Africa to retain its trusteeship has led to moves by the UN and the U.S. government that seek to discourage investment there. The 13 resolutions on this issue have received the support of an average of 4.5 percent of the shares voted. Non-expansion--Shareholders have given slightly less support to resolutions to corporations asking them to adopt policies that would prohibit further expansion of their operations or investments in South Africa. Support for the 20 non- expansion resolutions that have been voted on since the first was introduced in 1976 has averaged 4.4 percent of the shares voted. Review committees--Proposals calling upon corporations or banks to establish review committees to evaluate the impact of their involvement in South Africa have been submitted 15 times since 1974. The composition of the proposed committees has varied, but most call for representation from management, labor and outside groups. The 4.2 percent average level of support for these resolutions has been close to the average support level for all South Africa resolutions. Information disclosure--Resolutions that call on banks and businesses to disclose details of their involvement in South Africa have accounted for one-quarter of all South Africa-related proposals. Resolutions have requested information on employment and labor practices, on the impact on blacks of sales of strategic goods to the South African government, and on loans by U.S. banks to South African borrowers. One-third of the information disclosure resolutions have been withdrawn by the proponents after management provided much of the information requested. Those that have come to votes have received the support of an average of 3.8 percent of the shares voted. Strategic sales--The sales of vehicles or fuel to the South African military and police, of computers and photographic equipment to the government, and of advanced technology to the public sector have all been the subject of shareholder resolutions. Virtually all resolutions calling for an end to such sales have appeared since 1978. The support levels for the 16 of these resolutions that have come to votes have averaged 3.5 percent. Policy issues--Twenty-two resolutions on a variety of corporate policy issues have been submitted to companies since 1974. The topics include krugerrand sales, the purchase of South African coal and recognition of emerging black unions in South Africa. The average level of support for these resolutions has been 3.1 percent. Withdrawal--Since 1977, church proponents have submitted 25 resolutions to corporations calling upon them to withdraw their operations from South Africa. Withdrawal resolutions have received the lowest support of the South Africa- related proposals--an average of 2.6 percent of the shares voted.

Responses of Institutional Investors The advent of shareholder resolutions on corporate social responsibility issues such as South Africa in the early 1970s prompted several institutions to reexamine their responsibilities as investors. A 1971 study by The Ford Foundation found a willingness particularly among non-profit institutional investors to consider social issues in investing, to vote their stock on social issues and to contact management on issues of social concern, although few institutions had developed policies or procedures for doing so. A book published by Yale University Press in 1972, The Ethical Investor, took the discussion of investor responsibility a step further, proposing guidelines that investors might use to determine the extent of their social responsibility in investing and suggesting that investors have a "moral minimum in investment decisions to avoid social injury." Most institutions, however, were under little pressure from their constituents to become more active, and they continued to follow what is known as the "Wall Street Rule." The rule dictates that to hold stock in a company implies agreement with, and support for, management; to oppose management on an issue, even one limited to a specific area such as South Africa, demonstrates a lack of confidence in management. Where a question of management's conduct arose, the rule said, the investor should side with management or sell the stock. Events in South Africa between 1976 and 1978--the Soweto demonstrations, the arrests, bannings and detentions of black consciousness leaders and the death in detention of Steve Biko--served as a watershed for shareholder activism and touched off a wave of anti-apartheid feeling in the United States. One thousand students were arrested in anti-apartheid protests at more than 100 colleges and universities around the country. This wave of concern provided great impetus to the exercise of shareholder rights by institutional investors, particularly colleges and universities, on issues involving South Africa. It altered the way in which institutions viewed shareholder resolutions, making it increasingly difficult for institutions to feel comfortable with the Wall Street Rule. Many institutions had to respond directly to concerns of their constituents--university administrators to students, foundations to project officers, public fund administrators to local activists and politicians, and banks and insurance companies to church, foundation, union, public pension fund or university clients. They began to develop internal procedures for reviewing investment decisions involving companies doing business in South Africa. The processes they established in the wake of the Soweto protests became institutionalized and continue to operate today--even though the intensity of the initial concerns prompting their creation may have subsided--and ensure that institutional investors will continue to play a role in the debate over investment in South Africa. In order to assess the role of institutional investors in the debate, in 1982 IRRC surveyed 75 institutional investors--four foundations, eight church groups, seven pension funds, 13 banks and trust companies, 30 universities, four investment firms and nine insurance companies. Forty-one of the 75 institutions were respondents to a questionnaire sent by IRRC in June that asked each institution whether it: -- has established formal or ad hoc guidelines concerning its investment in South Africa and, if so, to describe them; had taken any investment actions relating to South Africa since Jan. 1, 1980, such as selling or deciding not to buy South Africa-related stock, or withdrawing accounts from banks lending to South Africa; and had contacted the managements of companies in its portfolio since Jan. 1, 1980, to discuss their operations in South Africa, and, if so, to give an estimate of the number of companies contacted. In some cases, IRRC followed up on the written responses with telephone interviews. Information on the other 34 institutions was gathered through telephone interviews and secondary sources. With the exception of one public pension fund, all the institutions surveyed were IRRC subscribers. As a result, the survey probably overstates the extent to which institutional investors at large have adopted social responsibility guidelines with respect to investment in South Africa. However, the survey does illustrate the policies and trends of many of the largest and most influential institutional investors in the country. Moreover, because IRRC has been tracking how subscribing institutions have voted on shareholder resolutions since 1972, IRRC was able to trace the changes in these institutions' proxy voting patterns over time. A major unifying characteristic shared by the institutions responding to IRRC's survey was their rejection of the Wall Street Rule; only seven of the 75 institutional investors surveyed still adhere to the rule. A majority of the investors have established formal or ad hoc guidelines that require them either to vote against management or to abstain on certain types of shareholder resolutions or to communicate with management when concerned about or opposed to management policies. Another group of institutions indicated that they do not have guidelines as such but consider each resolution on its own merits and are prepared to express concern over management policies concerning South Africa through proxy voting or letters to management. Far fewer institutional investors are willing to go beyond simply voting their proxies on South Africa resolutions. With the exception of five universities and the California state pension funds, only church investors have sponsored or cosponsored shareholder resolutions. And, outside of two insurance companies and two pension funds, only church groups and universities indicated that they had divested or refrained from investing in companies as a result of their policies on South Africa. Most of the institutions surveyed shared a consensus that corporations either are or can be a progressive force in South Africa, particularly by being enlightened employers. Although some institutions took exception in the case of companies involved in strategic industries--computers and oil, for example--most believed that companies could best benefit blacks or mitigate the impact of apartheid by remaining in South Africa, rather than by withdrawing. Almost all of the institutions that indicated they had at least an informal set of investment or proxy voting guidelines included in those guidelines support for the Sullivan principles. A number of universities, churches and others go further and also specify that their portfolio companies should refrain from making strategic sales or loans to the South African government. For many institutions, particularly banks and trust companies, South Africa may be the only issue on which they are willing to vote against management's position on a shareholder resolution. Institutional investors are more ambivalent about the non-expansion issue. While a few church groups and some universities support such resolutions as a matter of principle, most other institutions that have voted for such resolutions only do so after assessing the company's record in South Africa. Consequently, many of the votes cast by institutional investors in favor of non-expansion resolutions have been at companies that received low ratings in the Sullivan principles or otherwise were not fulfilling the "progressive force" role desired by investors. A case in point was the 1982 resolution to Xerox asking the company not to expand in South Africa and not to sell its products to the South African police and military. Although the California state retirement systems and several church groups backed the measure, a number of other institutions were reluctant to support a non-expansion resolution at Xerox because they considered the company to be a progressive employer in South Africa. The same arguments also appear with regard to withdrawal resolutions, although far fewer institutions support withdrawal resolutions for any reason. Outside of the church groups and some universities, only one of the institutional investors--an insurance company--is known by IRRC to have supported an outright withdrawal resolution, although a variety of other investors have voted for resolutions calling on companies to withdraw from South Africa if they fail to implement the Sullivan principles within a specified period of time. Educational institutions: Of all institutional investors, universities have been the greatest target of pressures to divest stock in companies doing business in South Africa. Sporadic pressures affected a few universities as early as 1969, and the demands for divestment rose sharply after the Soweto demonstrations in 1976. Demonstrations supporting divestment proved to be an effective means of focusing the attention of fund administrators on questions relating to investment in South Africa. As one administrator said during the period, "It is difficult to govern when students are occupying your office." And at several universities the administrators moved directly to respond to the demands of the activists during 1978 and 1979. Antioch College, Hampshire College, Howard University, Michigan State University, the University of Massachusetts, Ohio University and the University of Wisconsin all opted for complete divestment of stock in companies doing business in South Africa. More recently, in 1982, the University of Maine decided to divest its holdings, and the University of Oregon is awaiting court action to determine whether it can implement a 1977 decision to divest. But most universities have opposed total divestment. Derek Bok, president of Harvard, cautioned students in 1979 that divestment costs "would almost certainly run into the millions of dollars," in brokerage fees and in losses that would result from prohibiting endowment managers from investing in the more than 300 companies doing business in South Africa. Other administrators argued that such actions could anger alumni and have a severe impact on endowment fund drives. Many questioned the effectiveness of divestiture as a means of effecting change in South Africa, and the position taken at a majority of universities has been that divestment should be viewed as a course of last resort, to be taken only after all other means of redressing any ''social injury" from the investment had been exhausted. Advisory committees--Rather than accede to demands for divestment, many university administrators have opted instead to establish committees to advise trustees on investment and shareholder issues. One of the first advisory committees, formed at Harvard in 1972, includes four faculty, four students and four alumni,, a pattern similar to the composition of committees formed at other universities, although some included administration, staff or even community representatives. By 1979 more than 30 of the 89 universities polled by IRRC had established advisory committees. Educational institutions' advisory committees are necessarily moderate because they operate to a certain degree on consensus. A smaller college explained to IRRC: Some members of the college's board of trustees are afraid that the committee may occasionally not look at each proposal on its individual merits or maynot be sensitive to the college's need to seek major gifts from corporations in which it holds shares. Most students quickly become aware of the need for this sensitivity. We retain those students who understand and can work within those structures. The few others lose interest in the committee. Although a few committees have the right to vote directly on a resolution, at most universities committees serve in an advisory capacity. They are limited in their powers to make recommendations, although frequently their recommendations are accepted. Final decisions are generally made by the board's investment committee or a member of the administration or the trustees. Despite limits on their voting powers, however, some committees have the right to correspond directly with companies and to express concerns on behalf of the university. The first task for many of the committees was to establish guidelines governing investment in companies in South Africa or to set standards for voting stock in companies already held. The guidelines generally cover both investment and voting decisions. * Investment decisions. In addition to those colleges with policies of total divestment of all holdings in companies doing business in South Africa, at least 34 colleges and universities have developed policies that require selective divestment or screened investment. The criteria vary for screening out certain companies or for divesting stock in companies already held. More than a dozen institutions--including Brandeis, Carleton, Cornell, the University of Kansas, Macalester, the University of Minnesota, Mount Holyoke, Oberlin, the University of Pennsylvania, Wellesley, Wesleyan and Yale--say that they will not hold stock in companies operating in South Africa that have declined to sign the Sullivan principles. Others such as Harvard do not mention the principles but say that divestiture may be justified in instances in which "the company...has failed in substantial ways to adhere to reasonable ethical standards...by remaining in South Africa without taking appropriate efforts to introduce progressive employment and social policies." Boston University, Clark, Colby, Columbia, Cornell, Harvard, Illinois, Michigan, State University of New York, Notre Darme, Pomona, Rutgers, Stanford, Vermont, Wellesley and Williams are among educational institutions that have adopted policies calling for divestment of stock in companies that refuse to disclose information on operations or labor practices or fail to respond to queries concerning activities in South Africa. And several schools--including Brandeis, Carleton and Macalester--have policies forbidding investment in companies that are involved in strategic sectors of the South African economy--such as computers or oil--or sell to the South African military or police. Acting on these policies, schools have sold more than $80 million in investments since 1978. Ohio State sold $250,000 worth of International Flavors and Fragrances stock when the company declined to provide information on its employment practices in South Africa. The University of Michigan sold 17,613 shares of Black and Decker in 1979 when the company declined to sign the Sullivan principles. Since the end of 1980 the University of Illinois has divested stocks or bonds in II companies doing business in South Africa, and several colleges, including Carleton and the University of Washington, sold stock in Dresser Industries or struck Dresser from their buy list after the company opposed shareholder resolutions asking it to endorse the Sullivan principles in 1980 and 1981. By far the largest divestment occurred in 1980 with Harvard's decision to sell $51 million in Citicorp debt instruments after the bank approved a loan to the South African government. Nearly 20 leading U.S. universities--including Harvard, Columbia, Yale, Cornell, the University of Michigan and Notre Dame--have adopted policies against holding debt securities and/or stock in banks lending to the South African government or its agencies. Yale, Columbia, Carleton and Tufts have sold shares worth more than $5 million in banks that have either refused to rule out loans to the South African public sector or declined to disclose information on their lending practices. Most educational institutions are reluctant to divest, except as an action of last resort, in large part because of the potential costs they fear would be associated with divestment. A major concern for financial managers of universities is whether excluding stocks on other than financial grounds will hurt the portfolio's overall performance. The experience of the universities that have actually pursued selective or total divestment of South Africa-related stocks does not provide clearcut evidence that this is the case. One school that has attempted to measure the long-run financial impact of its selective divestment policy is the University of Minnesota. In January 1979, the Board of Regents adopted a policy prohibiting the university from owning stock in companies with operations in South Africa that had not signed the Sullivan principles. In a 1981 study, the university found that in the two-year period from July 1, 1979, to June 30, 1981, the return on the stocks sold as a result of the 1979 policy was only 17.2 percent, compared with 23.3 percent for the remaining stocks in the portfolio. However, the new policy also prevented the university from approving investment in 15 stocks that its financial manager had recommended and that had averaged a return of 42.6 percent over the same period. The overall impact of the 1979 policy on the portfolio's performance is thus ambiguous, in that it forced the university to sell poorly performing non- signatory stocks but prevented it from buying aditional high-return stock in other non-signatory companies. * Voting decisions. Guidelines for voting proxies on stock held in companies doing business in South Africa parallel those designed for selective divestment. Most of the universities with formal policies governing the voting of proxies endorse resolutions supporting the Sullivan principles. When Oberlin College proposed a resolution to Coca-Cola in 1980 asking that it adopt the Sullivan principles, for example, it won the support of Colby, Harvard, the University of Minnesota, Pomona, Smith, Stanford and six other universities and colleges participating in an IRRC survey. Many also have policies supporting resolutions calling for an end to bank loans. A resolution submitted by church groups to Citicorp in 1982 asking the bank not to make or renew any loans to the South African government or its agencies was supported by Johns Hopkins, Pomona and Princeton; Pomona and Yale voted in favor of a similar resolution at Wells Fargo the same year. Some schools favor resolutions restricting sales of goods that might be considered strategic to specific users. Harvard, Yale and Pomona supported a resolution to Hewlett-Packard in 1982 asking that the company refrain from making or renewing contracts to sell or lease computer parts or software to the South African government. Boston University, Brandeis, Clark, Colby, Harvard, Johns Hopkins, Oberlin, Pomona, Stanford, Swarthmore, the University of Minnesota and five other colleges and universities participating in an IRRC survey favored a similar resolution at IBM in 1981. A number of institutions oppose further expansion of operations until changes are made in apartheid policies. In 1980, 15 universities and colleges voted in favor of a resolution at Exxon asking that the company not expand its operations, and a similar resolution to Xerox in 1982 won support from five schools--the University of Minnesota, Oberlin, Pomona, Wesleyan and Yale. But most schools continue to oppose resolutions calling for withdrawal from South Africa. IRRC surveys found that 13 of 15 educational institutions holding the stock opposed a withdrawal resolution at Eastman Kodak in 1980 and all seven schools that held Control Data stock--including Clark and Oberlin--opposed a withdrawal resolution in 1981. Support for withdrawal resolutions, like support for divestment, is seen by most schools as a last resort, a step to be taken only after all other remedies have been tried without success. Before taking either step, advisory committees seek to influence the companies in which they hold stock, writing letters to management, requesting information, holding meetings, explaining university investment policies or asking for alterations in company policy. Nearly every university with an advisory committee polled by IRRC had contacted companies to discuss concerns about investment in South Africa. The University of Illinois wrote to 34 companies between 1980 and 1982 to inform them of its investment policies. Some colleges have written even more. Princeton representatives told IRRC that they had sent letters to 50 companies in the last two years, and the University of Michigan said that its representatives had written to 52. Sponsorship of resolutions--Some colleges and universities have taken a more active role in the shareholder process, actually proposing resolutions of their own. In 1978, the University of Minnesota proposed resolutions to 14 companies asking that they adopt and implement the Sullivan principles. Also in 1978, Bryn Mawr and Haverford co-sponsored resolutions with the church groups, asking Eastman Kodak and Motorola to cease sales to the South African government. Oberlin, Vassar and Wesleyan have sponsored or co-sponsored resolutions to companies on signing the Sullivan principles, sales to the South African military and police and non-expansion of operations. Educational institutions sponsored three resolutions in 1979, five in 1980 and one in 1982. After four years of active participation in the shareholder process, a number of schools have reassessed their role because of the time demands imposed by the process. Early concerns that shareholder activism would result in negative and potentially costly alumni responses have proved largely unwarranted. Although several schools have received letters critical of their policies, few schools cite specific instances of impact on donor contributions. One, Oberlin, stated that it received a $10,000 gift from an alumnus as a result of its policies--but many remain concerned that highly visible shareholder activism could have a serious impact on giving campaigns. Moreover, future sponsorship by educational institutions is likely to be sporadic because of a lack of resources at universities for these tasks and a lack of continuity in advisory committees. Only Bryn Mawr has a policy of actively seeking new areas for sponsorship of resolutions. Current picture--Although the level of student activism on South Africa has declined since the late 1970s, the investment guidelines and advisory committees that this activism has generated have caused commitment to investor responsibility on South Africa issues to become institutionalized. Consequently, universities continue to vote proxies or restrict investment related to South Africa even as students generally appear to be less involved in this social issue. Of the universities and colleges that IRRC surveyed in 1982, nearly all reported little or no change in the policies or procedures established years earlier at the height of student activism. Nor is there a clear trend toward either greater or lesser activism on the part of schools that are reevaluating or changing their policies on South Africa. At Stanford, for example, during a one-year moratorium on proxy voting the school's Commission on Investment Responsibility in 1982 conducted a major reassessment of its role and responsibility as an investor. After considerable debate, the commission recommended that it limit "the scope of its consideration of shareholder resolutions to a number on which informed and responsible judgments can be made," and that it "consider only instances in which there are allegations of substantial social injury from corporate behavior," a determination that would be made by majority vote of the commission. A major reason given by most of the commission members for limiting consideration of resolutions was that the large number and limited time for consideration did not permit the commission to analyze them all. Other universities, however, are proposing to become more active. At Amherst, where there has been no standing investment advisory committee, the faculty has constituted a committee to recommend ways to make the school's investment policy more responsive to social concerns. Mount Holyoke's committee on social responsiblity has asked trustees to consider a more comprehensive South Africa policy, moving beyond endorsement of the Sullivan principles to active sponsorship of resolutions. Wesleyan's advisory committee has recommended to its trustees that the university replace its policy of case-by-case review with a set of minimum standards; the University of Minnesota has adopted a set of guidelines that "prohibit future investments in corporations doing business (in South Africa) unless...equivalent returns are not likely in alternative investments"; and Brandeis's advisory committee on social responsibility is planning to recommend that the university divest or exclude from purchase stock in companies that fail to sign the Sullivan principles and be ranked in the top two of the three categories used to evaluate the progress of signatory companies, sell to the South African military or police or make loans to South Africa. Moreover, student activism on South Africa, while less evident, can still be a major force. At Harvard, the Corporation Committee on Shareholder Responsibility voted in March 1982 to continue unchanged its policy on investing in banks that do business with South Africa after students made clear that they would oppose any softening of that policy. Under the policy, adopted in 1978, Harvard automatically sells off the debt securities of any bank that is lending to the South African government or its public corporations. Controversy over a possible change arose in January 1982 when the Corporation Committee asked the Advisory Committee on Shareholder Responsibility (ACSR) to review the policy. The request arose because of Harvard's decision in late 1980 to sell some $51 million of Citibank debt securities following the bank's participation in a $250 million loan to the South African government earmarked for black housing, education and health care projects. In a letter to the ACSR, the Corporation Committee expressed concern that the blanket ban on Harvard's holding of the debt securities of banks lending to the South African public sector "makes no allowance for the use of discretion" in reviewing ostensibly "humanitarian loans to South Africa." The ACSR agreed to review the policy and instructed Harvard's investment office to inform the committee of any impending divestments of bank securities so that the policy review could be conducted using an actual rather than a hypothetical case. The ambiguity surrounding this decision, however, led some ACSR members to conclude that the policy was not merely under review but had in fact been changed. Student reaction was swift and vocal when the Harvard student newspaper, The Crimson, ran an article the day after the ACSR meeting announcing that the committee had altered the policy concerning bank lending to the South African government. In response to student protests, the ACSR dropped its plans for a policy review based on a concrete case and elected to carry out the review immediately with extensive participation by students. At an open meeting of the ACSR in early March, some 300 students attended and listened while 30 participants spoke to the committee in near-unanimous opposition to any change in Harvard's investment policy. A week later, the ACSR unanimously reaffirmed the 1978 policy, and on March 15, the Corporation Committee on Shareholder Responsibility announced that "in view of the unanimous conclusion of the ACSR, we have decided not to change the policy adopted in 1978." In the meantime, many of these committees are broadening their focus to include other issues. Although most committees were formed specifically to deal with South African investments, the South Africa shareholder movement forced colleges and universities to include social issues as part of their investment policies. Consequently, as nuclear power and nuclear weapons are increasingly attracting student interest, more committees are including these issues on their agendas. At a number of schools the South Africa shareholder debate also provoked interest in affecting the situation for South Africans in ways beyond investor pressures. Since 1978 a number of colleges and universities have begun to participate in the South Africa debate through their financial support for black South African students studying in this country. More than 50 universities-- including Arizona State, Berea, Brandeis, Brown, Iowa State, Duke, the University of Kansas, Pomona, Trinity and Wesleyan--are guaranteeing full support for South African students, and more than 100 institutions have offered tuition scholarships to participants in the Institute for International Education's South Africa Education Program. As discussed in Chapter II, $4 million in federal funds were provided in fiscal year 1982 for the education of 81 black South African students. American colleges and universities also played a major role in this program by contributing more than $2 million in scholarships and other forms of financial assistance. The Institute for International Education has pledged to continue to seek financial support from educational institutions, as will the African-American Educational Fund, a second group interested in South African education. Church groups: More than any other institutional investors, churches play a dual role in the shareholder debate by sponsoring resolutions as well as voting on them. Church groups led the way in sponsoring resolutions to corporations on their activities in South Africa, and for many years were the sole proponents of these resolutions. Their concern stemmed originally from reports by missionaries within South Africa, which indicated that the condition of blacks there was cause for grave social concern. The shareholder process was chosen as a primary area for activity because the church groups view the submission of a resolution as the most serious statement of concern that a shareholder can make, as well as the most public. Most church shareholder activity has been coordinated since 1973 by the National Council of Churches' Interfaith Center on Corporate Responsiblity. The number of church groups participating in the Interfaith Center's activities has continually increased, and it now includes 14 Protestant denominations and 180 Catholic dioceses and orders. In 1982, all but one of the shareholder resolutions relating to

South Africa were sponsored or co-sponsored by churches coordinated by the Interfaith Center. Church voting on shareholder resolutions--as distinct from church activities as shareholder proponents--is decentralized. But churches that are active on shareholder issues are likely to follow similar policies. Of all the institutional investors, church groups are most likely to vote against management on a wide range of issues, including demands for withdrawal. The policy guidelines on South Africa are likely not only to include recommendations for voting on shareholder resolutions, but also to stipulate cases in which the church groups should sponsor resolutions, contact portfolio companies or divest. Most of the church groups surveyed have had their policies in place since the mid- to late 1970s. Church proponents--Although many church proponents would like to see U.S. corporations withdraw from South Africa, many of the church resolutions have called for interim measures that would place restraints on U.S. corporate involvement with the South African government or would stop the expansion of American firms in South Africa. Church groups rarely buy stock in a company simply in order to propose a resolution, preferring instead to express their concerns about the activities of corporations in which they are already shareholders. The relatively small blocs of shares owned by the majority of these groups usually do little to increase the level of support for South Africa resolutions, but the part church groups play in sponsoring and directing these resolutions makes their participation more significant than that of larger institutional investors. Perhaps the most important role of church proponents in the shareholder process is the initiation of dialogue with corporate management on South Africa issues before the submission of a resolution. As the Interfaith Center's shareholder manual states: "Direct communications with a company are invaluable in establishing a climate and context for negotiating corporate change where it is needed and for supporting corporate responsibility where it is present. Managers rightly resent proxy resolutions and other public embarrassments which appear without any previous attempt to negotiate the shareholder's concern." Church policy on voting-Of the eight church groups responding to the IRRC questionnaire, only one--the Chicago Province of the Society of Jesus--responded that it did not have a policy governing the voting of stock on South Africa-related issues, but it added that it had only recently established its proxy voting committee. Other church groups described policies on South Africa that ranged from the very general to the very specific. The New England Province of the Jesuits said simply that it votes its stock "in ways we think would combat apartheid." In contrast, the National Ministries of the American Baptist Churches and the General Board of Pensions of the United Methodist Church have detailed guidelines stating that they will support requests to companies to implement the Sullivan principles, to stop loans to the South African government and, in some cases, not to expand. Both sets of guidelines also suggest at what points the church groups should take additional actions such as sponsoring resolutions, communicating with managements or divesting. The Philadelphia Yearly Meeting of Friends, in line with its tradition of reaching decisions by consensus, does not specify in its guidelines how it will vote on any given resolution concerning South Africa. Instead, it lists a number of factors it will consider, ranging from a company's labor practices to its attempts to lobby against apartheid laws, in deciding how to vote on a resolution. Its guiding philosophy is that: United States corporations are not the initiators of the apartheid system in South Africa and cannot be expected, alone, to change the socio-political structure of that country .... However, U.S. corporations can be asked to attempt to justify their presence in South Africa through exerting every possible effort toward reform. In contrast to universities and profit-making financial institutions (see below), church groups are more likely to support resolutions requesting companies to withdraw from South Africa, although the reasons each cites for supporting withdrawal vary. The guidelines for the National Ministries of the American Baptist Churches, for example, recommend that the National Ministries take "appropriate shareholder action to urge withdrawal" of corporations that "continue to give significant aid to apartheid and the government policy of white minority rule." Another church group, the Corporation of Roman Catholic Clergymen-Maryland Jesuits, said of its policy: Until recently, CRCC-MDSJ voted against resolutions urging corporate withdrawal fearing the devastating effect such withdrawal would have on the economy of South Africa, especially in terms of unemployment. During the 1981- 82 proxy season the CRCC-MDSJ supported resolutions calling for withdrawal. Such support is consistent with CRCC-MDSJ thinking that voting is primarily symbolic. The CRCC-MDSJ will do all it can to force South Africa to examine its racial policies. However, one church group, the New Orleans Jesuits, questioned the efficacy of withdrawal, saying that: We are generally supportive of all resolutions that seek to eliminate or alleviate the end of apartheid, and feel that corporations generally need to be pushed to be more active on this matter. However, we have serious doubts whether withdrawal of investments would achieve much of anything. The one shareholder resolution that came to a vote in 1982 requesting corporate withdrawal was submitted to IBM. Of the six church groups in the survey that owned IBM shares, four voted for the resolution, and two--the Philadelphia Friends and the New Orleans Jesuits--abstained. The Friends cited a lack of consensus among the members of their task force on South African investments who "have met with IBM and many, if not all, felt that IBM was acting as a reasonable and concerned management." Many of the church groups emphasize the importance of meeting and writing to portfolio managements to express their concerns about South Africa. As the Philadelphia Friends explain in their guidelines: "Efforts to convey our views to corporate management will be conducted in a friendly spirit of persuasion on the assumption that there is a spark of the divine in every person." Six of the church groups had communicated with at least two companies since ihe beginning of 1980, and three had contacted between 20 and 30 companies. In addition, the National Ministries of the American Baptist Churches "are presently writing all corporations in (our) portfolio with operations in South Africa to ascertain their policies and practices and also all banks regarding loan policies to (the) South African government." Divestment-Church groups have also divested from, or refrained from investing in, companies as part of their overall policies on South Africa. The Philadelphia Friends say that "since the 1960s, (we) have endeavored to avoid investments where South African involvement of any substantial degree is known," and that since January 1980 they had sold securities in six companies. The United Methodists' General Board of Pensions "no longer has investments in three companies that refused to sign the Sullivan principles or adopt a policy we consider to be the equivalent of the Sullivan principles." The American Lutheran Church responded that "basically if we can determine that if two investments are of equal value, and if one of the companies operates in South Africa and the other does not--we opt in favor of the company not in South Africa." The five other church groups said that they have not yet taken such actions. Foundations: Three of the nation's largest, as well as some smaller foundations have adopted policies governing the voting of stock on issues of social responsibility. Many of the guidelines have grown out of what foundation administrators perceived as a potential conflict between their chartered purpose of promoting social welfare and their lack of social criteria for investing. And in the case of South Africa, foundation officers saw an opportunity to bring investment policies in line with program objectives. Interest in South Africa is not new at some foundations. In the 1930s, for example, Carnegie Corporation of New York did a major study of South Africa's poor whites--the Afrikaans-speaking white farmers drawn into the cities and to the mines during South Africa's first wave of industrialization. The corporation has had a number of continuing study programs and development projects in South Africa for the last half-century, and it has recently made a major grant for a study of black poverty that is expected to be as much a landmark study today as the study of the poor whites was 50 years ago. Similarly, The Ford Foundation has been active in training, educational assistance and development programs in South Africa for a number of years. The Rockefeller Foundation has recently completed financing a Commission on U.S. Policy toward Southern Africa whose recommendations and findings, released in 1981, are summarized later in this chapter, and has just launched a series of grants to assist black leadership development. Voting policies--Guidelines for voting on South Africa-related issues developed by foundations are similar to those of most educational institutions, and they reflect a desire to promote social change in South Africa through the activities of U.S. corporations there rather than call for their withdrawal. While the number of foundations participating in the shareholder process is small, the respect with which they are viewed by the corporate world helps to lend credibility to the issues that they support. Four foundations responded to IRRC's survey--The Ford Foundation, Carnegie Corporation of New York, the Edward Hazen Foundation, and another foundation that asked not to be identified--concerning their South Africa guidelines and their voting patterns from 1979 to 1982. All told IRRC that they had either formal or ad hoc guidelines for voting on South Africa-related resolutions, but that they still consider each resolution on its merits. At Carnegie Corporation, for example, the investment committee establishes ad hoc guidelines each year by discussing each type of resolution--such as krugerrand sales or non-expansion proposals-- scheduled to come to a vote that year. These discussions help to air the pros and cons of each type of resolution and to define the questions that each raises. The committee then votes each resolution as it arises, and the majority vote determines the vote that the entire foundation will cast. If the committee is tied, Carnegie will abstain on the resolution. Two of the foundations, however, appeared more hesitant to vote for shareholder resolutions on South Africa even when they oppose management policies. Since 1979 The Ford Foundation has abstained on many shareholder resolutions dealing with South Africa because it believes that a letter to management can convey more effectively the foundation's continuing concern about U.S. corporations' business involvement in South Africa. The second foundation also prefers to abstain on resolutions when it disagrees with management but it said that it had not written any letters to managements in the last two years explaining its abstentions. In contrast, the Hazen Foundation has not abstained on any South Africa-related resolutions over the last four years, and it has supported a number of resolutions requesting companies to halt either sales to the South African government or further expansion of their operations.

The foundations differ in their views on various resolutions, although they share a support for the Sullivan principles and opposition to withdrawal. The Hazen Foundation is the only one to have voted for non-expansion resolutions. Both Carnegie and Hazen have supported a number of resolutions requesting a halt to strategic sales, and Ford has abstained on several such resolutions. Only one of the foundations--Ford--has supported a withdrawal resolution in the last four years. Before The Ford Foundation began to abstain regularly on South Africa-related resolutions, it voted for six such resolutions in 1979, including a resolution to Phillips Petroleum asking it to withdraw from South Africa if it had not fully complied with the Sullivan principles by the end of 1979. In explaining that vote, Ford told IRRC at the time: The IRRC South Africa Review Service questionnaire disclosed (that Phillips had) a poor record of compliance with the Sullivan principles at its 50 percent- owned subsidiary in South Africa. Phillips Petroleum adopted the Sullivan principles in 1977 and should be encouraged to seek complete compliance with the minimum acceptable standards embodied in the principles or withdraw its interests from the South African subsidiary. Ford also abstained on a withdrawal resolution the same year to Union Carbide, explaining: "Withdrawal is not an especially attractive option to urge on corporations, yet we do not accept Carbide's uncritical assertion of the benefits the oppressed majority will enjoy because of Carbide's presence in South Africa." However, in 1981, Ford adopted the recommendations of the Study Commission on U.S. Policy toward Southern Africa as "non-specific" guidelines for its proxy voting and explained several of its votes in the 1982 proxy season by citing the commission's 1981 report. The commission's recommendations to U.S. corporations were three-fold. First, it wrote, "U.S. corporations and financial institutions operating in South Africa should commit themselves to a policy of non-expansion and those businesses not already there should not enter the country." Second, it said, companies in South Africa should set aside "a generous proportion" of their financial resources for projects to improve the lives of black South Africans. And third, the commission said, companies should subscribe to the Sullivan principles. (For full details of the commission and its recommendations, see Appendix.) Accordingly, in explaining its vote on the 1982 withdrawal resolution to IBM, Ford said that it "voted against the withdrawal resolution, because the Study Commission on U.S. Policy toward Southern Africa did not recommend termination of operations under current circumstances. IBM also has top rating in Sullivan standards." Another foundation also indicated a possibility that it might revise its guidelines as a result of the study commission's recommendations. An official said that while the foundation already supported the Sullivan principles, in accordance with the commission's recommendations, it had yet to consider the commission's first recommendation that there be no new net expansion in South Africa by American banks and firms. This foundation's current policy opposes restraints on corporate expansion in South Africa. Banks and trust companies: Of all the institutional investors, banks and trust companies tend to be the most conservative as a group in dealing with social responsibility issues. Thirteen banks and trust companies responded to the IRRC questionnaire, and all wished to remain anonymous. Six appeared to be guided by the Wall Street Rule. They responded either that they had no guidelines on South Africa or that they always voted with management, and none had contacted any portfolio companies concerning South Africa. Among the remaining seven banks responding, however, there were varying degrees of activism on South Africa; all had either supported South Africa-related resolutions or contacted the managements of portfolio companies concerning South Africa. Four of the banks in this group specifically mentioned that they supported the Sullivan principles. Said one bank: "It has been our consistent belief that continued operation in South Africa while following the Sullivan principles is the most effective way to eliminate apartheid in a nonviolent way." In fact, one bank said that the only South Africa-related resolutions on which it deliberated were those concerning the Sullivan principles; it votes all other South Africa-related resolutions with management. The same four banks also stated specifically that they oppose resolutions calling on companies to withdraw or not to expand in South Africa. Of these seven banks, six have voted against management at least once on South Africa-related issues, and four have supported resolutions calling on companies to sign the Sullivan principles. Another bank in this group has supported non- expansion, strategic sales, and Namibia-related resolutions, and still another once voted for a resolution calling on a company to implement the Sullivan principles or withdraw from South Africa. The one bank in this group that has never opposed management in voting resolutions has occasionally expressed disapproval of management policies in written communications. In one such letter, the bank wrote to Crocker National: After serious deliberation, we have voted with management on the shareholder proposal requesting cessation of loans to the Republic of South Africa. Nevertheless, the Public Affairs Committee of the Board of Directors of (name of bank) wishes to record that it considers your response in opposition to the shareholder proposal, however well intentioned, to be evasive; in fact, almost callous.

If this or a similar shareholder proposal should be presented at a future Crocker National annual meeting, we will have to reconsider our voting stance in the light of your response to such a proposal. Under our proxy voting guidelines re: South Africa, we support managements provided responses demonstrate sensitivity to the moral and social implications of the apartheid system. Such sensitivity was definitely lacking in your response this year. This bank's warning that it might support a no-loan resolution in the future is noteworthy because banks in general are reluctant to support resolutions to other financial institutions requesting them to cease or restrict loans to South Africa. There have been a few exceptions to this rule, however. One of the seven banks discussed above supported a 1981 resolution to Merrill Lynch asking it not to lend to the South African government. Another bank, which did not respond to IRRC's 1982 survey but completed similar surveys in 1978 and 1979, indicated that it supported five no-loan resolutions during these two years. In addition to the bank whose letter to Crocker is excerpted above, four of the other banks with guidelines also indicated that they had communicated with managements since January 1980; one of the banks had contacted 15 companies. Investment firms: Of the four investment firms surveyed by IRRC, three have supported South Africa-related resolutions in the past, but none has communicated with managements in the last two years or sold or refused to buy stock in any companies because of their South Africa policy, although one New England investment firm noted that some of its clients had taken such actions. One of the firms said of its policy that: In general, we believe that the Sullivan principles provide a reasonable set of objectives for corporate operating policies and practices in South Africa. Obviously, if the principles are a sham rather than a set of objectives, that would be taken into account in judging whether a corporation is acting responsibly. If a review of specific policies practiced by an individual company demonstrates that there is a comparable code of conduct, the committee may determine that effective alternative procedures are in place. A second firm said that its guidelines had evolved over the years and that "in general, we support the fight against oppression, but not if economic harm is an intermediate term result to employees." This firm has voted often over the last decade for resolutions requesting companies to provide information or establish review committees on South Africa, stop strategic sales to the South African government, refrain from expansion, and implement the Sullivan principles or withdraw.

A third firm said it had no guidelines and was under no pressure to adopt any. Nonetheless, IRRC surveys show that it has voted for a number of South Africa- related resolutions in the past, including a 1982 resolution requesting Alcan to establish a review committee to examine the company's activities in South Africa. The fourth firm also said it had no guidelines, was under no pressure to adopt any, and "never votes for South Africa resolutions." Insurance companies: Insurance companies are the most active of all the for-profit institutional investors. Of the nine insurance companies surveyed, eight of which asked not to be identified, all but one stated that they either had formal or ad hoc guidelines regarding the South Africa issue or had voted for South Africa-related resolutions. Although TIAA-CREF is included in this section for the purposes of this discussion, it does not fit conveniently into any organizational category. TIAA (Teachers Insurance and Annuity Association) and CREF (College Retirement Equities Fund) are companion non-profit organizations that provide retirement benefits and insurance protection for staff members of more than 3,000 colleges and universities and other non-profit entities. Central to most of the insurance companies' guidelines was an emphasis on portfolio companies signing or implementing the Sullivan principles. One company--TIAA/CREF--supports the Sullivan principles but has also developed its own guidelines, which stipulate that portfolio corporations active in South Africa should "affirmatively take steps to remove or reduce racial discriminatory barriers and strive to eliminate the economic and social inequalities that have resulted from such discrimination." Three insurance companies stated views on the question of loans to South Africa. TIAA/CREF's voting on bank lending resolutions has been guided by its policy that banks in its portfolio should make no loans to either the South African government or the private sector, and another New York insurance company placed a prohibition only on loans and sales to the South African police and military. A New England insurance company responded, "We do not vote against loans to South Africa if the banks in question indicate they consider the political situation as part of the credit considerations." A Connecticut insurance company, while not stating a specific policy on loans or strategic sales, said that the operations of portfolio companies active in South Africa "should not directly support the apartheid system." With regard to non-expansion resolutions, only TIAA/CREF had a formal position, which is that its portfolio companies should "refrain from making additional investments or otherwise expanding the corporation's scope of operations in South Africa except where such actions demonstrably reduce or remove racial inequalities or discriminatory barriers in ways that do not strengthen the apartheid system."

Two companies--TIAA/CREF and a Connecticut insurance company--stipulated in their guidelines that portfolio companies should be responsive in providing information. TIAA/CREF calls for portfolio companies to "develop and distribute, at least annually, comprehensive information that will permit all concerned to evaluate the corporation's accomplishments and future ability to meet the social and economic responsibilities associated with the conduct of business in South Africa." The other company believes that companies operating in South Africa should provide a "positive response to reasonable requests for information." Only one of the insurance companies surveyed by IRRC indicated that it had never voted for or abstained on a shareholder resolution involving South Africa. The insurance company that appears to have been most active in voting on shareholder resolutions is TIAA/CREF. According to IRRC's annual surveys, TIAA/CREF has voted most often for non-expansion resolutions and resolutions requesting companies to provide information on operations related to South Africa. It has also voted several times for resolutions requesting that bank loans to South Africa be restricted or halted. The other insurance companies as a group have voted most often for resolutions calling on companies to implement the Sullivan principles or to restrict strategic sales. To a lesser extent, resolutions requesting companies not to expand in South Africa, to provide information or establish review committees, or to restrict involvement in Namibia have also been supported, although not by every insurance firm. IRRC is aware of only one insurance company that has ever supported withdrawal--in this case, the 1981 withdrawal proposal submitted to Fluor--although two other insurance companies have voted for resolutions calling on companies to withdraw from South Africa if they do not implement the Sullivan principles. Six of the insurance companies told IRRC that they had contacted the management of at least one portfolio company since January 1980; one Connecticut-based company had contacted 15 companies, and TIAA/CREF had contacted 18. Albert Wilson, TIAA/CREF's assistant general counsel, told IRRC that the catalyst for his company's guidelines on South Africa was the Soweto uprising of 1976. In addition to voting its proxies, TIAA/CREF writes to the managements of portfolio companies whenever it believes that its votes on shareholder resolutions need further explanation. For example, TIAA/CREF will write to managements in cases where it voted against or abstained on a resolution not because it supported management's position, but rather because the action requested by the resolution was not feasible. TIAA/CREF is currently reevaluating its proxy voting guidelines after having sent Wilson on a fact-finding trip to South Africa in September 1982. Wilson told IRRC that the reevaluation was prompted by developments that had occurred since TIAA/CREF first developed its guidelines in 1978. He explained that in 1978, TIAA/CREF believed that U.S. law was sufficient for controlling sales of strategic products to the South African government and thus did not include any language in its guidelines concerning strategic sales. Since then, however, the Reagan administration has eased restrictions on U.S. trade with the South African government. Moreover, Wilson said, TIAA/CREF has been concerned by statements by some companies that they would find it difficult to remain in South Africa without doing business with the government. An executive with another insurance company, based in Connecticut, also mentioned client concerns as having influenced development of the company's South Africa policy and its overall emphasis on social responsibility. As at many other financial institutions, this firm's awareness of South Africa as a shareholder issue was an inevitable result of the shareholder campaign launched a decade ago. For this company, the importance of proxy voting was underscored in the mid- 1970s when actual and prospective clients began to express concerns about South Africa. The executive says that since the mid-1970s, "dozens of clients have expressed interest in South Africa," and he estimates that 5 percent of his company's clients placed their accounts with this firm because of its leadership position in the insurance industry in voting proxies and communicating with portfolio companies on social responsibility issues, including South Africa. Although his firm has been active in voting shareholder resolutions and has often voted against management, the executive believes that "the single most important thing we can do is dialogue." Consequently, the company has always met with managements it votes against in order to explain its position--and then followed up with a letter. And the executive emphasizes that his firm is able to get an audience with the managements of its portfolio companies by emphasizing to them that "there is a close relationship between bottom line profit and corporate responsibility." Pension funds: The seven pension funds that responded to IRRC's survey have widely varying policies. Some have formal proxy voting policies to guide their votes on South Africa-related shareholder resolutions; some do not. Some have a sole trustee responsible for voting proxies, while others rely on a committee. Some of the pension systems have indicated, in either their policies or their actions, that they will sell (or refrain from buying) stock in companies with operations in South Africa if they do not meet certain standards. As different as the six public retirement systems and one private pension fund are, they appear to indicate a trend whereby pension fund trustees are increasingly considering social criteria in proxy voting or investment decisions. Three state retirement systems-- those of Connecticut, California and New York--have recently established new policies or modified existing policies to require them to become more active in voting proxies, in contacting managements of portfolio companies, or in investing or divesting on the basis of social criteria.

New York--The New York state retirement system is an example of a public retirement system that has only recently begun to vote its proxies in accordance with social responsibility guidelines. In New York, the state's Common Retirement Fund has only one trustee--the Comptroller--who is ultimately responsible for voting all the shares owned by the Fund. Before the 1980 proxy season, however, the Fund had rarely engaged in any proxy voting other than occasional votes for management in accordance with the Wall Street Rule. The situation changed dramatically in 1979 when a new, more activist Comptroller was appointed. He requested his investment advisory committee to establish a proxy subcommittee to study shareholder resolutions and recommend how to vote on them. Thus, 1980 became the first year that the Fund regularly voted on shareholder resolutions. It was a trying year. Thomas Cuite, recording secretary of the proxy subcommittee, told IRRC that the subcommittee often met for five to six hours at a time in order to reach recommendations on how to vote on pending shareholder resolutions. By the time the proxy season was over, the subcommittee felt that it needed formal policy guidelines on particularly complex and contentious issues such as South Africa and nuclear power. In March 1981, the subcommittee codified voting guidelines on South Africa and a few other issues; it is still wrestling with the nuclear energy and nuclear weapons issues. The guidelines state that the subcommittee will recommend that the Comptroller not support withdrawal resolutions unless the company in question "has neither adopted the (Sullivan) principles, nor demonstrated any activity to ameliorate the position of the South African black." Similarly, the subcommittee will also recommend voting against non-expansion proposals "if the company is actively carrying out its commitment to the Sullivan principles or is actively promoting training programs and other equal rights opportunities in its operations." The subcommittee will also support resolutions requesting the establishment of South Africa review committees. More generally, the subcommittee believes the purpose of voting shareholder resolutions should be "to convey a strong and clear, albeit indirect, message to the South African government. Consequently, the subcommittee will recommend to the Comptroller that he support all proposals to stop sales to the South African government, stop private sector loans to the South African government, and stop dealings in the krugerrand." To date, the Fund has limited its action on South Africa to voting proxies; it has not contacted the managements of portfolio companies nor has it sold stock for reasons related to South Africa. California--The two state retirement systems in California--the Public Employees Retirement System (PERS) and the State Teachers Retirement System (STRS)-- have had social responsibility guidelines since 1978, although neither policy specifically mentions South Africa. The PERS guidelines state that:

If a company operates in a country or environment where serious human rights violations occur, we expect to see optimum progressive practices toward elimination of these violations. For employees who are disadvantaged because of such violations, we expect the companies to persist in availing themselves of every reasonable and legally permissible means to ensure that all of their employees and their families have what they need to pursue a life of dignity and personal well-being. Operating in such an environment shall carry with it special reporting burdens necessary to keep shareholders informed. If there is apparent lack of progress, the matter shall be viewed carefully to determine if a company is implicitly acquiescing in other parties' repressive practices. Both systems have been active in voting shareholder resolutions on South Africa. In particular, they have supported resolutions asking banks not to lend to, and companies not to sell strategic products to, the South African government. During the administration of Gov. Brown, the California State and Consumer Services Agency, which has nominal jurisdiction over the two state retirement systems, attempted to encourage the two boards to become more active in voting and sponsoring shareholder resolutions. Largely as a result of the agency's influence, PERS/STRS cosponsored the 1982 resolution to Xerox asking that it not expand in South Africa or sell to the South African police and military. This represented the first time a public pension fund had cosponsored a shareholder resolution. Michael Thome, the chief executive officer of STRS, has predicted a continued level of activism. During the 1982 proxy season, he told the California Pension newsletter: "You will see us actively voting our proxies on all political issues. Xerox is the first one to come along this year, but more can be expected. We will be voting our proxies and becoming much more visible than before." In 1983, PERS/STRS again agreed to cosponsor South Africa resolutions at Xerox. Connecticut--The state treasurer of Connecticut has long been active in voting the shares of the public retirement systems he administers in accordance with social responsibility criteria first formally established in 1972, which have served as a model for other public pension fund managers. In addition, since 1980, the state treasurer-the sole trustee of the state retirement system--has been required by state law to divest from companies operating in South Africa that do not meet certain social criteria. In 1980, a law was enacted authorizing the state to divest from any companies operating in South Africa that had not signed the Sullivan principles. As a result, in December 1980, Connecticut sold $6.5 million of stock in three companies--Dresser Industries, IMS International and Lubrizol--which did not respond favorably to the fund's request that they sign the principles. In 1982, a new law was enacted that imposed stiffer restrictions on state investments in companies operating in South Africa. This law directs the state treasurer to divest from corporations doing business in South Africa if they supply certain strategic products to the South African government, if they fail to recognize their employees' right to organize and strike, or if they have not obtained a performance rating in the top two categories of the Sullivan principles annual rating system. In accordance with the new law, the state treasurer's office sent letters to all the companies in its portfolio in July 1982. Companies believed not to have operations in South Africa were asked to confirm that status, and companies with operations there were asked to provide their Sullivan rating and information about their product lines and labor practices. The state treasurer's office is currently reviewing the responses it has received. According to Henry Parker, the state treasurer, "Our approach is to be persuasive, not punitive." He hopes that companies not in compliance with the state's criteria can be persuaded to modify their practices. The state will resort to divestment only after attempts at persuasion have failed. New Jersey, Wisconsin--Unlike New York or Connecticut, the state retirement systems of New Jersey and Wisconsin do not have policy guidelines specifically with respect to South Africa. The managers of both state systems say that their policy is to consider the financial impact of each resolution, but both emphasize that in doing so, one cannot ignore the social impact of a company's practices. Roland Machold, the director of the State of New Jersey Division on Investment, told IRRC that his division had voted one year in favor of a resolution requesting General Motors to halt sales to the South African police and military. Machold explained that in the division's view, a company that sells to the police and military in South Africa risks being identified with the policies of those entities and consequently, in such a divided country, exposes itself to financial risk. In contrast, he noted that New Jersey had opposed the resolution in 1982 asking Xerox both not to sell to the police and military and not to expand in South Africa. He explained that while the division supported the request for a ban on sales to the police and military, it could not support the non-expansion request which would have had an adverse financial impact on the company. The division has also written letters to the managements of about five banks since January 1980 to inquire about the possible financial risks to the banks that their lending to South Africa posed, and to ascertain whether the banks had carefully assessed such risks before making the loans. Similarly, the guidelines for the State of Wisconsin Investment Board state that the board's primary obligation is to pursue prudent investment for the highest rate of return but that this necessarily involves studying the social impact of corporate policies. Consequently, the board will vote against management on shareholder resolutions where it believes that the company's policy is threatening public good will and, hence, its financial viability. State anti-apartheid activists have lobbied for the investment board to adopt a more activist stance on South Africa. In recent years, a number of bills that would require the board to divest have failed to pass the legislature. However, the legislature recently established an ad hoc committee to review Wisconsin's investment policy with an eye toward increasing in-state investments. Although the review was not created to study the South Africa investment issue specifically, the committee's report may make some recommendations on this issue. San Francisco--The San Francisco City & County Employees' Retirement System does not have formal guidelines pertaining to voting on South Africa-related issues. Instead, the individual members of the retirement board vote according to their conscience; the majority decision determines how the board will cast its vote on the resolution. Jack Stouffer, an official with the Retirement System, told IRRC that he preferred this procedure to formal guidelines, but he acknowledged that if the board had to consider a larger volume of shareholder resolutions than it does now, it probably would have to establish some guidelines to streamline the voting procedure. In 1981 and 1982, the system supported all the South Africa- related resolutions submitted to the companies in which it held stock. The board did not contact managements of portfolio companies, nor did it make investment or divestment decisions, for reasons related to South Africa. A-C Trust--The one private pension fund that responded to IRRC's survey mentioned student activism in the lale 1970s as having indirectly influenced its guidelines. Arnold Cogswell, the trustee of A-C Trust, a small family charitable trust, also sits on the investment boards of several non-profit organizations including universities. According to Cogswell, student activism on American campuses and the surge of publicity over events in South Africa in the late 1970s provided the impetus to the boards on which he served to formulate policies on South Africa because "We didn't want to be caught without a set of guidelines." At A-C Trust, the general policy since the late 1970s has been to support managements that have signed and are implementing the Sullivan principles. A-C Trust estimates that since January 1980, it has contacted five companies with operations in South Africa to question why they have not signed the Sullivan principles or why they had been placed in the lowest rating category by Arthur D. Little. In voting on shareholder resolutions, in general A-C Trust has voted only against companies that have not signed the Sullivan principles. In 1981, for example, it voted for a resolution to Dresser asking the company to sign and comply with the Sullivan principles or withdraw, and in 1979, it supported a resolution to Timken, a company that had not signed the Sullivan principles, asking it to withdraw. Cogswell also said that A-C Trust has sold stock in one company that appeared indifferent to the Sullivan principles. Although no other divestment for reasons related to South Africa has taken place since, Cogswell told IRRC that A-C Trust will consider divestment if the pertinent company is unresponsive to A-C's concerns and if a similar company is available, with better South African policies, in which A-C can invest. Union pension funds: American unions for the most part have very little say in how the funds provided for their members are invested or how the shares held by the funds are voted on shareholder resolutions. As a result, although the American labor movement has long expressed its opposition to apartheid, it has seldom had the opportunity to consider the issue of U.S. investment in South Africa from the vantage point of an institutional investor. IRRC knows of only two cases where U.S. unions have managed to have South Africa considerations included in the investment guidelines of their pension funds. In 1977, the trustees of the pension fund for District 1199 (New York City) of the National Union of Health Care and Hospital Workers agreed, at the union's insistence, to direct the fund's investment managers to sell off holdings in companies with operations in South Africa. The new 'policy, however, had only a limited impact on the pension fund's portfolio. Much of the fund, was invested in commingled accounts that made divestment impossible. The trustees, however, did not attempt to move the fund to an account where South Africa-related stocks could be sold off. Even in cases where the pension fund directly held shares in companies doing business in South Africa, the union retreated in 1978 from its call for divestment the year before after the investment manager argued that sales of stock in compliance with the new policy had caused the fund to perform badly. In response, the trustees revoked the fund's divestment decision but directed the investment manager to refrain from buying South Africa-related stocks in the future. A union official told IRRC in 1982 that the South African component of the investment policy has been dormant following the recent retirement of the president of the union--the individual that had been its most active supporter. The United Automobile Workers have also been active in the anti-apartheid campaign and, in 1979, in return for wage concessions designed to keep Chrysler afloat, the UAW gained a measure of control over how pension funds for UAW members at Chrysler would be invested. As part of the agreement, the UAW can now recommend to the trustees that the pension fund not be invested in certain companies doing business in South Africa. The companies--up to five each year--are selected from among those that have not signed the Sullivan principles. In 1981, the first five companies were selected-- U.S. Steel, Allegheny Ludlum, Eaton, Dresser Industries and Newmont Mining. According to the union, by the end of the year the pension fund managers had sold all the shares held in these companies. As of January 1983, a UAW official told IRRC that a second set of five companies had not yet been named "because it has been a very busy negotiating year in the auto industry and we simply haven't had time. But we intend to name another five when we have the chance." The UAW experience at Chrysler, however, is not likely to be repeated by other unions. Patrick O'Farrell, director of the AFL-CIO's African-American Labor Center, described the UAW-Chrysler agreement as "an isolated piece of business" that came about because of the special circumstances surrounding Chrysler's situation at that time. As evidence of this, the UAW failed in 1982 to get the South Africa investment clause included in the contracts they negotiated with Ford and General Motors. There are even fewer examples of unions directing that the shares held by their pension funds be voted on shareholder resolutions dealing with South Africa. The International Longshoremen's and Warehousemen's Union has long been active on South Africa and other social responsibility issues and, in 1982, was able for the first time to persuade the pension fund trustees to support three shareholder resolutions. Among the three was a resolution to IBM requesting the company to end its operations in South Africa as quickly as possible. Shareholder activism represents something of a compromise for the ILWU, which has been unable to convince the fund trustees to carry out a 1978 call by the union for the sale of all stock in companies doing business in South Africa. The UAW at Chrysler is attempting to gain similar proxy voting rights. It is proposing that the Chrysler pension committee--comprised of management and union representatives--consider voting on shareholder proposals. If management and the UAW disagree on how to vote, the union proposal would give the union representatives on the pension committee the right to vote one-half of the company's shares held by the fund. The UAW expects a decision on its proposal by February 1983. Future Trends Perhaps the most striking characteristic of the institutional investors surveyed by IRRC that have abandoned the Wall Street Rule is the constancy of their interest in South Africa. While many of the investors continually review and evaluate their policies on South Africa, there is little evidence that any is prepared to end its activism on this isue. And for many of the institutions, South Africa is one of the few social responsibility issues, if not the only one, for which they have developed policies or vote resolutions. The continuing interest that such institutional investors have expressed in South Africa and other social responsibility issues has no doubt inspired the establishment of several new investment services that are dedicated to social investing. A number of respected trust companies and investment firms have found it lucrative to offer socially sensitive investment services designed to attract the individual or institutional investors who want their investments to meet social as well as economic guidelines. The U.S. Trust Co. in Boston, for example, has begun offering a socially sensitive investment management service that promises to evaluate traditional investments by first conducting a financial analysis and then applying a social screen. The social screening covers nine major subjects ranging from product safety to production of weapons; it also includes an evaluation of the company's activities in South Africa. After the screening, companies are ranked as to whether they meet very stringent criteria, meet only minimal criteria, or fail to meet even minimal criteria, but the selection of investments for individual clients is tailored to the concerns of each client. Shearson/American Express is introducing a mutual fund, the Fund for Social Responsibility, that will screen investments that first meet financial standards using social performance criteria. The fund's managers will exclude companies that have substantial operations in South Africa or that sell strategic products to South Africa. Franklin Research and Development, Drexel Burnham Lambert, and the Calvert Group have also recently introduced investment services that will screen potential investments according to social responsibility criteria, including corporate activities in South Africa.

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IV THE CORPORATIONS' RESPONSE For more than two decades American companies have been at the center of the debate over U.S. investment in South Africa. They have been peppered with requests for information on their operations in South Africa and asked to pledge themselves not to sell strategic products, make loans to the South African government or expand their operations until changes are made in the apartheid structure. They have been asked to improve their labor practices, to commit themselves to equal opportunity programs, and to challenge discriminatory or repressive South African laws. Finally, those critics who believe that companies cannot be or are not willing to be a force for progressive change have asked American corporations to withdraw entirely from South Africa. As discussed in earlier chapters, a major channel for these requests has been the shareholder movement which, since its advent in the early years of the 1970s, has resulted in shareholders proposing more than 200 resolutions and writing countless letters to corporations about their involvement in South Africa. But activists concerned about corporate involvement in South Africa also have urged investors to sell stock and depositors to close bank accounts, organized demonstrations, and participated in legislative hearings. In addition, the U.S. government has regulated with varying degrees of stringency what types of products and to which government agencies American companies may sell in South Africa. The response of corporations to these outside pressures has varied according to what was being requested. Companies have been most responsive to demands for information; many of the major multinationals have made available to their shareholders special or periodic reports describing their South Africa operations. Companies as a rule have been far less willing to restrict sales or expansion in South Africa, although several say they will expand only through reinvesting earnings generated in South Africa rather than through infusions of funds from overseas. Numerous companies have complained privately about U.S. government restrictions on sales to the South African government, and only a few have established investment or sales policies beyond what is required by U.S. law. Few companies have withdrawn from South Africa in response to calls from their domestic critics. Although a number of American corporations have sold off operations in the last decade, virtually all say that their decisions were based entirely on economic criteria. In responding to the domestic debate, companies have emphasized their commitment to improving labor practices and to abolishing racial discrimination and barriers to black advancement within the workplace. The majority of the leading American companies with South African subsidiaries have signed the six- point labor code known as the Sullivan principles that first appeared in 1977. Adherence to the principles requires that companies file annual reports and be rated on their progress in abolishing racial discrimination in the workplace and improving the quality of life for their employees. The Sullivan principles have since occupied a prominent place in the domestic debate. Numerous and disparate institutional investors, ranging from banks to churches, have incorporated criteria utilizing the Sullivan principles in their investment and proxy voting policies. Some shareholders have encouraged companies to sign and implement the Sullivan principles, and many investors view adherence to the code as a minimum social responsibility standard for companies operating in South Africa. Many anti-apartheid activists outside the shareholder movement, however, question the sincerity and efficacy of the signatory effort. They fear that Sullivan has been coopted by the companies he has tried to reform and that the signatories are using the Sullivan principles as a public relations ploy to undercut the divestment movement and counter calls for companies to withdraw from South Africa. More fundamentally, critics contend that the Sullivan principles do not deal with strategic importance of American companies in South Africa. These critics believe that the direct and indirect support these companies provide Pretoria outweighs their contributions under the Sullivan principles toward improving conditions for their black employees and the communities in which they live. Moreover, many activists have said the Sullivan principles do not take on the key issue in South Africa--the exclusion of the black majority from political power. Although much, consequently, has been written about the Sullivan principles, little has been said about the actual process behind them--how decisions are made, goals established, and compromises reached--and which actors exercise influence within this process. Yet as more institutional investors have centered their South Africa policies around the Sullivan principles--as did, most recently, the state of Connecticut--an examination of the Sullivan process and of the validity of the criticism it has provoked has become both timely and important. Accordingly, in examining how companies have responded to and participated in the domestic debate, this chapter focuses in particular on corporate involvement in the Sullivan process. The information for these sections is drawn largely from IRRC's interviews with representatives of several signatory companies; a representative of Arthur D. Little Inc., the consulting firm that monitors and evaluates the signatories; and Rev. Sullivan himself. In addition, IRRC was granted access to information and reports detailing the development of the Sullivan process by the Philadelphia-based International Council of Equality of Opportunity Principles Inc., the organization that handles most of the administrative and correspondence work for Rev. Sullivan in the signatory effort. Early Responses For corporations, awareness of South Africa as a social issue began at different points stretching back over two decades. Robert Copp, international labor affairs manager at Ford Motor Co., remembers that a 1962 visit by a delegation from the International Metalworkers Federation to South Africa first alerted him to the unique social responsibility issues that South Africa posed for corporate investors. Three years later, Ford and approximately 50 other companies received a questionnaire from Sen. Robert Kennedy concerning their operations in South Africa. In 1971, Rep. Charles Diggs, then chairman of the House Subcommittee on Africa, also sent out questionnaires to several companies concerning their operations in South Africa. By the early 1970s, many leading American companies had been made aware of shareholder concerns over their operations in South Africa after shareholders introduced resolutions, raised questions at annual meetings and requested information on this issue. At Deere, for example, a shareholder resolution proposed in 1974 asking the company for information on its operations in South Africa "was influential in expanding interest in the company in the South Africa issue," Deere's manager of public policy planning, Robert Anderson, told IRRC recently. The resolution to Deere was typical of the shareholder concerns raised at companies at that time. Through the early 1970s there were few demands on companies with subsidiaries in South Africa other than to provide information on these operations. For example, 25 of the 41 shareholder resolutions proposed from 1972 through 1975 merely requested information, and many were withdrawn if management agreed to answer the proponents' questions or agreed to prepare reports for shareholders on the company's operations in South Africa. One company, Polaroid, became for many people the symbol of the debate over U.S. corporate involvement in South Africa when in 1970 a small group of employees and others charged that Polaroid's South African distributor was employing "slave labor" and that Polaroid cameras and film were being used to produce the identity documents, known as pass books, that all Africans are required to carry. The protesters demanded that Polaroid end its activities in South Africa.

Polaroid at that time had no direct investment in South Africa, but sold its products there through a distributor that was independent but earned some 20 to 25 percent of its income from the sale of Polaroid products. In addition, since 1948 the company had had a policy of not selling its products to the South African government. In response to the protest, Polaroid conducted an investigation into its sales in South Africa and found that while its distributor made no sales directly to the South African government, third-party sales meant that up to 10 percent of the film used in the passbook system was being provided, albeit indirectly, by Polaroid's distributor. Following this discovery, Polaroid sent two marketing specialists to South Africa to meet with government officials to explain and reaffirm its policy. In addition, the company established a multiracial employees' committee at its Boston headquarters to study its distributor's labor practices and to recommend whether Polaroid should maintain or halt its sales in South Africa. In January 1971, the company announced that based on the committee's research-- which included a trip to South Africa--it had directed its distributor to improve salaries and benefits and establish a training program for its black employees. In addition, the company announced that it would set aside a portion of its South African profits to encourage black education. At the end of the year, Polaroid released a report summarizing its progress--black workers' salaries had increased by an average of 22 percent, the principle of equal pay for equal work had been established, and $75,000 in grants had been disbursed to several black educational organizations. Polaroid said it had become convinced by these accomplishments that it could play a progressive role in South Africa, and therefore it would continue to do business there. Polaroid's actions during this period received wide coverage in both the American and South African press--the company spent an estimated $50,000 publicizing its approach. It served as a model for similar efforts by South African companies and the subsidiaries of other multinational companies and became a focal point in the debate over the role of business in South Africa. The "Polaroid experiment" ended abruptly five years later, however, when Polaroid received word that its South African distributor was selling film to the South African government in violation of Polaroid's policy. After an investigation by Polaroid confirmed this report, the company announced in a press release on Nov. 21, 1977, that it was "terminating its business relationship" with the South African company. Noting that the distributor had "cooperated effectively" in so much of the Polaroid experiment, Polaroid reported that "we were therefore shocked to learn that the understanding not to sell to the government was not followed." The company concluded, "With the termination of this distributorship in South Africa, we do not plan to establish another one."

Post-Soweto Responses Pressures on American companies intensified dramatically in and after 1976 as many Americans reacted to events in South Africa. In 1977, the first proxy season following the June 1976 Soweto demonstrations, proponents for the first time submitted resolutions calling for an end to bank lending to the South African government and for total corporate withdrawal from South Africa. In marked contrast to previous years, only one resolution of the 16 introduced in 1977 was limited to requesting information, and 10 called for banks and companies to pull out of South Africa. The U.S. government also began to change its policy toward South Africa. Late in 1976, the U.S. Commerce Department adopted a policy that effectively barred the sale of U.S.-origin computers to the South African police and military and to government agencies handling atomic energy. In 1977, this restriction was also extended to computers destined for the South African government department, now called the Department of Cooperation and Development, responsible for administering the laws regulating the movement and residence rights of Africans. Then, in February 1978, the Commerce Department expanded its restrictions still further by embargoing exports of all U.S.-origin goods and technology--not only computers--to the South Arican police and military. (For details, see Chapter II.) Alarmed by the turbulence in South Africa, and faced with increasing pressures on the home front, American companies began to reexamine their operations in South Africa. In direct response to shareholder requests, a few firms, such as General Motors and Eastman Kodak, announced that they would not expand these operations, citing the political unrest generated by apartheid as increasing the risk to investment. But far more companies rejected any curtailment of their operations and instead began to examine what they, as employers, could do to mitigate the conditions that had provoked the Soweto demonstrations. The Sullivan Principles At the same time that Soweto prompted companies to take a new look at their operations in South Africa, a black civil rights activist named Rev. Leon Sullivan was also reexamining his views on the role of U.S. firms in South Africa. Appointed to the General Motors board of directors in 1971, Sullivan initially had used this position as a pulpit from which to press for the withdrawal of GM and other American companies from South Africa. In 1975, frustrated by his failure to persuade a single company to withdraw, Sullivan decided to adopt a different approach--one of encouraging companies to commit themselves to the abolition of apartheid--and began inviting several leading companies to join him in formulating a set of principles to this effect. In March 1977,

Sullivan released a "Statement of Principles" endorsed by 12 companies that announced their intent to desegregate facilities, adopt equal employment practices, and improve the quality of African, Asian and colored employees' lives outside the workplace. Sullivan and the original signers encouraged other companies to sign the six point code, which soon came to be called the Sullivan principles. Since 1977, the number of signatories has grown to 146 companies and what was initially a rather informal process has become formal, involving three main parties--Sullivan, the signatory companies, and Reid Weedon, a vice president of Arthur D. Little who is responsible for monitoring and rating the companies. The three actors frequently disagree on issues pertinent to the Sullivan process. Often, Sullivan will press the companies to move faster in implementing the principles than they feel they can, and Weedon must assess the validity of each side's position in evaluating the signatories' progress. However, the domestic debate provides an impetus for many companies to reach mutually acceptable compromises with Sullivan in order to maintain Sullivan's public commitment to the principles. His commitment is important, they say, for preserving the credibility of the Sullivan process and for defusing some of the domestic pressure directed at corporate involvement in South Africa. As a result, since 1977, the principles have been amplified three times--the most recent amplification having been issued in November 1982--and procedures have been established requiring signatories to complete annual questionnaires on their progress in implementing the principles. (See Appendix A for a description of the amplified principles.) ADL prepares and evaluates the questionnaires, assigning each company an annual rating that is then published in an annual report that also assesses the progress of the signatories as a group. Activists have criticized this rating system because companies are essentially paying for their own monitoring; each company is asked to make annual contributions to cover ADL's expenses. Critics also note that the companies themselves rather than an outside, presumably more objective party, complete the questionnaires. Finally, they point out that many companies decline to make public their responses to the questionnaires, and they conclude therefore that there is little way of evaluating the performance and progress of individual companies. Sullivan, Weedon and the signatories are well aware of these criticisms. Copp of Ford, for example, noted to IRRC that Sullivan did attempt to get foundation funding for monitoring the signatories, but when he failed the companies had to finance the monitoring effort themselves. And both Sullivan and Weedon have suggested ways to provide for some external review of management's responses to the questionnaires. Since 1980, following a suggestion by Sullivan, all signatories have been required to inform their employees of their ADL ratings, and to review their implementation of the principles with representative groups of employees several times a year. Beginning in 1982, Weedon has also required companies to submit their completed questionnaires to their auditors so that the responses to several of the quantitative questions can be verified independently. Sullivan's role: Sullivan is the linchpin in the signatory effort. In addition to pursuing the initial idea for the principles, he has played an important role in pushing for the amplification of the principles and for a more stringent rating system than most of the signatories initially desired. Although critics of the Sullivan principles have questioned whether Sullivan can possibly retain his independence and authority when the signatory effort is dependent on continuing corporate funding, the companies that IRRC interviewed asserted that Sullivan does in fact exert a great deal of influence over the signatories. The signatories acknowledge that they need a well-respected figure from outside corporate circles to direct the signatory effort if it is to have any credibility with the public. Sullivan, as a black minister and well-known civil rights activist, is such a public figure. Although Sullivan solicits the advice of a core group of company representatives in developing policies for the signatory effort, his most trusted advisers are the black ministers that comprise his personal advisory board. Copp told IRRC that the signatories recognize that "there is not any other credible person or movement around which companies can rally," and that in order to maintain Sullivan's credibility with the public and his support for the signatory effort, the companies must continue to make progress in implementing the principles. James Rawlings, chairman of Union Carbide Southern Africa, told IRRC that if Sullivan were to abandon the signatory effort, "the critics would really have something to get their teeth into, quite rightly." And many corporate officials attributed Sullivan's influence at least in part to his forceful personality and his powers of persuasion. George Schroll of Colgate-Palmolive told IRRC, "if Leon wants it, you try to deliver." In a January 1983 interview with IRRC, Sullivan dismissed the views of his critics that his authority has in any way been compromised by his association with the signatory effort. "I am serious about the principles," he said; "let no one be mistaken about that. If anyone thinks that a group of corporations got together and found themselves a 'Sullivan' they are suffering from an illusion." Moreover, Sullivan explained, "there is a difference between the Sullivan principles and the Sullivan positions." He notes that in addition to his involvement in the signatory effort, he has spoken out, often in opposition to the prevailing corporate viewpoint, concerning other aspects of the debate over U.S. corporate involvement in South Africa. He believes that, in addition to signing the principles, companies with operations in South Africa should adopt a policy of non-expansion in South Africa and should not sell strategic goods to the South African police and military.

As if to demonstrate his independence, Sullivan has frequently threatened to abandon the signatories if they do not make satisfactory progress. At a November 1979 meeting with representatives of signatory companies, Sullivan said: Next year, we will again assess our progress. You know that mine is a continuous assessment of our activities. At any point that I believe meaningful movement toward the complete implementation of the Principles and Amplified Guidelines is not happening I will call you together and I will tell you I've gone as far as I can. At that point, I will have to step aside, because my interest is humanitarian and moral, and my sole desire is to see results toward ending discrimination and the elimination of apartheid in the Republic of South Africa. Corporate support for the principles: The signatories approach the Sullivan process with varying degrees of commitment. Sullivan himself noted in a December 1979 speech to the Council on Foreign Relations and reaffirmed in a January 1983 interview with IRRC: I have asked signatory companies to do much more than they have done up to now, and not to use the principles as a camouflage, or as an excuse to hide behind from their critics or stockholders, while doing little to change the conditions, as some, unfortunately have done. My calculation is that 20 percent of the signatory companies are pulling hard, 50 percent are just pulling, and the rest are simply being pulled along. The most active companies have not only made efforts individually to implement the Sullivan principles but have also involved themselves in formulating policy and objectives for the entire signatory effort. In the beginning this often involved a commitment of time from the chief executive officer. Later, CEOs became less active and participation in the process was passed to staff or line officers. The most active companies are now represented on several bodies that have been established to provide companies with access to the decisionmaking process. One such body is the Industry Support Unit, a group of corporate representatives who direct the annual corporate fundraising effort to pay ADL and to cover the costs of the International Council of Equality of Opportunity Principles (ICEOP) in administering the Sullivan effort. In addition, all companies are supposed to join one of seven task groups that are charged with investigating methods for implementing various aspects of the Sullivan principles. The task group leaders and a number of corporate representatives who have a longstanding association with Sullivan form the Industry Advisory Council that advises Sullivan on broader policy questions concerning the signatory effort. At the other end of the spectrum of corporate commitment is a group of companies that either have never completed a questionnaire or have never made their annual contributions, a group that one task group leader describes as a "not insignificant minority." (Sullivan signers are assessed between $4,500 and $7,000 annually, based on worldwide sales, to pay for the administration of the Sullivan effort and the evaluations of corporate performance conducted by ADL. Sullivan endorsers--companies with 10 or fewer employees or holding less than 19 percent of the equity of their South African affiliates--are expected to contribute $1,000 annually.) The task group leaders that IRRC interviewed generally agreed with Sullivan's three-tier assessment of signatory activism, although they differed on how many companies are in each tier. Copp estimated that only 20 to 25 companies are fully active in the signatory effort if "active" is defined as making a good faith effort to implement the principles, regularly making the annual contributions and completing the questionnaires, and participating in the task groups. Sal Marzullo, manager of international government relations at Mobil, believes that "50 to 60 highly active companies is closer to the mark" and that this number has increased over the last three years. Some task group leaders cautioned, however, that low ratings or poor attendance at task group meetings are not necessarily evidence of lack of commitment. Colgate-Palmolive's Schroll, while agreeing with Sullivan that not all of the signatories are fully active, commented that the leading companies in the signatory effort are generally larger firms that have more personnel and financial resources and therefore can afford to be more active. However, almost all the task group leaders were concerned over the minority of companies that do not complete the questionnaires or pay their annual dues, and some contend that these companies are "using" the Sullivan principles. The presence of the non-contributing signatories, in particular, has created tensions in the signatory effort. One task group leader suggested to Sullivan that he expel non-contributors from the effort, but Sullivan has refused, arguing that the signatory effort is voluntary. The non-contributing signatories have also exacerbated attempts by the Industry Support Unit to reduce an ongoing debt to ADL that began in the first year and a half of the signatory effort before the signatory fundraising program had been launched. Since then, the signatories have been anywhere from one to two years in arrears to ADL. Lately, however, Mobil's Marzullo, the current head of the Industry Support Unit, has made some progress in reducing the signatories' debt. In a Jan. 4, 1983, letter to IRRC, he reported that "in the past year, the signatory companies have substantially reduced their indebtedness to Arthur D. Little Inc. and hope to eliminate it completely by the end of 1983." In the meantime, Sullivan and the leading signatory representatives are considering a proposal that non-contributing signatories no longer be rated by ADL, but be listed separately in future ADL reports as non- contributors. Different interpretations of the principles: Decisionmaking in the Sullivan process is a mixture of command and consensus. In general, disagreements between Sullivan and the active signatories center on the different views they hold as to the purpose of the Sullivan principles. In explaining the companies' perspective, Copp said, "Most of us who got involved in the Sullivan principles originally saw the effort as what we could do in the workplace to mitigate the problems of apartheid." Moreover, he said, "the Sullivan effort is not an attempt to reshape society." In contrast, in Sullivan's vision, the principles are meant to compel companies to press for change both within and outside the workplace. Sullivan acknowledges that the principles alone cannot end apartheid, but he believes they are one of the many forces that, combined, will bring about an end to apartheid. He told IRRC that pressure from other quarters--trade unions, the United Nations, foreign governments and others- -is crucial in the battle against apartheid. He stressed, however, that the U.S. signatories are not operating in isolation. In his view, part of the purpose of the principles is that "U.S. companies must also be a catalyst encouraging other multinational companies from the United Kingdom and Europe to become agents for change." In a speech in South Africa in September 1980, he said: The principles and the (other labor) codes were never intended, as far as I am concerned, to appease conditions, but they were meant to change conditions. Some might have thought they were meant to appease, and to provide a cover for the companies to hide behind, but No! No. they were not meant to appease, or to cover up, they were meant to help change the discriminatory conditions here; otherwise, as far as I am concerned, they lose their purpose. If the companies of the world, with their principles and their codes, fail to make a greater thrust inside and outside the workplace soon, and if they fail to use their power and influence to help persuade the South African government to end its racial and discriminatory laws soon, then we will have missed the mark, and we can all forget about our peaceful solutions. Time for peaceful change is running out. Much of the time, goals and objectives for the signatories are established through a process of consensus between Sullivan and the leading signatories. Sometimes, though, as David Fausch of Gillette told IRRC, "Sullivan in his zeal will commit the Sullivan signers to achieve a particular goal on his own. This will then be hammered out among the signers." Similarly, Copp said, "We find it very compelling when Sullivan makes a statement as to what the principles call for .... We know how this thing works. He's the boss and we, the companies, are his advisers." Increasingly, Reid Weedon and ADL have played a role in mediating differences between Sullivan and the companies. Weedon is personally committed to the Sullivan principles. In fact, when Sullivan first approached ADL to ask the firm to take the monitoring assignment, ADL decided to turn down the request. After meeting with Sullivan to tell him of ADL's decision, however, Weedon became intrigued by Sullivan's quest and decided to reverse the decision and accept the monitoring assignment. He has continued to provide these services even though the signatories are in debt to ADL. Non-signers: Approximately 140 American companies with South African subsidiaries have not signed the Sullivan principles. A few argue that the principles are not appropriate for them either because they have few employees in South Africa, or because they hold only a minority share in the operations. (Sullivan argues that all U.S. firms in South Africa should at least endorse the principles and that those firms with more than 10 employees in South Africa and with an equity stake in the affiliate of more than 19 percent should sign the principles and submit the periodic progress reports.) But many non-signers undoubtedly have avoided signing because they believe the reporting requirements would be time-consuming and burdensome and because of their opposition to outside evaluations of their labor practices. In addition, some companies are dismayed by the elusive nature of implementation. In explaining its opposition to a 1980 shareholder resolution requesting it to sign the Sullivan principles, Ingersoll-Rand, a non-signer, stated that the principles: as presently constituted, are uncertain, complex and present a constantly moving target. The principles have been twice amplified since March 1977, and are being reviewed continually in light of changing social circumstances in South Africa. Thus, a signatory may always lack certainty as to the exact nature of their mandate. Moreover, despite this lack of certainty, each signatory company is now committed to utilize a highly detailed format in reporting their progress to an independent administrative unit...and ensure periodic progress reports on the implementation of these principles. Ingersoll-Rand is unwilling to subscribe to such an indefinite standard and to the elaborate reporting and grading process which the amplified principles now require. Attitudes of signers: For most of the companies that IRRC interviewed, the decision to sign the Sullivan principles was relatively uncontroversial. Some of the companies had already begun to abolish racially discriminatory pay scales or to promote black advancement, and they viewed signing the Sullivan principles as an acceptable next step in these efforts. Some welcomed the Sullivan principles as providing safety in numbers to companies in their individual and potentially controversial attempts to challenge the status quo through workplace desegregation and affirmative action. And many of these companies hoped that the Sullivan principles would help publicize efforts such as these to the American public. Anderson of Deere noted that at the time the Sullivan principles were announced, the company "was receiving questionnaires from all over"--church groups, universities and members of Congress--concerning its operations in South Africa. Deere's management hoped that the periodic reports that were to be issued in the signatory effort would help meet much of this demand for information. More fundamentally, many of the signatories hoped that the Sullivan principles would improve their image and credibility with domestic pressure groups. Amplifying the principles: The current structure of the signatory effort began to develop early in 1978 after approximately 60 companies had signed the principles. Sullivan and the leading companies among the signers realized that they needed some way to bring the signatories together to work toward implementing the principles. Accordingly, Sullivan directed the signatories to divide themselves into seven task groups. Sullivan assigned the first six to draft language that would define more specifically the objectives to be pursued under each principle. In particular, Sullivan directed the task groups, in defining their goals, to identify those that could be implemented within one-, three-, and five- year periods. The task groups, and their assignments, were as follows: Task Group I--Principles I and 2, on desegregation and equal and fair employment practices. Task Group 2--Principle 3, on equal pay for equal or comparable work. Task Group 3--Education, one of the areas covered by Principle 6, which calls on companies to improve "the quality of employees' lives outside the work environment in such areas as housing, transportation, schooling, recreation, and health facilities." Task Group 4--Principle 4, on training. Task Group 5--Principle 5, on management and supervisory development. Task Group 6--Health care and housing, two of the objectives under Principle 6. Finally, a seventh task group was established to develop a periodic reporting system for the signatories. (The task groups were reorganized slightly in 1982.) Sullivan was especially active during this phase of the effort, contacting task group leaders to urge them to commit the signatories to rapid and dramatic progress. In a July 1979 statement reviewing the early work of the task groups, Sullivan reported, "Each leader was instructed not to limit the efforts of his group simply to the elimination of petty apartheid matters, but to also deal with substantive issues such as equal treatment for black labor unions and the use of lobbying or other efforts to push for the elimination of all discriminatory labor laws, and an eventual end to the apartheid system itself." One corporate manager who was particularly aware of Sullivan's forcefulness during this period was Copp, leader of Task Group 1, who was instructed by Sullivan to develop acceptable language on union recognition and on U.S. corporate lobbying against influx control--the body of laws that severely limits the residence and mobility rights of Africans--to add to an expanded set of Sullivan principles. In 1977, Sullivan had pressed for language on union rights and recognition of black unions to be included in the original statement of principles, but this proposal was opposed by at least two of the companies involved in the drafting of the original statement of principles who subscribed to a worldwide policy of managing without unions. Rather than let this disagreement cause an impasse, Sullivan relented at that time. Instead, once Task Group I was formed with a manager of a unionized company as its leader, Sullivan pressed once again for language on union rights. As Copp remembers, Sullivan "rode very hard" on him to devise acceptable language. Eventually, the task group recommended that signatories "support the elimination of discrimination against the rights of blacks to form or belong to government registered unions (a right they did not then have under South African law), and acknowledge generally the right of black workers to form their own union or be represented by trade unions where unions already exist." This language, along with a clearer statement of what was meant by desegregation, equal pay, and other issues embraced by the principles, was announced as an amplification to the Sullivan principles in July 1978. Adding language calling on companies to lobby against South Africa's influx control laws proved to be an even more difficult assignment. Sullivan, like most critics of apartheid, views the influx control laws as one of the most oppressive aspects of South African society. Under these laws, only a minority of Africans are allowed to live permanently with their families in the urban areas that the government has designated for whites; the majority are assigned to impoverished rural areas known as homelands. In general, Africans without permanent urban residence rights may legally reside in urban areas only if they have a job there and a special work permit issued by the government. Furthermore, these permits extend only to the workers themselves. They are not allowed to bring their families to live with them in the urban areas. While Copp's task group was grappling with the amplification on union rights in 1978, Sullivan suggested that the following language also be added as an objective under Principle II: that companies would "support changes in influx control laws to provide for the right of black migrant workers to normal family life." When Sullivan's recommendation was circulated, a number of companies raised strong objections. They were reluctant to add as an objective lobbying on a politically sensitive issue that in their view was not directly related to the workplace. As a result of their objections, Sullivan deleted this objective from his July 1978 statement on the amplification of the code. Instead, Sullivan waited until May 1979 when, still without company consensus, he announced the second amplification of the principles, including the statement on lobbying on influx control laws, and assigned it to Copp's task group. While the first six task groups were engaged in developing objectives in 1978, Task Group 7 was meeting frequently to devise a questionnaire that would measure the signatories' progress in implementing the amplified principles. In July 1978, the task group sent its recommended questionnaire to Sullivan along with the following statement of confidentiality that it urged Sullivan to make to each company: It is recognized that the data contained in each Periodic Report is highly confidential. Accordingly, my staff and I will hold confidential each Periodic Report we receive from your company and will not identify your company with specific data we disclose to third parties unless we have first obtained your written approval. The questionnaires, which covered the six months ending June 30, 1978, were mailed in mid-July. Soon afterward, the question of credibility arose. Several of the signatories suggested that an outside consulting firm, such as Arthur D. Little, be retained to refine subsequent questionnaires and prepare a composite report that would assess the progress of the signatories as a whole. Weedon accepted the reporting assignment for ADL and a few months later, in November 1978, he released the first composite report on the signatories' progress. The report, however, did not rank individual companies on their implementation of the principles. Developing a rating system: Sullivan continued to press the signatories. Shortly after the first report was released, Sullivan held a meeting for the representatives of the signatories at which he announced his intention to establish some way of grading individual company performance in implementing the principles. His announcement generated a controversy that in some respects continues today. Most companies had some qualms about the prospect of being graded. They questioned (and still do) whether any one rating system can make allowances for the wide disparities in the abilities of different companies, whatever the level of their commitment, to implement the principles. Nonetheless, some of the companies recognized, along with Sullivan, that a grading system would improve the credibility of the Sullivan principles and the signatory effort and make it less likely that some companies would "use" the Sullivan principles as a shield from public opinion without making a good faith effort to implement them.

The nature of the debate is reflected in the following correspondence. In a November 1978 letter to a task group leader, one company manager discussed his concerns as follows: I sincerely believe that our companies want to make good progress in implementing the six principles. The progress reporting and monitoring that has been initiated (along with our enlightened self-interest and the need to protect our reputations) will provide ample stimulus for our efforts. Furthermore, there is no evidence in our short experience thus far that a grading system is needed to spur activity. On the other hand it is likely that much misunderstanding and injustice will result from any grading system. We doubt that a fair numerical grading system, or a multiple category performance assignment system, can be devised which will fairly recognize the different circumstances and conditions of the various companies and their businesses. We are as deeply troubled by this approach in this instance as we would be by grading or measurement systems for "corporate responsibility" in other areas. As an alternative, this manager suggested that: If it is necessary to separate the wheat from the chaff--then that should be done on a pass/fail basis after careful evaluation of the performance of each company according to its particular situation and with full opportunity to respond offered to any company in jeopardy. The classification could be "satisfactory progress" and "unsatisfactory progress." The task group leader who received the letter mailed a copy of it to Sullivan, noting that he thought the points were "worthy of consideration before a final grading system mechanism is established." At the same time the task group leader also wrote to the manager who had suggested the pass/fail system emphasizing that: As you yourself point out, it is really necessary to establish a mechanism to separate the wheat from the chaff or those of us who are working very hard to achieve all of the Sullivan objectives will suffer a credibility gap created by those companies that are just hanging on to Dr. Sullivan's coattails. The development of the rating system was perhaps the most difficult period in the signatory effort, severely testing the relationship between Sullivan and the signatories. One task group leader told IRRC that Sullivan and the Industry Advisory Council actually "parted company" for several hours after one particularly contentious meeting over establishing a mandatory rating system. The issue still had not been resolved by April 1979, when ADL released the second report, covering the signatories' progress from July to December 1978. In that report,

ADL divided the companies who answered the questionnaire into two categories: "making acceptable progress" and "cooperating." To qualify for the latter rating, a company need only have submitted a completed second questionnaire by March of that year. In order to qualify as "making acceptable progress," the signatory needed also (I) to have submitted a questionnaire covering the January-June 1978 period; (2) either to have accomplished non-segregation of the races in all eating, comfort and work facilities or to be committed to major facility modifications to enable that goal; and (3) to "have shown a substantial commitment" to implement the other principles. Of the 82 respondents, 66 were judged to be "making acceptable progress." During 1979, Sullivan, Weedon and the members of Task Group 7 hammered out a mutually acceptable rating system consisting of three categories: I--making good progress, II--making acceptable progress, and Ill--needs to become more active. These rating categories first appeared in the third report, covering the six- month period ending June 30, 1979, and have been in use ever since. At about this time, a decision was also made to ease the reporting burden by switching from a twice-a-year reporting schedule to an annual one. Beginning with the fourth report, the signatory reporting period has been the 12 months ending June 30. Task group activities: With the first amplification of the Sullivan principles completed in 1978 and the development of the second questionnaire under way under ADL's leadership, the task groups could begin to concentrate on suggesting programs that signatories could pursue, either individually or in cooperative ventures, to implement the principles' objectives. The task groups also realized that they would need to have some sort of structure in South Africa. Accordingly, late in 1978, the task group leaders traveled to South Africa to spur the formation of counterpart task groups, which would be responsible for executing the programs and projects of the parent groups. By this time, too, the task groups, under Sullivan's direction, had drawn up a series of objectives that the signatories were to achieve over time; these are reproduced on p. 109. The primary role of the task groups has been to identify and investigate ways and programs by which signatories can achieve these objectives and to publicize these ideas among the signatories at large. To publicize their recommendations, the task groups rely primarily on the plenary meetings that are scheduled three times a year--generally in November or December, March or April, and June--for all the designated representatives of the signatories. At the plenary sessions, which Sullivan attends, each of the task group leaders presents a summary of the latest activities and recommendations by his group. Sometimes, an individual company will make a presentation on how it has attempted to implement the Sullivan principles. At a December 1981 plenary meeting, for example, the managing director of Gillette South Africa was present to discuss how his firm had overcome obstacles in

SCHEDULE FOR ACHIEVEMENT OF TASK GROUP GOALS (established by the task groups in 1979) Task Group I (Desegregationi Equal and Fair Employment Practices) immediately: I) Removal of all racial segregation signs 2) Non-segregation of: -- Office eating facilities; -- Serving lines; -- Factories--eating facilities for salaried employees; -- Nondiscriminatory eligibility for benefit plans; -- Equal opportunity for promotion; -- Establishment of an appropriate nondiscriminatory and comprehensive procedure for resolution of individual employee complaints--i.e., liaison or works committees and/or trade unions; 3) Development plans for desegregation of hourly eating and comfort facilities. 1980: Non-segregation: 1) Eating facilities, hourly employees; 2) Work facilities e.g., comfort, workrooms, locker rooms, change rooms, etc. Task Group 2 (Equal Pay for Equal or Comparable Work) 1980: I) Conduct an analysis of work environment(s) to develop a meaningful and equitable job classification system based on requisite skills necessary to perform each job. 2) Ensure that equitable wage and salary administration plans are in effect. 3) Determine the possible need for the upgrading of personnel and/or lob classifications in the lower echelons and, if required, implement programs which address respective needs expeditiously. 4) Make an objective analysis of all wage and salary gaps among the various races and develop a plan to narrow subject differentials. Task Group 3 (Education) Immediately: I) Support to non-white schools, focusing efforts on "adopt a school" program. Goal objective--support of 100 schools in the first year. 2) Scholarships--scholarships to be provided both inside and outside South Africa. Goal Objective--500 students. 3) Industrial training centers--Operational and Conceptual plans to be developed. 4) Literacy training: a) Make available to employees regardless of whether or not business related. b) 1980--expand to make available to dependents of employees. 5) Support existing programs for non-white community at large. 1981: I) Adoption of 500 schools. 2) Granting of 2,000 scholarships. 3) Enrollment of 50,000 students in industrial training centers. 1983: I) Adoption of 1,000 schools completed. 2) Granting of 5,000 student scholarships completed. 3) Training of 100,000 students by industrial training centers. 4) Literacy training to be initiated in industrial training centers and as part of an adult education program in the schools adopted. Task Group 4 (Training) Immediately: I) Identify sources to be used to provide the training programs needed to meet the objectives of the Amplified Guidelines. 2) Review information provided by Training Task Group on the availability of training programs in South Africa; initiate training programs for non-whites. 1980: 1) Every company should have evidence of support for development of recently initiated training facilities, both in-plant and outside, especially in areas where voids for specific training requirements exist for Africans and other non-whites in present training system. Task Group 5 (Management Development) Immediately: 1) For 150-200 Africans and other non-whites to be employed in management and supervisory training programs. 1980 1) For there to be 350-400 African and other non-white managers and supervisors--at least one in every level up to the level "middle managers." 2) Black managers utilized as trainee managers. 1982; 1) Employment of 700-1,000 Africans and other non-whites in management and supervisory positions, including blacks in senior management positions. Task Group 6 (Health Care and Housing) Immediately: 1) Survey African and non-white employees to determine their priority housing and health care needs. 2) Health care--health care provisions for Africans and other non-white groups should be at least equal to those available to other employees. A specific recommendation was made for companies to investigate ways to support programs which train African nurses. 3) Housing--each company should perform some form of direct and/or indirect housing assistance. This assistance can be in either home improvements or home ownership. The Task Group made a specific recommendation that each company educate its employees on the implications and impact of the 99-year land leases and the home ownership. 1980-i982: I) Significant and meaningful programs should be in place to assist Africans in meeting their priority needs for health care and housing requirements. Task Group 7 At the time other task groups were setting goals for Sullivan signers, this task group had only recently been assigned with the objective of investigating corporate activities which could aid in the development of black owned and operated business enterprises. As a result, Sullivan merely asked each company to identify and utilize at least one African supplier as an interim objective for 1979. pursuing affirmative action programs, adopting a school, and assisting black entrepreneurs. The minutes from each of these meetings are prepared by Sullivan's representative, Daniel Purnell, who as head of the ICEOP oversees much of the communication between the task groups and the signatories. In addition, during the first few years of the signatory effort, Sullivan convened annual meetings for the chief executive officers of all the signatory companies. During the Carter administration, top State Department officials including Secretary of State Cyrus Vance and Richard Moose, assistant secretary of state for African affairs, were keynote speakers. Unlike the plenary meetings, the meetings of the chief executive officers were not intended as work sessions but as opportunities for Sullivan and the company leaders to assess the progress made to date. They also gave Sullivan a chance to endorse particular task group initiatives and encourage their implementation among more companies. No executive meetings have been held since 1980, however. Sullivan never scheduled a meeting for 1981 and the meeting scheduled for 1982 was canceled when it became clear that few chief executive officers were planning to attend. The decreasing involvement of top company executives in the Sullivan process does not worry Weedon, who noted in a recent conversation with IRRC that these executive sessions are less important now than when the policies and procedures were first being developed for the Sullivan effort and required the support and involvement of chief executive officers. Now that these procedures have become routine, Weedon believes it is unrealistic to expect chief executive officers to continue to devote as much time to operations that for most companies account for less than one percent of their worldwide sales. Setting goals for Sullivan signers--In order to spur the signatories to make rapid progress and so maintain the credibility of the Sullivan principles, Sullivan urged the task groups to develop timetables for achieving various objectives. Accordingly, by mid-1979 the task groups developed a schedule of objectives, in some cases after having resisted pressure from Sullivan to establish more ambitious goals. Tom Grooms of Deere, for example, the leader of Task Group 4, told IRRC that his task group resisted Sullivan's attempts to get it to establish numerical goals on how much training the signatories should conduct over time. He explained that his task group's position was that each company should know best what its training needs are and that the serious shortage of skilled labor in South Africa provides the necessary incentive to companies to conduct training. Rather than attempt to bring pressure on individuals to become more active in this area, Task Group 4 has preferred to make information available to signatory companies on existing training centers, South African tax incentives, and training methods. In contrast, Task Group 5, on management development, led by Sal Marzullo of Mobil, complied with Sullivan's insistence on numerical goals. At the time the task group established its goals in early 1979, the results from the second reporting period covering July to December 1978 were not yet in and, consequently, Task Group 5 had little idea how many black (African, colored and Asian) managers and supervisors American firms employed. As a result, setting future goals presented something of a problem. After consulting with several management development experts, the task group decided to urge signatories to employ 150 to 200 blacks in management and supervisory training programs as an immediate goal and to have 350 to 400 black managers and supervisors on the job by 1980. Shortly after the task group established these goals, ADL compiled the responses from the second reporting period, which showed that the 81 reporting companies had 566 blacks in management and supervisory trainee positions at the end of 1978. There was still no information available, however, on the number of blacks holding full-time manager and supervisory, as opposed to trainee, positions. Despite having clearly exceeded their immediate goal for 200 black managerial and supervisory trainees, the leaders of the task group did not seek to increase the numerical goals for later years. In part, their caution was due to a wish to set realistic goals that could be met even if variables like an economic downturn in South Africa or large-scale pirating of black managers by other firms resulted in a significant decrease in the number of black managers and supervisors working at U.S. companies. They also were concerned that the pool of blacks qualified to fill managerial slots might not be that deep. According to the minutes of a June 12, 1979, meeting of the task group, "all present recognized that the shortage of educational qualifications among non-white and black South Africans imposes severe restrictions on the ability of signatory companies to meet Dr. Sullivan's one-, three- and five-year management development goals." In looking back on this initial stage of setting goals, Sal Marzullo of Mobil, the head of the task group, told IRRC that "we were trying to establish serious programs for development and training and not just indulge in a numbers game." Subsequent ADL reports showed the Sullivan signatories consistently exceeding the goals set by Task Group 5 by a wide margin. By mid-1979, for example, the companies reported to ADL that they had more than 1,200 black supervisors and managers--well above the goal of 700-1,000 set for 1982. There were nearly 2,000 black supervisors and managers at reporting companies by 1980, some 2,500 in 1981 and 1,950 in 1982. (Marzullo believes the overall drop in 1982 is due in part to a decrease in the number of companies reporting and to the continuing recession in South Africa, which may be causing layoffs among managers and supervisors.) The task group is now looking ahead toward setting new management development goals for the Sullivan signers. Marzullo plans to visit South Africa in March 1983 to assess existing management development programs and determine the recession's impact on the number of black managers and supervisors at U.S. firms. Based on this information, he hopes the task group will be able to set appropriate aggregate goals for the Sullivan signatories. Unlike the management development goals set by Task Group 5, the objectives set by Task Group 3 probably were unrealistically high. According to these objectives, the signatories were to have adopted 500 schools by 1981 and 1,000 schools by 1983. In June 1982, the reporting companies had adopted only 159 schools. Considering that there are fewer than 150 signatories, a goal of 1,000 adopted schools would require each signatory, on the average, to adopt six or seven schools, a significant commitment of time and money for most of the signatories' South African subsidiaries. In an interview with IRRC, Sullivan said that he pushed the task groups to set high, even impossibly high, goals in the beginning in order to galvanize the signatories to greater effort. "I, frankly, set many goals arbitrarily," he said. And he noted that while he had said, for example, that he wanted the signatories to meet a goal of adopting 1,000 schools, he was "delighted" that 150 schools had been adopted to date. Increasing importance of ratings: To a certain extent, however, the motivational role of annual objectives set by the task groups has been superseded by the rating process, which provides the only real element of compulsion in the Sullivan process. Beginning with the fourth report, released in October 1980, signatories have had to meet a set of first eight and later nine basic requirements. Failure to meet any one of these requirements automatically consigns a company to the lowest rating category, regardless of its performance in other areas. The basic requirements cover such issues as desegregation, minimum wages, trade union rights, equal pay for equal work, and elimination of racial discrimination in pay or benefits--the objectives covered by the first three Sullivan principles. In addition, the basic requirements also direct the company to inform all its employees that it has signed the principles, to tell them the rating it received from ADL, and to review its implementation of the principles with representative groups of employees several times each year. Beginning with the sixth report, issued in 1982, each company must also submit its completed questionnaire to its accounting firm to verify the company's responses concerning its total payroll, total employment, minimum wage, and total expenditures made for education, training and community development programs. If a company meets all the basic requirements it is then evaluated and assigned points for its performance in three major areas--efforts on behalf of black education; training and advancement for its black employees; and community development--the contents of principles IV, V, and VI. In essence, the basic requirements cover objectives that are binary in nature and can be completed and fulfilled. The other questions, to which points are assigned, cover objectives--such as developing black small businesses or improving educational

Basic Requirements for Signers of Sullivan Principles The sixth report on signers of the Sullivan principles, released in October 1982, said that "In order for a signatory company to be rated, it had to meet nine criteria known as basic requirements. Reporting units not meeting these threshold requirements were automatically placed in the rating category 'Needs to Become More Active."' The requirements are: 1. Freedom of association: The company supports the elimination of discrimination against the rights of blacks to form or belong to government- registered or unregistered unions and acknowledges generally the right of black workers to form their own union or to be represented by trade unions where unions already exist. 2. Benefits: All benefits available to whites are also available to other races, and the benefits for blacks, coloreds and Asians are at least equal to those for whites. An exception is health care, where the benefits are technically equal, although the institutions providing the services may be administered independently. 3. Equal pay: The company pays all employees equally for doing equal or comparable work for the same length of time. 4. Minimum pay: The company has an entry base pay for all employees that is at least 30 percent greater than either: -- The University of South Africa's (Unisa) minimum living level (MLL) for a family of five or six; or -- The University of Port Elizabeth's household subsistence level (HSL) for a family of five or six. 5. Communication: The company ensures that all employees see the statement of principles and are aware of the fact that the company is a signatory. 6. Rating: The company agrees to make its overall rating in the sixth report known to all employees and to review the rating with representative groups of employees. 7. Review: The company agrees to review the implementation of the principles with representative groups of employees several times each year. 8. Desegregation: All signatories' facilities are available to all races. 9. Review by accounting firms: All reports provided by signatories must be reviewed for accuracy by their accounting firms. opportunities--that are designed never to be fully achieved. While a company can desegregate its workplace once and for all and so meet the basic requirement, it must continue to make an effort each year in the other areas in order to achieve a good rating. Arthur D. Little's role in evaluating companies: Weedon and his staff at ADL are solely responsible for evaluating and grading the companies each year and although Sullivan has final say over the content of the questionnaire upon which the evaluations are based, he usually respects Weedon's recommendations on the basic requirements and other rating questions. In an interview with IRRC, Weedon emphasized that the importance of the rating process is that it helps put "the meat on the bones" of the Sullivan principles by providing concrete goals for the signatories to achieve. Moreover, the rating system makes the signatory effort a dynamic process; the questionnaires are revised each year as earlier goals are met and new issues arise. In developing and revising the annual questionnaire, Weedon considers suggestions and viewpoints expressed by the signatories and task groups. Following the release of the ADL report in the fall each year, a plenary session is scheduled during which company representatives have an opportunity to air their questions and comments. At roughly this time, Weedon begins drafting the questionnaire that will be used for the reporting period ending the following June, taking into account the comments expressed at the plenary meetings. Early in the new year, Weedon travels to South Africa with the draft questionnaire and meets with each of the counterpart task groups to discuss it. He also uses the visit as a fact-finding mission, looking at various projects that might be worthy of signatory support. The questionnaire is revised into its final form and a spring plenary session is held to discuss the requirements that signatories will be expected to meet. Setting basic requirements--In deciding which basic requirements and rating questions should be included in the questionnaire, Weedon often must mediate between Sullivan and the companies or between a particular task group and other signatories. Sullivan, for example, has pushed particularly hard for the basic requirement on the minimum wage. In 1980, at Sullivan's suggestion, the minimum pay basic requirement stipulated that companies must pay a minimum wage at least as high as the amount determined by two widely used university surveys as necessary for an African family of five or six to maintain a minimum living standard. In 1981, Sullivan raised this basic requirement another notch--requiring companies to pay at least 30 percent above the minimum living standard for an African family. Sullivan has since urged Weedon to raise this requirement to 50 percent above the minimum living standard, but Weedon has resisted, arguing that it would frustrate companies that already have had difficulty in meeting the minimum living standard plus 30 percent. Another basic requirement, directing companies to become associate members of Nafcoc--the National African Federated Chambers of

Commerce, a black-run organization that seeks to promote black businesses--was included in 1980 and 1981 as a way of urging companies to begin implementing a 12-point plan that counterpart task group 7 had devised for assisting and developing black entrepreneurs. Although the U.S. task group, with backing from Sullivan, had urged signatories at the November 1979 plenary meeting to implement the plan, few companies had taken any actions along these lines in the months following the meeting. The situation provoked a crisis of confidence among the black members of the counterpart group, who felt that their credibility as community spokesmen was being jeopardized by the signatories' inaction on their recommendations. Weedon learned of the counterpart group's concerns on his 1980 trip to South Africa. Worried by the degree of dissatisfaction the black members had expressed, Weedon met with Rawlings of Union Carbide, the leader of Task Group 7, immediately upon his return to New York. After discussing the problem, they decided that Point I of the 12-point plan--associate membership in Nafcoc--should be made a basic requirement. By all accounts, the Nafcoc membership issue provoked more protests than any of the other basic criteria introduced in 1980. Unlike the basic criteria concerning desegregation and equal treatment, with which companies had been urged to comply almost from the inception of the Sullivan principles, the Nafcoc membership requirement was unexpected. Companies protested that they should not be compelled to join a particular organization and that the basic requirement unfairly penalized companies that might be making efforts to assist black entrepreneurs but had not joined Nafcoc. In response to company protests, the Nafcoc basic requirement was dropped after 1981. Although Rawlings defended the decision to make associate membership in Nafcoc a basic requirement, saying that it served to make signatories take economic development issues more seriously, Weedon says he learned from that experience not to make impromptu changes in the questionnaire. Choosing new rating criteria--Speaking more generally, Weedon emphasized that the task group's goals or projects are not always the criteria he uses in evaluating a company's performance. For example, although Task Group 3 has encouraged signatories to adopt schools, Weedon stressed that in determining their overall ratings ADL gives credit to signatories for other educational projects they may be supporting. Moreover, he says, the adopt-a-school program would never become a basic requirement since a minority of signatories are philosophically opposed to it. In a summary of company responses to the questionnaire for the sixth report, ADL commented: Two companies took ideological stances against the (adopt-a-school) program. One claimed that it is not the best way to improve black education: "There is great dissatisfaction among blacks on the quality of the black educational system as indicated by recent boycotts and highlighted by the DeLange Commission into education. Adopting a school can be seen as in fact supporting a system which is not accepted by blacks as being adequate and could be counter-productive." Another stated that in its area there are 59 African schools and only three American companies. The company claims that adopting a school would be tantamount to "discrimination in reverse." Through the questionnaire, Weedon will also take up issues that the task groups have not yet considered. One such issue is the objective, included under Principle VI, that companies should "support changes in influx control laws to provide for the right of black migrant workers to normal family life." Task Group I, to which this objective was assigned, was preoccupied first with desegregation and later with the union recognition issue and has never seriously considered this question. Moreover, Copp--the head of the task group--explained to IRRC that the question of influx control is an extremely politically sensitive issue, one that is central to apartheid, and companies were unsure how to approach it. When Weedon visited South Africa in 1982, however, he met with lawyers from the Legal Resources Center, a public interest law firm that has won several landmark cases for African clients fighting the influx control laws, to obtain advice on questions he might include in the next questionnaire on this issue. Reflecting these discussions, the questionnaire for the sixth report asks signatory companies to list, for the first time, what efforts they are making to help African employees "gain rights to which they are legally entitled to reside in urban areas," and specifies that such assistance "might include helping a migrant worker get (permanent urban residence) rights because of the length of his/her employment, or could include assisting a spouse and children rejoin an employee working in an urban area." Weedon underscored the importance of the influx control issue again in the sixth report released in November 1982, which stated that: The influx control laws and South Africa's homelands policy are the keystones of the apartheid system. These regulations impose great hardship upon workers, some of whom must either travel long distances to work or live apart from their families. These laws also impose a large element of uncertainty and disruption in these individuals' working and living arrangements. The report then noted that some 30 American firms had attempted to secure permanent urban residence rights for more than 600 of their African employees. Corporations' views on the ratings: Companies' reactions to the rating system vary. Most of the company officials that IRRC interviewed accepted the need for a rating system, but a few complained that ADL does not, and perhaps cannot, take fully into account the varying constraints on companies in implementing the principles. John Purcell, vice president of Goodyear International and leader of Task Group 6 on health care and housing, told IRRC that the grading continued to be a controversial subject for signatories, particularly now with the new law in Connecticut that prohibits state investment in companies placed in the bottom category. "As hard as ADL tries," he said, "it's difficult for them to take into full account the environment in which a company is operating." He states that Goodyear South Africa, because it is located in Uitenhage, a small, conservative town, has had to make more effort than American subsidiaries in larger and more cosmopolitan cities such as Johannesburg in order to get the same ratings. Clarence "Red" Johnson, Borg-Warner's vice president of human resources, echoed this sentiment in an interview with IRRC and also expressed frustration with the way the rating criteria have often presented a "moving target" to companies attempting to fulfill them. He argued that Borg-Warner made considerable effort to meet objectives such as desegregating locker facilities and upgrading training that were initially emphasized in the signatory effort. In order to fulfill these goals, its subsidiary undertook to build a training center and new, desegregated locker facilities. The construction turned out to be more difficult than anticipated; a nationwide brick shortage in South Africa in 1981 delayed completion of the center until June 1982. Yet even as Borg-Warner was working to desegregate facilities and build a training center, Johnson said, the emphasis of the signatory effort shifted toward community development. The strongest complaints about the rating system were expressed by John John, Masonite's group vice president. Masonite's subsidiary in South Africa includes a fiberboard mill and a plantation, where the wood for the mill is harvested. Both the mill and the plantation are operated on a more labor-intensive basis than equivalent operations in the United States, which are highly mechanized and thus employ fewer people. John states that if the South African subsidiary were to pay a minimum wage equal to that asked by the basic requirement it would have to mechanize and fire the majority of its work force. John concedes that Masonite South Africa's minimum wage "doesn't come close to meeting the minimum living level plus 30 percent." But, he says, Masonite would prefer to pay a wage that may be low by Sullivan standards but is a relatively good wage in the rural area in which its operations are located and that enables the company to employ a larger number of workers, since black unemployment in the rural areas is a pressing problem. John emphasizes that his company is committed to the Sullivan principles and continues to make its annual contributions to cover ADL's work, despite the current recession which has Masonite operating at only 50 percent capacity. In fact, he said, "I filled out the sixth (1982) report, but by God, I didn't file it. I knew that despite all we've done, all I'm going to get is a big fat 'needs to become more active' at a time when we just can't afford to do any more." Masonite is not alone. In fact the proportion of companies that did not report increased from 15 percent--or 21 signatories--in 1981 to 20 percent--or 29 signatories--in 1982. Ten of the companies that did not report in 1982 were those that had received the lowest rating the last time they were rated. One company--American Home Products--withdrew from the Sullivan principles in 1981, after two of its four subsidiaries in South Africa were rated in the lowest category in 1980. ADL is sensitive to the growing scrutiny with which the ratings it assigns are being studied both by companies and by institutional investors. In the sixth report, ADL commented: This year, the most significant factor related to the rating of Sullivan signatories on their social performance in South Africa is the increased pressure in the United States for achievement of a Category I or II rating; all the companies in these categories are considered to be doing a creditable job. Pressure for such a rating is coming from institutional investors generally and has been embodied in Connecticut law, which may prove to be a model for other states. In the rating process, however, specific subsidiaries of signatories may move from one category to another, and substantial tolerance should be shown for signatories that move down by only one category. Although the dropping of a signatory's rating by two categories, e.g., from I to III is significant, it is possible that a special circumstance for one year caused the drop. Because companies are rated in relation to each other, not against an absolute standard, their rating may change over time. It is difficult, and may be unfair, to make a judgment about a company based on its rating in any given year. The pattern of the signatory's ratings over several years is more important. Furthermore, emphasis on rating categories for the 93 signatories that did report tends to draw attention away from the 29 signatories that did not report, and the 142 companies the U.S. consulate shows as operating in South Africa that are not signatories. Even the signatories receiving a Category III (needs to be more active) rating have a more commendable commitment to the program than signatories that do not report at all. Future directions: More than five years after the Sullivan principles were first announced, the effort continues to evolve. Many of the initial objectives covered by the first three principles have been accomplished in large part. In the sixth report, ADL noted that "only one of the reporting units state that they have failed to achieve complete, de facto non-segregation of their facilities." Similarly, all but two of the reporting units reported that all benefits available to whites are also available to employees of other races on an equal basis, and "all 120 reporting units (of the 93 signatories filling out the questionnaire) state that they have established grievance and disciplinary procedures that apply to all races." On the question of equal pay for equal work, ADL notes that "for the second year in a row, all reporting units stated that they are paying all races at the same rate for equal work," and most companies use a formal job classification system to help rule out racial bias. Reflecting this progress, Task Groups I and 2--which are responsible for the first three Sullivan principles--are being merged. The new group will concentrate on the more tenacious problems covered by the first three principles--in particular, labor relations in the turbulent South Africa of the 1980s and closing the wage gap between the races. The task groups that consider the fourth, fifth and sixth principles have also in many ways completed the more mechanical aspects of their assignments and are beginning to tackle more abstract goals. According to the ADL report for 1982, for example, 74 percent of the reporting units--in line with early recommendations of Task Group 6--have surveyed their black employees to determine their housing needs, and most offer some kind of financial assistance to employees for housing. Consequently, John Purcell told IRRC his task group in South Africa is increasingly considering "quality of life" issues. As part of this new approach, its counterpart group in South Africa established a pilot community development project. Interested individuals from the African township of Tembisa were recruited for training in health care and community development and provided with supplies and support in order to provide services to the township. The community workers initially focused on health care but have since tackled other social issues as well such as improving bus service, training babysitters, and upgrading literacy among the community. International cooperation--As the signatories deal with more complex issues outside the workplace, they have also been seeking wider support for their objectives. In January 1982, Sullivan and some of the task group leaders met in London with representatives from 44 European companies to discuss ways in which these multinational companies could work cooperatively in South Africa in education, training, management development, and development of black entrepreneurs. A follow-up meeting is planned for 1983 which will also discuss the possibilities for multinational cooperation in the field of health care and housing. Future approaches that signatories might take along these lines are suggested by the community worker project of Task Group 6, which has inspired the Anglo-American Corporation, the giant South African conglomerate, to sponsor similar community development projects in other African townships. Similarly, a South African literacy organization has recently begun promoting the adopt-a-school program among South African firms. Expanded lobbying efforts--As the signatories look toward the future, some of the more active companies are beginning to consider the question of lobbying on non- economic issues, an activity that so far the signatories have largely avoided. In particular, the ADL questionnaire for the sixth report and recent attempts by Pretoria to introduce even more stringent influx control legislation have provoked a few corporate managers to ask whether they should play a more active role in opposing influx control. These managers are beginning to suggest that they should meet privately with or send submissions to government officials concerning influx control or other repressive laws, and to speak out publicly when private lobbying efforts fail to deter repressive legislation or government actions. But even these managers remain reluctant to lobby as part of an identifiably American pressure group. In dealing with a government that resents foreign intervention, they say, American companies must necessarily keep a low profile in their lobbying efforts. Rather, they propose that representatives of American companies lobby in concert with representatives of other multinationals as well as South African companies, particularly through established business and industry organizations. Improved communication--In addition, at the November 1982 plenary meeting the signatories accepted a proposal by Marzullo, the leader of the management development task group, for a communications task group to serve as the liaison between the other task groups in the United States and their counterparts in South Africa, and to provide up-to-date information on issues of common concern to all the signatories. A prototype for this committee already exists in South Africa where the chairmen of the counterpart groups hav formed a communications committee with a paid administrative staff. Another purpose of the communications task group will be to create new task groups that will concentrate on assisting blacks outside the workplace. In addition, the communications committee intends to disseminate information to the American public on the signatories' projects and accomplishments that may not be included in the ADL reports. Sullivan principles without Sullivan?--In discussions with IRRC, company executives generally agreed, despite complaints over certain aspects of the process such as the rating system, that the effect of the Sullivan principles had been beneficial. They say the principles have made them more aware of problems in South Africa and have forced them to pay more attention to their operations in South Africa. Without the Sullivan principles, most agree, they would not have established means of pooling information to enable each company to learn from the experience of others. And some executives stress that the Sullivan principles gave them a sense of "strength through numbers." One task group leader said that the Sullivan process has made companies "less timid" about confronting social issues in South Africa, even when that involves bending or violating laws, such as those still on the books that mandate some forms of racial segregation in the workplace but are no longer enforced. As he explained, "When you're acting in concert, it's easier than when you're doing it all by yourself." And another company manager likened this aspect of the Sullivan effort to giving companies the chance to hold each others' hands for moral support.

Moreover, many companies suggested that even if Sullivan were to pull out of the effort, as he has often threatened in exhorting the companies to further action, a large number of the companies would attempt to continue the effort in one way or another. Several executives indicated that they could scarcely afford to allow the Sullivan principles to die, because to do so would invite the attention of domestic critics. "Let's be honest about it," one corporate official told IRRC, "the Sullivan principles have been very convenient for American companies." And Gillette's David Fausch believes that without the Sullivan principles and the structure that has developed to encourage their implementation, Gillette would have less credibility with domestic pressure groups. He says that if Sullivan were to abandon the effort, "then the pressures would be stirred up again. There would have to be a replacement in response to this pressure." Sullivan, in a discussion with IRRC, agreed with this assessment. "Companies are now doing things that they will not stop doing even if I pull out," he said. "The momentum might slow down, but things will still move forward." He cited a number of factors that have helped keep companies participating in the signatory effort. The first, he said, is that companies see the Sullivan principles as being in their own best interests because they want to stay in South Africa and do business. In addition, institutional investors and others have made clear that they expect companies operating in South Africa to sign and implement the Sullivan principles as a minimum social responsibility requirement and undoubtedly would scrutinize closely any company that withdrew from the principles. Sullivan himself has stated on several occasions that investors should divest from companies that do not sign the principles. Finally, Sullivan stated that there has been a change in attitude among the corporate executives with whom he has worked over the last five years on the Sullivan principles. He believes that the Sullivan process has helped to develop a social conscience among many corporate executives, who now see themselves as part of a social movement in South Africa. Other Responses by Business While few companies acknowledge that pressure from activist groups caused them to join the Sullivan process, many concede that their continuing involvement in the Sullivan process is at least in part compelled by the concern that domestic pressures against their companies would increase if they were not seen to be pressing for social change in South Africa. For this reason, many of the companies with higher profile operations in South Africa also have tried to meet with or respond to shareholders and domestic pressure groups and describe how they are improving conditions in the country. Purcell of Goodyear explains that his company tries to anticipate and answer critics because "we want to be perceived as a socially responsible company." Similarly, Schroll told IRRC that Colgate-Palmolive, as a consumer goods company, has to be concerned about public relations. Several companies have published periodic or special reports on their operations in South Africa for their shareholders and others. In addition, some make a policy of meeting with shareholders or others who are interested in various aspects of their operations in South Africa. Marzullo told IRRC that hardly a week goes by that he does not have a visit from someone who wants to discuss Mobil's operations in South Africa or the total Sullivan effort. He told IRRC that his visitors include not only representatives of church and shareholder groups but "a steady stream of people interested in South Africa from other groups as well." Strategic sales: Little evidence exists to show that American companies have voluntarily avoided sales to the South African police and military or other controversial government agencies--an ongoing issue in the domestic debate--over and above the restrictions placed by the U.S. government on such sales since 1976. One exception is Eastman Kodak which, like Polaroid, states that it "does not knowingly sell any photo identification products to any agency of the South African government for its pass book system." Control Data, IBM and Burroughs have policies stating they will not knowingly sell products to be used for repressive purposes, but church and shareholder activists have questioned how stringently these policies are interpreted, noting that these companies have sold computers to government agencies that are defense-related or that help administer apartheid laws. Moreover, shareholder resolutions requesting companies not to sell to the police and military are routinely opposed. At Mobil--perhaps the most visible target for activists concerned about strategic sales--in 1980 and 1981, shareholders submitted resolutions asking the company to end bulk sales of oil and oil products to the South African police and military. The company opposed the resolutions, arguing that while it deplored apartheid and the use of police and military forces to enforce it, it opposed the resolutions because they went beyond what was required under U.S. law and because "the great bulk of the work of both the police and military forces in every country, including South Africa, is for the benefit of all its inhabitants." In an interview, Marzullo elaborated on his company's views, stating that Mobil's sales to the South African police and military are a minor percentage-- approximately 2 percent--of its total sales in South Africa. Stating that by law no South African company can refuse to sell its product to any customer in South Africa, he added that "if we stop those sales, the South African government will throw us out of the country." A better course of action, he argued, is to seek "changes in the laws of South Africa to improve the performance of the police rather than to prevent them from functioning at all." Xerox opposed a 1982 resolution that, in part, required the company not to sell to the police and military. In its proxy statement, the company argued that the formulation of foreign policy "should, and must, reside solely with the government," not with corporations. "Therefore," management stated, "we will continue our policy of honoring requests for our products wherever we have a commercial means to meet such requests," a policy that management said it applied uniformly to all subsidiaries and affiliates worldwide. Similarly, computer companies have also received and opposed such shareholder resolutions. Limits on expansion: The influence that anti-apartheid activists may have had in slowing corporate expansion is difficult to gauge, since companies are undeniably influenced by economic criteria that may cause them to restrict their investment in South Africa in any event. Rawlings of Union Carbide mused to IRRC that domestic activists do not seem to recognize that in fact there has been very little new investment by any U.S. company in South Africa outside of the reinvestment of profits that are generated there. He said that if you consider the entire climate for investment, "you have to look at South Africa as a high risk investment." Shortly after the Soweto demonstrations, several American firms including American Cyanamid, Borg-Warner, Burroughs, Control Data, Ford, GM and Kimberly-Clark announced non-expansion policies for their operations in South Africa. These statements generally cited apartheid's political repression as one factor creating a poor investment climate; most did not rule out further expansion should the investment climate improve. General Motors, for example, announced in a 1977 report that: The current political uncertainties and depressed economy of South Africa have had a negative effect on the demand for passenger cars and trucks, resulting in unused production capacity at GMSA. Consequently, the corporation has no present need for, and has no intention of, further expanding its productive capacity in South Africa. The single most important factor in the creation of a more promising investment climate in South Africa is a positive resolution of the country's pressing social problems, which have their origin in the apartheid system. General Motors remains hopeful that these problems will be resolved on a basis which is just and equitable to all segments of South Africa's population. Should conditions in South Africa improve substantially, the corporation may consider an expansion of its facilities in that country. Any investment decisions regarding that nation will, of course, necessarily include an assessment of the economic, social and political environment, not only in South Africa, but in surrounding countries as well. At the same time, a few companies that did not have operations in South Africa stated their opposition to entering the country. In 1977, Gulf & Western stated that it "has had a number of opportunities in the past to invest in business ventures in South Africa. It has declined to do so for a number of reasons, not the least of which are the policies of the government of South Africa, the continuation of which makes investments there increasingly unattractive." In discussing the non-expansion issue, most companies define expansion as the infusion of new funds from overseas into South Africa. Few, if any, companies are willing to prevent their South African subsidiaries from reinvesting their earnings so as to increase their production capacity in response to increased demand. A case in point is Borg-Warner, which in 1979 stated that "our present policy is not to increase our investment in South Africa, and until the social and economic conditions in South Africa become more favorable, it is our intention to continue such a policy." The next year, Borg-Warner's chairman, James Bere, announced that Borg-Warner was planning to expand its South Africa operations by "several million dollars" over the next three to five years, but noted that this effort would be financed solely by earnings generated in South Africa and by South African bank loans, and thus would not violate company policy. A new voice entered the non-expansion debate in 1981 when the U.S. Study Commission on Southern Africa released its report South Africa: Time Running Out, which stated that "U.S. corporations and financial institutions operating in South Africa should commit themselves to a policy of non-expansion and those companies not already there should not enter the country." However, the commission's definition of corporate expansion was broad enough that each side of the 1982 debate at Xerox over a shareholder resolution that, in part, requested the company not to expand its operations in South Africa claimed that its position was supported by the commission's recommendation. On the one hand, the commission said that companies with operations in South Africa should be allowed to make new investments necessary to maintain their market share and "to keep pace with product refinements and market growth." The commission stipulated, however, that it opposed "expansion that clearly steps outside these boundaries. Diversification of South African operations into new lines of business would be a breach of the non-expansion commitment." Xerox, whose chairman, C. Peter McColough, had been a member of the commission, opposed the resolution, arguing that while it does not plan to expand "beyond our basic office equipment lines...we do...intend to maintain a healthy, vigorous business in South Africa and will, as we do elsewhere in the world, move aggressively to enlarge that business as the local economy and market conditions permit." Management argued that its viewpoint was "consistent with the basic thrust of the total report" of the study commission. The proponents noted, however, that Xerox had recently been pursuing the automated office product market and were concerned that Xerox did not appear to consider its marketing and development of automated office systems as an example of the type of expansion discouraged by the study commission report, even though these systems had been advertised in the United States as a completely new aspect of Xerox's business.

Withdrawal: Anti-apartheid activists who have advocated withdrawal by corporations can point to few clearcut examples other than Polaroid where companies have ended their operations in South Africa in response to their concerns. Several companies have reduced or sold off their investments in South Africa over the years, but almost all say that their decisions were made for "business" reasons only. Nonetheless, in some cases such business criteria have reflected the larger political debate. General Tire, for example, withdrew from South Africa shortly after the Commerce Department issued regulations in 1978 prohibiting American companies from selling to the South African police and military, which the company states prevented it from continuing to provide technology to its subsidiary in South Africa. However, one company told IRRC that concerns over apartheid had prompted its decision to withdraw from South Africa. According to the corporate secretary, the company made a small investment in a South African company but was disappointed with the majority partner's subsequent decision to pursue a more limited growth plan than the American company had desired. At the same time, a director of the American company, who opposed investment in South Africa on moral grounds, began urging management to withdraw, arguing that the relatively low level of earnings expected from the investment there would not justify the "hassle factor" of investing in South Africa. At the end of the 1960s, the American company sold its investment in accordance with the director's argument. Domestic pressures may have influenced General Electric's recent decision to order its mining subsidiary, Utah International, to drop plans it had to invest in a proposed $140 million coal mining venture in the South African homeland of KwaZulu. The project would have been undertaken jointly by Utah International and Gencor, a South African mining company, with each paying an equal share of the cost. The Interfaith Center on Corporate Responsibility urged GE not to approve the venture. In a June 14, 1982, letter to Ford Slater, GE's manager of special issues planning, the Interfaith Center stated: "As you know, we believe the bantustan investment under consideration would be the first of this size and importance in a homeland. Further, the coal venture would be a sizable new investment in a period where U.S. companies have generally not engaged in new huge investments of capital." A few months later, Utah International's South African subsidiary sold its stake in the proposed venture to its South African partner for $14 million. In a press statement on its withdrawal from the mining project, GE said only that the project "didn't meet the criteria upon which allocation of resources are made." However, a State Department official told IRRC that GE's decision was prompted in part by concern over the public relations problems it would have if it made a major investment in South Africa at this time. "GE didn't want to become the largest investor in South Africa," he said. GE, which is based in Connecticut, had been represented on the task force which recommended the new law restricting state investments in companies with operations in South Africa.

Future Pressure= Most of the managers that IRRC interviewed reported that the level of shareholder and outside interest in their companies' operations in South Africa had dropped off dramatically in the last year or two. Schroll said that there were considerably fewer letters referring to Colgate's South African subsidiary in 1982 than in 1981 and that almost all were responding favorably to a special report that Colgate had issued on its South African operations. Another company executive said that his company received approximately 10 letters in 1982 from shareholders and the public concerning its South African operations, compared with "hundreds" in 1980, when a resolution requesting it to withdraw from South Africa was submitted a second time. Several other managers reported a similar decline in letters, resolutions or other expressions of interest in their South African operations. Anderson, Deere's manager of public policy planning, commented that although Deere received more communications from 1976 to 1978 than it does now, "I don't find a lowering of concern among institutional investors." He believes that the drop in requests for information instead reflects the fact that the institutional shareholders who formerly made the most requests have since obtained access to other sources of information on Deere's operations, ranging from the ADL ratings to IRRC's reports. Similarly, Goodyear's Purcell agrees that "there has not been a decline in concern, but an educational process over the past six years that has been very beneficial." As a result, he continued, shareholders and the American public have learned that South Africa is a terribly complex issue, and they are less likely to promote facile actions. Other managers theorized that if there has been a drop in interest, it is only temporary. Robert Shaffer of Sterling Drug attributes the drop in requests for information to his company to its signing of the Sullivan principles, which he feels has improved the company's credibility, and to the fact that other foreign policy problems--such as the Mideast--have temporarily eclipsed South Africa. Nonetheless, he said, "the issue is still there and we're going to have to deal with it." Most of the managers linked the intensity of the domestic debate to events in South Africa. Fausch of Gillette, noting that his company received "a spate of mail" concerning its South African operations in 1977 and 1978, says that domestic pressures will increase in the future if South African Prime Minister Botha does not proceed with social and political reforms, and especially if bannings and detentions increase. He concludes, "I think now we're in an artificial hiatus." An official of another corporation agrees: "A lot depends on what happens in South Africa. Something is going to boil over one of these days .... I don't think we're dealing with anything but a temporary respite."

V THE CAMPAIGN AGAINST LOANS TO SOUTH AFRICA An examination of the campaign by activists against U.S. bank loans to South Africa brings together many of the separate elements of this report. The bank campaign is of particular interest not only because the banks were the first corporate targets of the anti-apartheid activists, but also because the campaign to stop U.S. loans to South Africa has employed a wider range of tactics and attracted a more diverse group of supporters than any other aspect of the debate over American economic involvement in that country. In part because of these efforts, the policies and practices of banks concerning investment in South Africa have undergone far greater change than those of nearly all other U.S. corporations with operations there. Loans by American banks to South African borrowers have been the subject of continuing public debate since March 1965 when members of Students for a Democratic Society staged a sit-in at the doors of Chase Manhattan's headquarters in New York. Since then a range of other groups including several activist organizations, churches, unions and state legislators have also been involved in efforts to persuade banks to cut their credit ties with South Africa. In their efforts to cut off the flow of credit to South Africa, opponents have demonstrated in front of banks, encouraged individuals and institutions to close their accounts and sell their stock and debt instruments, submitted shareholder resolutions, and met with bank officials. Many churches, approximately 20 universities, a few state and local governments, and a handful of unions have cut their ties with banks that continue lending to South Africa. Many more institutional investors have supported resolutions calling for restraints on such loans. The impact of these activities has been mixed. They have been most successful in restraining once routine U.S. bank loans to the South

African government and the state-owned corporations. While several factors contributed to this shift in lending practices--including the banks' own changed assessments of the risks of lending to South Africa--the activities of those opposed to the loans were critical in publicizing the issue and making some banks think twice before they extend credit to the South African public sector. As a result of these factors, U.S. loans to the South African government and its agencies fell from $924 million at the end of 1977 to a low of $278 million as of June 1981. Since then, however, U.S. banks have increased their lending to the South African public sector, and by mid-1982 the value of these loans had climbed back up to $623 million. The campaign against bank lending has had minimal effect on loans to the South African private sector, and in mid-1982 U.S. banks had more than $3 billion in loans outstanding to private sector borrowers--more than double what they had at the end of 1977. Few banks have adopted a policy prohibiting trade-related, business expansion or interbank loans to a South African borrower. Most bankers contend that the economic growth resulting from these loans creates job opportunities that benefit blacks and that the growing economic ties between the United States and South Africa may have a liberalizing effect on Pretoria's policies. As a result of these views, and the continued attractiveness of South Africa as a market for short- and medium-term loans, U.S. lending to the private sector increased measurably between 1977 and 1982; outstanding loans to the South African private sector totaled $3.0 billion in mid-1982, compared with $1.4 billion at the end of 1977. Early Pressures Because of the activists' view that banks are more directly involved than most other U.S. firms in supporting the South African government, financial institutions were the first U.S. corporations singled out by groups seeking to cut economic ties between the United States and South Africa. Banks also offered more avenues for applying direct pressure in this country than did, for example, American manufacturing or mining firms with South African subsidiaries. A 1966 editorial in Christianity and Crisis argued that "banking, more than industry, has specifically shored up the (South African) government in its time of difficulties." Moreover, it contended that "most Americans are more directly related to the South African economy through their banks, with which they deal day in and day out, than through the automobile or diamond industries, with which they deal more rarely." But those involved in the campaign made clear from the beginning that their goal of stopping U.S. loans was only part of a broader program to get all U.S. firms to pull out of South Africa. In a 1966 letter to potential supporters of the campaign against bank loans, A. Philip Randolph, at that time co-chairman of the American Committee on Africa, explained, "The campaign on the banks will be only a beginning. Essentially, what we wish to accomplish is to make clear to ourselves, to our fellow countrymen, and to our government, that Americans must disengage economically from the injustices of the apartheid regime in South Africa." Most of the actions taken by campaign supporters in the 10 years from 1966 to 1976 revolved around the participation of several U.S. banks in two loans to the South African government. The first loan involved 10 of the largest U.S. banks which jointly had extended a $40 million line of credit to Pretoria in 1959 and had subsequently renewed it every two years. The second involved nine smaller banks that provided the South African Finance Ministry with a $50 million loan in 1972. After the demonstration by Students for a Democratic Society at the Chase Manhattan headquarters in March 1965, students at Union Theological Seminary and neighboring Columbia University began looking into the question of U.S. bank involvement in South Africa. Conversations with bankers revealed the existence of the $40 million line of credit extended to the South African government by 10 leading American banks: Bank of America, Bankers Trust, Chase Manhattan, Chemical, Citibank, Continental Illinois, First Chicago, Irving Trust, Manufacturers Hanover and Morgan Guaranty. As would often be true in subsequent cases, publicity about a specific loan to the South African government proved to be a useful organizing tool and attracted broader support than general calls for ending all U.S. economic links with South Africa. Over the next three years, from 1966 to 1969, activists sought support from institutions for their efforts to pressure the banks not to renew the loan. They gained the support of several of the major Protestant denominations and the National Council of Churches. Representatives from these church groups met with officials of Chemical Bank, Citibank, Chase Manhattan, Irving Trust and Bankers Trust. Church representatives, as shareholders, also raised the issue from the floor of the annual meetings of Chase Manhattan, J.P. Morgan and Citicorp. When these discussions failed to elicit promises from the banks that they would stop lending to the South African government, the United Methodist Church Board of Missions, the United Church of Christ, the Episcopal Church and the United Presbyterian Church all voted to remove church funds from the banks if the $40 million line of credit at issue was extended when it came up for renewal in 1969. University students and legislators also became involved in this first round of the campaign against bank loans to South Africa. Sales of university-held bank stock followed demonstrations by black and white students at Cornell, although school officials stated that financial reasons accounted for the sales. In Congress, nine members of the House of Representatives sent a joint letter to all the banks participating in the loan asking them to "abstain from participation in any continuation of such a line of credit for the apartheid regime in South Africa."

Activists claimed a partial victory late in 1969, when South Africa's Minister of Finance announced that "because of the Republic's strong gold and foreign exchange position, (the $40 million) credit has not been used for some three years, and it was not deemed necessary to incur the expenses of extending it." The American Committee on Africa speculated that "it is entirely possible that the banks themselves initiated the action to terminate the credit arrangement." But the victory clearly was far from complete. None of the 10 banks had adopted a policy prohibiting future loans to South Africa. Moreover, the campaign was developing internal differences as it became apparent that the goals of some of the campaign's supporters, particularly the churches, were not always the same as those of the activists that originally raised the issue. The churches tended to emphasize the narrower issue of bank loans to the South African government and had not developed a clear position on the question of breaking all U.S. economic links with the country. The American Committee on Africa criticized this and noted in 1969 that "the major emphasis of the National Council of Churches was specifically on bank loans to the South African government, and not the general role of the banks or other U.S. corporations in strengthening apartheid. This definition stressing the ($40 million) consortium loan had certain implications for the future of the campaign in that the demand of the protestors was the termination of the consortium, not an end to all forms of relationships with South Africa." For a few years after the 1969 cancellation of the $40 million line of credit, activists were unable to obtain evidence of further U.S. bank participation in loans to the South African government, and the campaign against bank lending was relatively quiet. In 1973, however, the Corporate Information Center--forerunner of the Interfaith Center on Corporate Responsibility--obtained confidential documents detailing the participation of nine American banks in a $50 million loan to the South African Finance Ministry. None of the nine had been involved in the earlier revolving credit and most were smaller regional banks. This time, actions taken by supporters of the campaign were more effective in changing the lending policies of the banks involved. Within a year, four of the nine banks--Maryland National, Merchants National of Indianapolis, City National of Detroit, and Central National of Chicago--agreed to make no further loans to the South African government as long as apartheid continued. One of the four-Maryland National-was the target of a well-coordinated protest campaign that brought in institutional investors not previously involved in the campaign against bank loans to South Africa. The Baltimore-based Federation of Federal Credit Unions closed its account with the bank and the Board of Supervisors of Montgomery County--one of the state's wealthiest counties--threatened to withdraw its payroll account following a public hearing on the question. As a result of these pressures, Maryland National not only agreed to make no loans in the future but also announced that "we will divest ourselves of the South African government loans presently on our books." Actions After Soweto The Soweto demonstrations of 1976 and the subsequent repressive moves by Pretoria galvanized those groups in the United States that opposed continued lending to South Africa. In the years since 1976, activists have sought to establish a well-coordinated national campaign against further bank lending, and church shareholders have raised the issue at the annual meetings of a number of banks. As the debate continued, new voices joined in, either supporting the advocates of an end to loans or, on one occasion, seeking to spell out a compromise position that might be acceptable to some of the activists and the banks. From their experience in working together in the earlier campaigns against loans to the South African government, five national organizations-the American Committee on Africa, the American Friends Service Committee, Clergy and Laity Concerned, the Interfaith Center on Corporate Responsibility and the Washington Office on Africa--and local groups in seven states agreed in 1977 to coordinate future actions against banks through a new umbrella organization, the Campaign to Oppose Bank Loans to South Africa (Coblsa). The campaign has as its goal the ending of all U.S. loans to any South African borrower whether it be the government, government-owned corporations or private corporations. The campaign and its affiliates seek to press banks to issue "clear public statements that they will make no new loans or renew old loans to South Africa until the apartheid system is dismantled and majority rule is realized." The campaign has always been short of funds and on two occasions since its founding--for eight months in 1978-79 and for 10 months in 1980-81--the position of national coordinator--Coblsa's only paid position--went unfilled. Because of its decentralized structure, however, the campaign against bank lending was carried out by local activist groups even during periods when no national coordinator existed. When there is a national coordinator, he assists the local groups by conducting research, writing articles for the media, organizing local anti-loan groups and, through speaking tours, explaining to groups how they can pressure banks by demonstrating, closing accounts and mobilizing local institutional investors and state and municipal legislators on the issue. The campaign against bank lending was greatly aided in 1978 and 1979 by the appearance of two studies that lent credibility to the campaign and provided information on which U.S. banks had participated in loans to the South African public sector during the 1970s. The first was a January 1978 report by the Senate Subcommittee on Africa, whose chairman was Sen. Dick Clark (D-iowa). The report recommended the withdrawal of "facilities of the U.S. government which promote the flow of capital or credit to South Africa. This includes ending Export-Import Bank insurance and loan guarantees." It also listed U.S. banks that had made loans to the South African public sector from 1972 to 1976. The subcommittee's list of banks was supplemented in 1979 by a more extensive compilation by the Corporate Data Exchange listing loans by U.S. banks to South African borrowers from 1972 to mid-1978. The United Nations Center Against Apartheid has since financed periodic updating of the original Corporate Data Exchange information. As the human rights situation in South Africa worsened during 1976 and 1977, the bank campaign was able to attract support for at least some of its goals from a broader range of institutional investors. Nearly 20 leading American universities-- including Harvard, Columbia, Yale, Cornell, Michigan and Notre Dame--adopted policies preventing them from holding the debt securities and, in some cases, the stocks of banks lending to the South African government or its agencies. These policies stopped well short of the demands of student demonstrators and failed to endorse the campaign's view that loans to all South African borrowers are reprehensible. Nevertheless, the prestige commanded by, and the value of the funds controlled by, these universities added impetus to the campaign. Guided by their new investment policies, Yale, Columbia, Carleton and Tufts sold shares worth more than $5 million in banks that either refused to rule out future loans to the South African public sector or declined to disclose information on their lending practices in this area. In addition, Harvard sold $51 million of Citibank debt securities after the bank participated in a loan to Pretoria late in 1980. Several labor unions were also early supporters of the bank campaign in general and Coblsa in particular. During 1977 and the first months of 1978, three New York-based unions--the Furriers Joint Council; the United Electrical, Radio and Machine Workers; and District 1199 of the National Union of Hospital and Health Care Employees--closed their accounts at Manufacturers Hanover, Chase Manhattan and Citibank, respectively, over the South Africa lending issue. Later in 1978, the United Auto Workers announced that it would not deposit funds in banks that persisted in lending to South Africa. A year later, the California Nurses Association closed its account at Wells Fargo. State and local governments also have shown some interest in the bank loan issue, an interest that the campaign hopes to heighten. In 1979, the California cities of Berkeley, Davis and Cotati voted to keep funds under their control out of banks lending to South Africa. A year later, the state of Michigan passed a bill prohibiting the deposit of surplus state funds--state pension funds, however, are not covered by the bill--in banks that have loans outstanding to the South African government, any state-owned corporation or the South African subsidiary or affiliate of a U.S. firm. As of December 1982, all of the more than 250 banks in which Michigan deposits its surplus funds--which by law must either be chartered or headquartered in the state--have filed affidavits attesting that they do not have existing loans to the South African public sector or to U.S. subsidiaries or affiliates in that country. As a result, Michigan has not removed funds from any bank over the South Africa issue. In June 1982, the state of Connecticut passed a bill that, depending on how the state's Investment Advisory Council chooses to interpret it, could prohibit banks lending to the South African government or its agencies from managing any state funds and could prevent the state from investing in the stock of these banks. Carole Collins, national coordinator for Coblsa, is encouraged by the interest that state legislators have shown in the campaign against loans to South Africa. She believes that of the three types of South Africa-related bills a state is likely to consider--divestment by public pension funds of stock in companies doing business in South Africa, divestment by public university endowment funds, and removal of public monies from banks lending to South Africa--"it is easier to get the bank bills passed." Collins told IRRC that because divestment bills "involve so many companies as well as questions of fiduciary responsibility, they are much more difficult to get through the state legislature. Bank bills do not have these problems." (As discussed in Chapter II of this report, however, Collins's observation did not hold true in 1982 when Connecticut, Massachusetts and Michigan passed legislation dealing with the divestment of either public pension funds or state university endowment funds.) Over the years, Coblsa has taken on issues other than lending to South Africa. Almost from its inception, many of the groups that supported Coblsa also campaigned against banks marketing the South African gold coin-the krugerrand- -and have sought to stop krugerrand sales in the United States. Coblsa in 1979 also began to seek to bring together a broader coalition of groups on the South Africa issue by pledging "its support for efforts to end the redlining practices of many banks that also lend money to South Africa." In the same year, Coblsa affiliates worked with groups opposed to the Pinochet government in Chile and staged several joint actions criticizing U.S. loans to both Chile and South Africa. Shareholder Activism At the same time the Campaign to Oppose Bank Loans to South Africa emerged in 1977, church investors for the first time were filing shareholder resolutions with several banks calling on them to stop lending to any South African borrower. Many of the churches already had been active in the campaign against lending and had raised the issue from the floor at banks' annual meetings or closed their accounts at certain banks. Thus, shareholder resolutions were simply one more tactic in their overall effort to cut all credit links between U.S. banks and South African borrowers.

In order to maximize support for their resolutions, the church proponents by 1979 had dropped all references to loans to the private sector and instead concentrated on lending to the South African government and its agencies. Timothy Smith of the Interfaith Center on Corporate Responsibility, the coordinating body for church shareholder action, explained to IRRC that "while we are opposed to all loans to South Africa, the churches affiliated with the Interfaith Center have certain operational priorities. The first priority is to stop loans to the South African government and its agencies. Next are loans to U.S. companies beginning operations in South Africa for the first time or expanding existing operations. Trade loans to finance the export of strategic goods have third priority, followed by loans to the South African private sector. Ordinary trade-related finance has the lowest priority." The Interfaith Center has focused its attention on a relatively small number of U.S. banks that either have loans outstanding to Pretoria or have declined to adopt a policy mandating no future lending to the South African government, even though in practice they appear to have stopped lending. Smith stresses that a policy statement is necessary because "a practice can be changed overnight, but an announced policy commits the bank to a future credit freeze of the South African government." Of the 10 banks that have received shareholder resolutions, Citibank is the only one known to have participated in loans to the South African government since 1977. Continental Illinois, Bank of America and Republic Bank of New York, while apparently making no loans to the government, have made loans to state-owned corporations since then. Five of the banks--First Chicago, Manufacturers Hanover, Morgan Guaranty, Wells Fargo and Crocker National--apparently have not made loans to the South African public sector in several years, but they refuse to adopt a policy statement committing themselves to a credit freeze. Only First National Bank of Boston adopted the "1no-loans" policy sought by the shareholder activists. Church investors also have used the shareholder resolution process to bring up related issues. In 1979, they submitted a resolution to INA Corp. asking that it no longer underwrite securities offered by the South African government or public sector companies. Similar resolutions have since been filed with Merrill Lynch, Shearson/American Express, Sears (after it acquired Dean Witter Reynolds), and Phibro (after its acquisition of Salomon Brothers). Since 1980, church proponents have asked banks to cease the sales and distribution of krugerrands. First Chicago, Republic Bank of New York and Centerre Bank of St. Louis have all received krugerrand resolutions. None of the 50 resolutions voted on since 1977 has received the support of a majority of the shareholders, although a few have been backed by more than 10 percent of shares voted--a high level of support for resolutions opposed by management. The Interfaith Center feels that the shareholder aspect of the bank campaign has been a success. The proponents believe that the consistent appearance of the issue of South African loans at the banks' annual meetings as well as other strategies have educated the banks and, says Smith, "forced them to move the issue up from the back burner and think through the social implications of these loans." The resolutions also have made many institutional investors consider their positions on the issue and have attracted the support of some institutions that normally are not active on social issues. According to IRRC's annual survey of how major institutional investors vote on shareholder resolutions, the five resolutions submitted to the banks in 1977 were supported not only by churches and universities, but also by an investment firm, The Ford Foundation and the Connecticut public employee pension fund. The following year saw a marked increase in support for the resolutions, largely because several institutional investors had developed proxy voting guidelines between 1977 and 1978 directing them to break with the Wall Street Rule when considering resolutions on the issue of loans to the South African government. In 1978, one insurance company, a bank, and TIAA/CREF joined many of the same institutions from the year before in voting in favor of the resolutions. In 1981, a second bank began voting its proxies in favor of resolutions calling for restrictions on loans to South Africa. Because of instances like these, Smith concludes that "institutional investors are feeling more and more convinced that loans to the South African government and state-controlled companies are not acceptable." He believes that "we now have a stronger consensus among institutional investors on the question of South African lending than on any other South African or other social issue that we raise through shareholder resolutions." But not all activists are as optimistic about the impact of shareholder resolutions. Carole Collins of Coblsa told IRRC that "although I do not see shareholder resolutions as counterproductive, I do believe that the closing of accounts with the targeted banks is more effective in changing lending practices." According to Collins, cutting financial ties is more effective than shareholder action as "banks fear withdrawals of accounts and sales of debt instruments because these actions affect their profitability and their public image." The American Committee on Africa takes a similar position. "We primarily push for divestment, not for shareholder resolutions," noted Jennifer Davis, the head of the ACOA. "We do not see shareholder activism as the best form of organizing on the issue of economic links between the United States and South Africa." Smith agreed that account closings affect banks more than shareholder resolutions do, but he stressed that the churches seek to use a range of tactics--shareholder resolutions, account closings, divestment and publicity--to persuade banks to stop lending to South Africa.

New Voices in the Debate As the campaign against bank loans to South Africa continued, it attracted the attention of others who were actively examining the broader issue of U.S.-South African relations. Rev. Leon Sullivan, author of the Sullivan principles, called on banks in 1979 to limit private sector loans to projects "developed in cooperation with blacks and other non-whites, which contribute to their social and economic advancement and equality, and that do not support apartheid." But Sullivan emphasized that under no circumstances were banks to lend to Pretoria and government-owned corporations. Frustrated by continued U.S. lending to South Africa, Sullivan and Dr. William Howard, president of the National Council of Churches, issued a stronger statement in 1981. They warned banks "considering a return to a 'lending as usual' relationship with South Africa" that they would "vigorously oppose such loans. Lending to South Africa, to the government or its agencies and other loans that support apartheid will be met with a massive withdrawal of deposits, accounts and the divestiture of securities. We will urge the U.S. public, including our colleagues in the nation's churches, to hold the banks lending to South Africa accountable." The 1981 study of U.S.-South African relations that the Rockefeller Foundation financed also examined the question of U.S. lending to South Africa. Significantly, it did not recommend a ban on further U.S. lending to the South African public sector. It did recommend, however, that banks already lending to South African borrowers--from either the public or the private sector--not expand their share of the market for credit in the country. This recommendation, however, would allow a bank's South African loan portfolio to grow as the level of loans by all banks to South African borrowers increased. The study said the only exception to the suggested non-expansion policy "should be made for investments or loans for projects of unusual and direct benefit to South African blacks." The Banks' Responses The campaign against bank loans to South Africa has played a significant role in altering the lending practices of many U.S. banks. The efforts of activists to raise the issue of U.S. bank loans to South Africa have succeeded, at the very least, in changing the climate in which these loan decisions are made. Bank officials report that the debate has caused them to evaluate South African loan requests in a broader context than they normally would have, and it is not unusual now for the social impact of a loan to be considered at the same time the level of credit risk is determined. Banks are also aware of the public relations costs that loans to the South African public sector potentially carry and, other things being equal, may choose to avoid them in favor of less controversial loans. Although most major banks state that the campaign against them has had no direct impact on their South African lending activities, they acknowledge that the changed climate has played an indirect role in influencing their decisions. Other banks admit, however, that activist pressures have directly influenced management decisions to restrict loans to South Africa. Thus, the impact of the campaign against bank loans has varied from bank to bank, always serving as a backdrop to lending decisions, sometimes reinforcing developments within a particular bank--for example, a more pessimistic assessment of South Africa's future stability--and, in several instances, constituting the primary factor leading a bank to decide to stop lending to the South African government and its agencies. Types of responses: In the 17 years since activists first raised the issue of lending to South Africa, the banks have generally responded in one of two ways. Some have announced they are no longer making or underwriting loans to the South African public sector and have indicated, with varying degrees of explicitness, that the prohibition will remain in force as long as apartheid continues. Among the first to do so were the smaller regional banks whose involvement in loans to the South African government and its agencies became known in 1973. At least four of the nine banks named in the documents obtained by the Interfaith Center subsequently agreed to avoid similar loans in the future. None, however, has sworn off short-term trade related loans or longer-term loans to private sector borrowers. Major banks adopting a similar policy are Harris Trust, First National Bank of Atlanta, First National Bank of Boston, and Bankers Trust, as well as the underwriting firms of Merrill Lynch, Shearson/American Express and Dean Witter Reynolds. In addition, Chemical Bank has a policy of making no loans to the South African public sector or to any private sector borrowers, but it does continue to provide trade finance for non-strategic goods. The remaining banks appear to have cut back their loans to the South African public sector since 1977, in some cases to the point where they now have no outstanding credits to Pretoria or its state-owned corporations. All these banks, however, have avoided adopting policies committing them to continue these restrictive lending practices in the future. They explain that as financial institutions they must be free to react quickly to changing conditions in South Africa that could make the public sector more attractive as a borrower once again. Major banks taking this position include Manufacturers Hanover, Continental Illinois, First Chicago, Crocker National, Wells Fargo, Chase Manhattan, Morgan Guaranty, Bank of America and Citibank. As with the first group, all these banks are willing to lend to private sector borrowers in South Africa and continue to provide trade financing. Citibank and Bank of America are the only major banks known to have loans outstanding to either the South African government or state-owned corporations. Citibank told IRRC in December 1982 that the only credit to the public sector still on its books is $18 million of the

$50 million loan it made to Pretoria in 1980 earmarked for the construction of housing, schools and health care facilities for coloreds and Africans. In March 1982, a Bank of America spokesman told IRRC that while the bank had no loans outstanding to the South African government it did have some existing loans to state-owned corporations. But these two banks clearly are not the only ones with loans outstanding to the South African public sector. The U.S. Federal Reserve System recently reported that in June 1982, the nine largest U.S. banks-Bankers Trust, Chase Manhattan, Chemical, Citibank, Manufacturers Hanover, Morgan Guaranty, Continental Illinois, First Chicago and Bank of America--had $347 million in existing loans to the South African government or government-controlled corporations. The same report showed that the next 15 largest banks had outstanding loans of another $212 million to those borrowers. Motivations for refusing loans: Several factors have motivated banks to announce a policy of no further loans to the South African public sector. For some, their limited involvement in loans of this nature simply was not worth the negative effect it had on public relations. Regional banks in particular are more susceptible to pressure because of their greater visibility in the local community and consequently greater dependence on a positive corporate public image. But some major banks, as well, have bowed to external pressure. In 1978, for example, a shareholder resolution to First National Bank of Boston asking it to stop lending to the South African public sector received the support of 8.2 percent of the shares voted. A year later, the bank announced that it "has made no new loans to the Government of South Africa, its agencies, or its instrumentalities and any such loans on our books continue to run off .... We have no plans to alter that policy." At least one financial institution established a no-loans policy when it concluded that extending credit to the South African government contradicted other corporate goals. Gene Harmon, vice president of corporate public affairs for Sears, told IRRC that church affiliated shareholder groups approached the company late in 1981 regarding bond underwriting services for the South African government provided in the past by Dean Witter Reynolds, a firm that Sears had just acquired. Sears immediately made a study of these transactions and, after reviewing the findings, established a policy prohibiting further financial dealings with the South African government. He said the examination led Sears to conclude that the lending violated the basic principles guiding its business. Referring to Sears's affirmative action program, Harmon explained that "with the company's past history in this area, we thought it inconsistent to do business with a government supporting apartheid." At least one major bank is privately surprised at the degree of success these efforts by shareholders have had. In an internal memorandum assessing the impact of shareholder activism, a top officer of the bank conducting the study concluded: "Looking across the range and change of bank reactions in these five years, the boycott advocates must be at least a little amazed, and more than a little encouraged, by how much they have accomplished with very little stockholder support." Effects of the campaign: Once one moves away from banks that, in the face of public pressure, adopted policies of not making loans to the South African government and its public corporations, it becomes increasingly difficult to evaluate the impact of the campaign. Nearly all banks without a no-loans policy emphasize that the principle of making loan decisions strictly on the basis of economic merit is central to good banking practices. As a result, they have resisted calls to incorporate non-economic criteria in their South African lending policies and are reluctant to discuss instances where outside pressures may have affected them. The banks' desire to downplay whatever role the campaign against bank lending to South Africa may play in lending decisions is counterbalanced to some extent, however, by a wish to appear responsive to the concerns of shareholder activists. This desire may cause them to exaggerate the indirect influence of the bank campaign on bank lending practices. For some banks, responding to shareholder resolutions and letters from investors as well as meetings with activists on the South Africa lending issue has encouraged them to clarify their own positions on the question and, at the same time, to involve more members of management in the process. At Continental Illinois, for example, members of the corporate affairs department in the early 1970s began to work more closely with loan officers handling South Africa as the bank began to be asked about its lending practices in the country. Out of this cooperation between the corporate affairs and lending sides of the bank emerged a basic bank stance deploring apartheid but opposing a credit boycott of South Africa. Activists continued to press Continental Illinois to join a credit boycott and for several years submitted shareholder resolutions that drew attention to the bank's refusal to agree to this policy. Before the 1982 annual meeting, bank officials met with church investors to discuss formulating a statement of its policy that would be more responsive to the concerns of the church shareholders. As a result of these discussions, the chairman of Continental Illinois read a statement at the 1982 annual meeting that said in part, "recognizing that credits to the South African government and its agencies have sometimes been used to support apartheid policies, Continental Illinois Corp. subjects any proposals for such credits to rigorous consideration, and to further review by senior management, to ascertain that the proposed credit would not support apartheid." In practical terms, this has meant that the bank "has no loans outstanding in the so-called homelands area and...has not negotiated a loan to the government of South Africa during the past five years and very few to government parastatals." In October 1982, a bank spokesman told IRRC that all loans to the South African public sector had been repaid by the end of 198 1.

A spokesman for the bank readily told IRRC that "the activists, by making people look at the issue more closely than they otherwise might have, have had an effect on how Continental Illinois considers South African loan applications." Manufacturers Hanover's lending policy toward South Africa was also affected by outside pressure. John Zutter, a senior vice president of the bank, told IRRC that Manufacturers Hanover's decision not to lend to the South African public sector was due in part to the debate, which "caused us to think about the issue." Other banks, however, believe that activist pressures have had little or no impact on their South African lending policies. A Citibank spokesman explained that the bank "is mindful of the opinions of shareholders and the outside public which make up part of the environment in which decisions are made." "But," he added, "Citibank's lending policy is responsive to developments in South Africa and decisions on how best to pursue the interests of the corporation in that country. The debate over lending to South Africa has not been a critical factor." A spokesman for Morgan described his bank's lending policy in nearly identical terms. "Morgan's policy," he said, "is evolving in response to what we perceive to be the realities of South Africa and the bank's best interests in the country." He added that the policy was already in place before the first shareholder resolution was submitted in 1977. For at least one bank, the debate over loans to South Africa has forced loan officers and more senior management to become better informed about that country's internal affairs. Morgan's spokesman told IRRC that "senior management pays more attention to South Africa than might normally be the case, given the amount of business we do there." This is largely because the issue has been raised at several annual meetings and "senior management wants to make sure that they are well informed about an issue that is important to certain shareholders," he said. A lending officer responsible for Morgan's business in South Africa and several other African countries added that because of the controversy over South African loans he knows more about conditions in that country than in any of the others he follows. The fact that top management is better informed about South Africa also influences the actions of lower-ranking lending officers. The Morgan lending officer explained that while he is formally responsible for approving or rejecting loan requests, "when we consider South African loans we are very aware that several others in the bank are also concerned about the decision we make." But for most of those concerned over U.S. bank lending to South Africa, these changes within the banks in response to activist pressures are important only to the extent they actually cause the level of lending to fall--particularly loans to the South African government and its state-owned corporations. While it is true that the value of U.S. loans outstanding to the South African public sector is lower now than it was in 1977, factors other than the campaign could account for this drop.

For example, the rising price of South Africa's leading export commodity--gold-- during much of this period, and the increased tax revenues this brought the central government, meant that Pretoria's foreign loan requirements were lower than they had been earlier. In addition, many banks felt that South Africa had become more of a credit risk in the years immediately after the outbursts of black anger over apartheid in 1976 and 1977. Most U.S. banks argue that these economic factors alone account for any changes in their lending practices. A spokesman for one major bank that did not want to be identified told IRRC that South African lending is handled the same as lending to any other country. "We have a fairly senior group of bank officers," he explained, "that meet several times a year on each country. At these meetings we determine what our lending posture should be in that country for the next several months." Based on this objective review, he added, "the bank's posture right now is not to put any new loans into South Africa; but this posture could conceivably change at the next meeting." The bank's position that economic factors are the key determinant of loan levels is supported in part by what has happened to the value of loans by U.S. banks to South African public sector borrowers since mid-1981 when these loans reached their lowest point since 1977. In the last half of 1981 and the first six months of 1982, U.S. banks increased their loans to the South African public sector as the price of gold fell, government borrowing requirements went up and no further Soweto-type demonstrations occurred. But some activists believe that changing economic factors alone cannot account for the bank's shifts in lending practices. They assert that if the campaign against bank lending had had no impact, the present economic incentives to lend to South Africa would have led to a higher level of loans to the public sector than now exists. They are supported in their view by bank officials at Morgan who told IRRC that "if there had been no debate, American banks would be making more loans to the South African public sector than they are now." Outlook But what about the future? Will the campaign against bank loans to South Africa continue? Will U.S. bank loans to the public sector rise to their former levels? Most of the banks IRRC interviewed reported that shareholder concern over lending to South Africa has fallen off sharply since early 1981. A Morgan official said the bank had received only a few requests for information in 1981 and 1982 from church and university shareholders--"a real drop-off from the early years." Church representatives met less frequently with Morgan during that time and only two universities sought discussions with Morgan officials on South Africa. John Zutter of Manufacturers Hanover reported that "the number of questions from outside interest groups on the South African issue appears to have diminished somewhat during the past few years, particularly since major interest groups have come to understand the bank's policy." A spokesman for a major bank that did not want to be named for fear of "appearing as if we're throwing down the gauntlet in front of the activists" noted that "attention on the bank's relationship with South African borrowers had diminished over the past few years" and added that "organizations with pension money in the bank are no longer raising the South Africa issue." The bankers believe this drop in interest in South Africa is due in part to other issues coming to the fore, such as nuclear power, nuclear weapons and the state of the world economy. One banker added that "people are getting weary of the debate." While activists disagree with this last observation, they do see that other issues are now partially replacing South Africa. Within their own organizations, limited budgets and personnel are being stretched thin as new social issues are tackled and groups are unable to devote the same amount of time and resources to the bank campaign as in the past. Fr. Charles Dahm of the Chicago-based 8th Day Center for Peace and Justice talked of "a real shortage of resources dedicated to the South Africa issue as other issues become more pressing." He believes the interest is still there, though, and "we could really build a coalition on the bank lending issue if only we could raise the money to hire one organizer." But other activists dispute the banks' contention that pressure has fallen off. Smith of the Interfaith Center acknowledges that "some pressures have no doubt died down but others have clearly increased, particularly actions aimed at getting state pension funds to cut their ties with banks that lend to South Africa." Despite the changing nature and possible decline in attention to the issue of South African lending, most of the banks and a few of the activists doubt that banks will be more willing to lend to South Africa in the future. In part, the banks' position arises from a need to be logically consistent--if their lending practices solely reflect an objective assessment of the situation in South Africa, then a diminution of domestic pressure should have no effect on the level of loans to that country. In addition, many banks, including but not limited to those that have adopted a no- loans policy, apparently have accepted at least some of the arguments of the activists and this acceptance should continue to affect bank lending practices even if the debate dies down. While Smith of the Interfaith Center does not accept the assertion of some banks that the campaign has had no impact on lending practices, he does agree that the banks are not likely to revert to a "lending as usual policy" if the debate becomes less prominent in the future. As he sees it, activists were needed to educate banks on the South African issue and sensitize bank officials to the concerns of those who oppose loans to South Africa. As a result, "there has been a swing of the pendulum inside some banks against lending to South Africa," he feels. "Even if the Interfaith Center and the activists disappeared from the scene," Smith said," the pendulum would not swing back to its old position." Other activists, however, are not so sure that the banks have genuinely altered their lending practices. Fr. Dahm, speaking of Continental Illinois and First Chicago, told IRRC that "we have to keep continued pressure on them or they will go back to lending to the South African government. We have to go back to them every year to let them know we are still watching them." Carole Collins of Coblsa is concerned that American banks already have begun to view South African borrowers more favorably. She noted that "the total value of outstanding U.S. loans to South Africa is increasing, and lending to the public sector jumped in 1981 and 1982 after a four-year decline." As a result, she told IRRC, "the bank issue is of growing importance."

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Vl CONCLUSIONS Nearly 20 years after activists first challenged U.S. corporate involvement in South Africa, the debate continues over the impact of that involvement on the country's prospects for social and political change. From the very beginning, those on one side of the debate argued that U.S. and other multinational firms delay the day of black liberation by the support they provide the present white government. At times, the activists believe, that support is direct when companies provide computers, fuel and advanced technical goods or when banks lend funds to agencies of the South African government charged with enforcing the system of apartheid. And, they argue, all companies indirectly support Pretoria by their very presence in the country, which increases South Africa's international standing, strengthens its economy and makes it better able to withstand sanctions and other forms of international pressure. Activists holding these views conclude that foreign companies must withdraw from South Africa. Arguments offered by those on the other side of the debate have evolved over the years. At first, business officials responded that the activists' concerns dealt with foreign policy issues and were more properly the province of the U.S. government than of American business. Later, this counter-argument was supplanted in large part by an emphasis on the jobs, training and advancement opportunities U.S. firms were creating for black South Africans. Still later, they pointed to business support for projects in the black community as further proof that companies were a progressive force for change in South Africa that was quietly undermining apartheid. Thus, business officials and others endorsing this view of the positive impact of U.S. firms in South Africa conclude that companies not only should remain but also should expand their operations. As the two sides of the debate were considered at corporations' annual meetings, in face-to-face discussions between activists and management, on college campuses, among institutional investors, in the halls of Congress and, more recently, in state legislatures, it became increasingly complex; additional actors joined in, and more information became available on conditions in South Africa. Some institutional investors sought compromise positions between the two poles of the debate. They began to consider such alternatives as calling for non-expansion by U.S. companies in South Africa, or for corporate policies prohibiting the sale of strategic goods or granting of loans to the South African government, or for stepped up efforts by U.S. firms to improve their labor practices. Although some activists came to support these compromise positions, they did so largely as a tactical maneuver to mobilize a broader coalition on the issue of U.S. investment in South Africa that, they hoped, could later be persuaded to press for withdrawal by corporations. With the exception of increased efforts to improve labor practices, none of the alternative positions has attracted significant business support. The intensity and visibility of the debate has varied greatly over the years, responding to events in South Africa and the availability of specific information on U.S. corporations' activities there. While a core of activist groups opposed to U.S. investment in South Africa is all that is needed to keep the issue alive, turbulent events such as the demonstrations in Soweto in 1976 and the bannings, detentions and death in detention of black consciousness leader Steve Biko in 1977 quickly expand public support for their position. Activists also use information on specific bank loans to Pretoria, sales of strategic goods to the government and, most recently, U.S. corporate involvement in South Africa's nuclear energy program to mobilize support for their cause. Because nothing of similar magnitude to the attention-grabbing events of 1976 and 1977 has occurred in recent years, the intensity of the debate has declined. Nevertheless, interest in the debate remains higher than it was before the Soweto demonstrations. The Effects of the Debate If success is measured solely in terms of getting U.S. companies to withdraw from South Africa or to stop selling strategic goods to Pretoria, the anti-investment activists have not fared well. Fewer than five companies have credited the debate with playing a role in their decision to sell off operations in South Africa-- although activists suspect that a few other companies have withdrawn at least in part because of the debate but prefer to attribute the sale of their operations to economic conditions. Few companies have gone beyond the U.S. Commerce Department restrictions on sales to the South African government. Moreover, the available evidence suggests that the debate has not adversely affected business decisions to expand in South Africa. In the 15 years from 1966 to 1981, for example, the value of U.S. corporations' investment in South Africa more than quintupled--a rate of growth exceeding that of total American investment throughout the world.

But the impact of the debate cannot be assessed in these terms alone. Clearly, the policies and practices of many companies and institutional investors would be different today had the controversy over U.S. investment in South Africa not occurred. At times, these changes were in response to direct pressures from students, legislators, shareholders or customers. But many changes in policies and practices also came about once decisionmakers within universities, insurance companies, foundations, public pension funds, banks and corporations began to examine internally the issues raised by the public debate. In these cases, the debate served more as a catalyst in focusing the attention of institutional investors and corporations on conditions in South Africa and the proper role of U.S. companies there than as a source of pressure demanding a particular response. For many American companies with subsidiaries in South Africa, the major outcome of the debate has been the signing of the Sullivan principles of equal employment opportunity and subsequent efforts to implement them. With varying degrees of commitment, more than 140 companies are now participating in an effort that sets minimum labor standards for their South African operations, requires them to report on their progress, and publishes an annual public evaluation of how well they are doing. Since their introduction in 1977, the principles have been amplified three times, and each amplification committed companies to consider broader social issues in South Africa. The reporting format has also become more precise and, to increase the credibility of the information provided by the companies, in 1982 for the first time companies were required to have certain portions of their reports on progress in implementing the principles audited. Rating criteria also have been made tougher, and companies are finding that they must increase their efforts each year if they are to continue to find themselves in the top rating categories. These changes have come about through an interplay among Rev. Sullivan, the Arthur D. Little consultants hired to evaluate the questionnaires that the companies complete, and a handful of the most active companies in the Sullivan effort. Many of the companies pledged to the effort have opposed each amplification of the principles as well as the continuing tightening of the rating criteria. Nevertheless, only one company has elected to remove its name from the list of firms supporting the Sullivan principles. The companies' continued adherence to the Sullivan principles despite misgivings can be explained in large part by their desire to defuse pressures for U.S. corporations' withdrawal from South Africa. They recognize that the development of the Sullivan principles in 1977, and their subsequent incorporation in the investment and proxy voting guidelines of major institutional investors, helped to undercut the groundswell of support for withdrawal that had been building after Soweto.

But corporate support also derives from a small constituency within companies that agrees with most of the goals and actions called for by the Sullivan principles. In discussions with managers of American firms in both the United States and South Africa, IRRC has found several who support the principles for the leverage they give them within their own companies when arguing for more progressive labor practices. The argument that "we have to do it to get a good Sullivan rating," while by no means totally persuasive, can tip the decisionmaking scales at times. Many of these managers also value the exchange of practical, goal-oriented information at signatory meetings and the support they get from peers at other companies in their efforts to implement the principles. Many companies now disclose an unprecedented amount of information on the labor practices of their subsidiaries in South Africa, in response to shareholder resolutions or questions from institutional investors, with a hope of answering critics and showing what they have accomplished in South Africa. Several companies release periodic reports detailing their South African subsidiaries' wage scales, black training and advancement programs and support for projects in the black community. Frequent meetings with shareholders concerned over the South Africa issue have at times resulted in disclosure of additional information and have exposed management to alternative viewpoints. The portion of the debate that focuses on the question of foreign loans to South African borrowers has affected a number of U.S. banks. While no major bank has gone as far as the activists would like and adopted a policy eschewing all South African loans, several others have gone part of the way by formally agreeing not to lend to the South African government and its public corporations, and others are unofficially following the same policy in practice. Significantly, U.S. banks have not publicly singled out the government of any other foreign country in a similar fashion. These new lending policies have contributed to the fact that U.S. bank loans to the South African public sector are at a lower level today than in 1977. The debate has also affected institutional investors. For many, it provided the impetus to break with the "Wall Street Rule" for the first time and consider opposing management on shareholder resolutions related to a company's operations in South Africa. Outside pressures pushed some investors--universities and public employee pension funds in particular--to adopt proxy voting policies. In the wake of widespread student demonstrations on American campuses in the late 1970s, numerous universities adopted policies to guide their proxy voting on South Africa-related issues and, less frequently, their investment decisions as well. To implement the policies, many schools established advisory committees comprised of students, faculty and administrators that continue to function.

Some insurance companies and a few of the major foundations also departed from the Wall Street Rule over the issue of South Africa. But in these cases the impetus came from inside the organizations, when decisionmakers whose attention was drawn to the issue of U.S. corporate involvement in South Africa because of the debate considered whether they should attempt to influence corporate behavior through their role as shareholders. Many of those that concluded they should become more active on the South Africa issue adopted proxy voting guidelines and established committees to carry them out. Activists involved in the debate have responded in several ways to the reactions of companies and investors. Many of them criticize the Sullivan principles as well as investor guidelines incorporating the notion that companies can be a progressive force in South Africa. Companies should withdraw, they maintain, and an effective way to cause them to do so is through the public pressure of stock divestment by investors. Some activists, while keeping withdrawal as the ultimate goal, have scaled down their expectations of what can be achieved in the near term. Thus, initial calls for banks to stop making loans to all South African borrowers have now been replaced by demands that loans to the South African government be stopped, leaving the issue of private sector loans for sometime in the future. Failing to achieve withdrawal by corporations, some activists now press companies to adopt non-expansion policies or to agree not to sell strategic goods to the South African government. In an effort to increase the pressure on companies, anti-investment activists have attempted, with mixed results, to link the issue of U.S. investment in South Africa with other issues. They have been most successful within state legislatures and among unions where they occasionally have been able to piggyback the South Africa issue onto growing support for reinvesting state and union funds in enterprises that contribute to local economies and provide jobs for American workers. Attempts to attract increased support by working with those opposed to U.S. bank lending to Chile or redlining by banks and insurance companies in this country have been notably less successful. An area to watch is whether activists will be able to attract the support of those opposed to the nuclear arms race between the superpowers to their recently launched campaign against U.S.-South Africa nuclear cooperation. If they do, their next effort may be to mobilize this broader constituency to oppose U.S. corporate investment in South Africa in non- nuclear areas as well. All three sets of actors in the debate--business, institutional investors and activists--are affected by decisions made in Washington. The sweeping restrictions imposed by the Carter administration in 1978 on the sale of any U.S. goods to the South African police and military and the licensing requirements adopted in 1976 and 1977 governing the sale of computers to certain government departments had a direct economic impact on several U.S. firms. These restrictions also provided partial backing for activists' arguments that the business dealings of U.S. companies in South Africa have a significant strategic value to the government in Pretoria. At the same time, several institutional investors, with the actions of the federal government as precedents, found it easier to adopt proxy voting and investment guidelines critical of companies making strategic sales to the South African government. By the same token, the Reagan administration's easing of several of these trade restrictions has had repercussions on the debate. For business, the word from Washington is that sales to South African government buyers are no longer automatically considered to provide support for apartheid. Although the dollar value of sales affected by this shift may be small, it provides a great boost for those who argue that U.S. firms can be in South Africa and not contribute to the maintenance of apartheid. Activists have reacted to the shift in U.S. government policy by devoting time and resources to trying to stop the further lifting of trade restrictions. And the less hospitable climate in Washington has encouraged activists to move to the state and local levels to build support for their positions. For institutional investors, however, the policy shifts of the Reagan administration have had little impact. Investors with guidelines covering sales of strategic goods by U.S. companies have kept them, and it is not likely that many will ease them in the future. The Future of the Debate The controversy over U.S. investment in South Africa is here to stay and is showing signs of heating up again after a relatively quiet period in the early 1980s. Three state legislatures in 1982 placed restrictions on the investment of state funds in companies doing business in South Africa, and several others are considering similar legislation. At the same time the debate is moving into this new arena, it is being maintained in others by an institutionalization of concern that is one of the legacies of the escalation of the debate in the late 1970s following Soweto. A major finding of this study is that the policies adopted by companies, banks and institutional investors at the height of the debate have eroded little in the quieter days of the 1980s. These policies have acquired a legitimacy and internal base of support that help to guarantee their survival. Outside pressures, of course, play a role in ensuring that policies are not repealed- -witness the protest at Harvard in 1982 when the university attempted to modify its South African investment policy--but they do not account for it entirely. Because of the institutionalization of the debate, its future is likely to look very much like its recent past. Activists will continue to propose shareholder resolutions challenging U.S. companies and banks doing business in South Africa. Institutional investors, adhering to their proxy voting guidelines, will continue to vote on them much as they have thus far. There will be occasional meetings between concerned investors and management, and several companies will update their reports on the labor practices of their South African subsidiaries. A few more companies will sign the Sullivan principles, if only to avoid further shareholder pressure over the issue. The majority of companies will keep reporting on their progress in implementing the principles and will be rated on the basis of criteria made a bit tougher each year by Rev. Sullivan and his consultants at Arthur D. Little. And activists calling for the divestment of stock in companies doing business in South Africa are likely to have continued success at the state and local levels, especially if the bills passed in Connecticut, Michigan and Massachusetts and the city of Philadelphia in 1982 indicate the beginning of a trend rather than isolated events. There are a few signs, however, that at least some of the participants in the debate may attempt to move it in a new direction. A small number of activists and corporate representatives are beginning to stake out a new position in the debate, a position that accepts that U.S. companies will remain in South Africa but argues that they should seriously strive to influence the pace and direction of social and political change in the country directly. In some ways, this bears an affinity to the current "business as a progressive force" position. But it differs significantly by arguing that improvements in the workplace and assistance to black community projects are not enough, and that the situation in South Africa now requires a higher business profile in areas not usually thought of as a proper concern of U.S. firms operating overseas. This new development in the debate is also some distance from the position of those calling for corporations' withdrawal. It challenges their assumption that the net result of U.S. business activity in South Africa is always to strengthen apartheid, and it clashes with a widely accepted analysis that companies benefit economically from the structure of apartheid and, therefore, can hardly be expected to seek its dismantling. As has been true so often in the past, this new element in the debate comes in response to recent developments in South Africa. And the impact of these events in South Africa has been magnified by the increased awareness and sophistication of many of the U.S. participants in the debate, many of whom have benefited in recent years from their own visits to the country as well as from the marked increase in the amount of analysis of the situation in South Africa that is now available. Since 1979, a series of legislative and policy changes by Pretoria have created new opportunities as well as new obstacles to companies acting as a progressive force in South Africa. On the one hand, the government has begun to seek the counsel of the business community to an extent never before seen in South Africa. It has also repealed many of the regulations blocking black training and advancement and trade union organization. Yet, at the same time, Pretoria has proposed harsh new laws restricting even more the movement of the majority African population within the country. And, after lengthy discussion, it has come up with a new constitutional plan that includes coloreds and Asians in a white-dominated Parliament while adamantly excluding Africans. At the same time the South African government has been busy with these legislative changes, the black labor movement has emerged as a major force in the nation's factories and, many believe, may someday seriously disrupt industry in an effort to achieve political and social gains. The major black liberation group-- the African National Congress--has also steadily increased its sabotage attacks on government buildings, on fuel and transportation facilities and, at the end of 1982, on a nearly completed nuclear power plant outside Cape Town. In response to the enormous gap that now exists between what the white government in Pretoria is willing to give and what the African majority wants, some members of the South African business community have begun to speak out. They have urged the government to drop its opposition to equal and integrated education, and to ease rather than tighten restrictions placed on the free movement of Africans within the country. Some business leaders--although not many--have begun to urge Pretoria to give blacks a greater voice--though not a majority voice--in the running of the country. American companies, institutional investors and activists have paid close attention to these developments. During 1982, a few of the company representatives most committed to the Sullivan effort began to discuss among themselves whether they should become more active on issues that until very recently were considered non-business matters. They sense an opportunity to join with and contribute to the lobbying effort begun by progressive South African businesses--an effort that some American businessmen are coming to believe would be in their own long- term interests. This new direction in the debate has obvious attraction for those churches, trade unions and others that are *ot inalterably wedded to the withdrawal position but do not believe that workplace reform alone constitutes meaningful change in South Africa. Some of them, therefore, are likely to press U.S. firms to be more outspoken on broader political and social issues in South Africa. One such attempt clearly is the letter that the United Church of Christ and the Interfaith Center recently sent to companies urging them to speak out against new government restrictions on the movement within the country by Africans. But this tentatively emerging position in the debate may never gain widespread acceptance. In the first place, the majority of American firms are not likely to abandon their apolitical stance in South Africa. While they perceive the possibility of long-term risks to their investments if change does not come, they also believe that painful short-term costs may ensue from antagonizing Pretoria. There is also the question of how activists and institutional investors could measure corporations' efforts in the often quiet world of lobbying on political and social issues. If monitoring working conditions within a company's South African subsidiary is difficult, the problems involved in evaluating the efforts a company expends on behalf of broader social and political reform are even more so. Because nearly all institutional investors appear to be satisfied with rather straightforward policy guidelines on the South Africa issue--Has the company signed the Sullivan principles? Does it lend to the South African government? Does it produce strategic goods?--it is unlikely that they would become a major source of pressure on companies to move toward this new position in the debate. But even as some companies, activists and institutional investors begin to invest the time and effort required to move the debate in a new direction, the possibility remains that events in South Africa will derail the effort. Should there be another wave of repression by the government in the face of massive black resistance to apartheid, the debate would quickly polarize once again as demands escalated rapidly for corporations to withdraw.

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APPENDIX A STATEMENT OF PRINCIPLES OF U.S. FIRMS WITH AFFILIATES IN THE REPUBLIC OF SOUTH AFRICA (The original "Statement of Principles" has been refined and expanded since Rev. Leon Sullivan drafted it and 12 corporations signed it in March 1977. The most recent additions, made in November 1982, are underlined below.) Principle I. Non-segregation of the races in all eating, comfort and work facilities. Each signator of the Statement of Principles will proceed immediately to: * Eliminate all vestiges of racial discrimination. * Remove all race designation signs. * Desegregate all eating, comfort and work facilities. Principle II. Equal and fair employment practices for all employees. Each signator of the Statement of Principles will proceed immediately to: * Implement equal and fair terms and conditions of employment. * Provide non-discriminatory eligibility for benefit plans. * Establish an appropriate and comprehensive procedure for handling and resolving individual employee complaints. * Support the elimination of all industrial racial discriminatory laws which impede the implementation of equal and fair terms and conditions of employment, such as abolition of job reservations, job fragmentation, and apprenticeship restrictions for blacks and other non-whites. * Support the elimination of discrimination against the rights of blacks to form or belong to government registered and unregistered unions and acknowledge generally the rights of blacks to form their own unions or be represented by trade unions which already exist. " Secure rights of black workers to the freedom of association and assure protection against victimization while pursuing and after attaining these rights.

* Involve black workers or their representatives in the development of programs that address their educational and other needs and those of their dependents and the local community. Principle III. Equal pay for all employees doing equal or comparable work for the same period of time. Each signator of the Statement of Principles will proceed immediately to: " Design and implement a wage and salary administration plan which is applied equally to all employees, regardless of race, who are performing equal or comparable work. " Ensure an equitable system of job classifications, including a review of the distinction between hourly and salaried classifications. " Determine the extent upgrading of personnel and/or jobs in the upper echelons is needed, and accordingly implement programs to accomplish this objective in representative numbers, ensuring the employment of blacks and other non-whites at all levels of company operations. " Assign equitable wage and salary ranges, the minimum of these to be well above the appropriate local minimum economic living level. Principle IV. Initiation of and development of training programs that will prepare, in substantial numbers, blacks and other non-whites for supervisory, administrative clerical and technical jobs. Each signator of the Statement of Principlies will proceed immediately to: " Determine employee training needs and capabilities, and identify employees with potential for further advancement. " Take advantage of existing outside training resources and activities, such as exchange programs, technical colleges, and similar institutions or programs. " Support the development of outside training facilities, individually or collectively--including technical centers, professional training exposure, correspondence and extension courses, as appropriate, for extensive training outreach. * Initiate and expand inside training programs and facilities. Principle V. Increasing the number of blacks and other non-whites in management and supervisory positions.

Each signator of the Statement of Principles will proceed immediately to: " Identify, actively recruit, train and develop a sufficient and significant number of blacks and other non-whites to assure that as quickly as possible there will be appropriate representation of blacks and other non-whites in the management group of each company at all levels of operations. * Establish management development programs for blacks and other non-whites, as needed, and improve existing programs and facilities for development management skills of blacks and other non-whites. " Identify and channel high management potential blacks and other non-white employees into management development programs. Principle VI: Improving the quality of employees' lives outside the work environment in such areas as housing, transportation, schooling, recreation and health facilities. Each signator of the Statement of Principles will proceed immediately to: * Evaluate existing and/or develop programs, as appropriate, to address the specific needs of black and other non-white employees in the areas of housing, health care, transportation and recreation. " Evaluate methods for utilizing existing, expanded or newly established in-house medical facilities or other medical programs to improve medical care for all non-whites and their dependents. " Participate in the development of programs that address the educational needs of employees, their dependents, and the local community. Both individual and collective programs should be considered, in addition to technical education, including such activities as literacy education, business training, direct assistance to local schools, contributions and scholarships. " Support changes in influx control laws to provide for the right of black migrant workers to normal family life. " Increase utilization of and assist in the development of black and other non-white owned and operated business enterprises including distributors, suppliers of goods and services and manufacturers. With all the foregoing in mind, it is the objective of the companies to involve and assist in the education and training of large and telling numbers of blacks and other non-whites as quickly as possible. The ultimate impact of this effort is intended to be of massive proportion, reaching millions.

PERIODIC REPORTING The Signatory Companies of the Statement of Principles will proceed immediately to: * Report progress on an annual basis to Reverend Sullivan through the independent administrative unit he has established. * Have all areas specified by Reverend Sullivan audited by a certified public accounting firm. * Inform all employees of the company's annual periodic report rating and invite their input on ways to improve the rating.

APPENDIX B SIGNERS AND ENDORSERS OF THE SULLIVAN PRINCIPLES The following table lists alphabetically the 146 companies that had either signed or endorsed the Sullivan principles as of Nov. 1, 1982, when Arthur D. Little Inc. issued its sixth report on the progress of the Sullivan signatories in implementing the principles. (Companies may endorse, rather than sign, the Sullivan principles, if they have 10 or fewer employees in South Africa or hold less than 19 percent of the equity of their South African affiliates. Unlike signatories, endorsers are not required to file annual progress reports with Arthur D. Little.) The sixth report assigned each of the endorsers and signatories to one of the following seven categories: Category I Category II Category III Ill-A III-B Category IV IV-A IV-B IV-C Category V Category VI -- Making good progress -- Making progress -- Needs to become more active -- Received low point rating -- Does not meet one or more of the nine basic requirements -- Endorsers -- With no employees -- With 10 or fewer employees in a subsidiary or operation -- Holds less than 19 percent equity in its South African operation -- New signatories--companies that signed the principles too late to be rated in this reporting period -- Signatories that did not report Companies with more than one subsidiary or affiliate in South Africa receive separate ratings for each operation. Thus, several of the companies listed below have as many as four different ratings.

AFIA Worldwide Insurance Abbott Laboratories American Airlines Inc. American Can Co. (Butterick Fashion Marketing Co.) American Cyanamid Co. American Express Co. American Hospital Supply Corp. American International Group Inc. Armco Inc. Ashland Oil Inc. Baker International Corp. (Envirotech Corp.) The Black & Decker Manufacturing Co. Borden Inc. Borg-Warner Corp. Bristol-Myers Co. Bundy Corp. Burroughs Corp. CBS Inc. Cigna Corp. (Insurance Co. of North America) CPC International Inc. Caltex Petroleum Corp. Carnation Co. Caterpillar Tractor Co. Celanese Corp. Champion Spark Plug Co. The Chase Manhattan Corp. Citicorp Clark Equipment Co. The Coca-Cola Co. Colgate-Palmolive Co. Control Data Corp. Cooper Industries Inc. Crown Cork & Seal Co. Inc. Cummins Engine Co. Inc. D'Arcy-MacManus & Masius Worldwide Dart & Kraft Inc. Deere & Co. Deloitte Haskins & Sells Dominion Textile Inc. Donaldson Co. Inc. The Dow Chemical Co. E.l. du Pont de Nemours & Co. Eastman Kodak Co. Engelhard Corp. Exxon Corp. FMC Corp. Federal-Mogul Corp. Ferro Corp. The Firestone Tire & Rubber Co. John Fluke Manufacturing Co. IlIA II IVB II I, VI IVB II IIIB II, IVB, V IliA, VI IIIB lI II VI II II II IIIB VI III IVA ,II II VI IVB V I IVC V IV V1 V I V I VI lIA IIIB IliA Fluor Corp. Ford Motor Co. Franklin Electric Co. Inc. GAF Corp. Gang Nail Systems Inc. Gates Rubber Co. General Electric Co. General Motors Corp. The General Tire & Rubber Co. The Gillette Co. Goodyear Tire & Rubber Co. W.R. Grace & Co. Grolier Inc. Walter E. Heller Overseas Corp. Heublein Inc. Hewlett-Packard Co. Honeywell Inc. Hoover Co. Hyster Co. International Business Machines Corp. International Harvester Co. International Minerals & Chemical Corp. International Telephone and Telegraph Corp. The Interpublic Group of Cos. Inc. Johnson Controls Inc. Johnson & Johnson Joy Manufacturing Co. Kellogg Co. Eli Lilly and Co. Loctite Corp. Marriott Corp. Marsh & McLennan Co. Masonite Corp. McGraw-Hill Inc. Measurex Corp. Merck & Co. Inc. Mine Safety Appliances Co. Minnesota Mining and Manufacturing Co. Mobil Oil Corp. Monsanto Co. Motorola Inc. NCR Corp. Nabisco Inc. Nalco Chemical Co. Nashua Corp. A.C. Nielsen Co. North Carolina National Bank Norton Co. Norton Simon Inc. (Avis Rent A Car System Inc.) Olin Corp. Oshkosh Truck Corp. Pan American World Airways Inc. The Parker Pen Co. Pennwalt Corp. Pfizer Inc. Phelps Dodge Corp. Phibro Corp. Phillips Petroleum Co. Raytheon Co. (The Badger Co. Inc.) Reader's Digest Association Inc. Revlon Inc. Rexnord Inc. R.J. Reynolds Industries Inc. (Del Monte Corp.) Richardson-Vicks Inc. A.H. Robins Co. Inc. Rockwell International Corp. Rohm and Haas Co. Schering-Plough Corp. 1, IIIB, VI Sentry Insurance Mutual Co. IliA, IIIB Simplicity Pattern Co. Inc. The Singer Co. VI SmithKline Beckman Corp. I, I1 Sperry Corp. VI Squibb Corp. The Standard Oil Co. (Ohio) I (Kennecott Corp.) Stanley Works 11 IliA Sterling Drug Inc. IIIB V V VI lI IIIB Ilia I IIIB 1, IIIA I I IIA Ilia IIllA IIIB V1 IlIA 1VB 11, IliA, 11113, IVB TRW Inc. Tampax Inc. Tenneco Inc. (J.I. Case Corp.) J. Walter Thompson Co. Time Inc. Tokheim Corp. The Trane Co. Transworld Corp. Twin Disc Inc. Union Carbide Corp. Uniroyal Inc. United Technologies Corp. (Otis Elevator Co., Carrier Corp.) The Upjohn Co. Warner Communications Inc. Warner-Lambert Co. Westinghouse Electric Corp. Wilbur-Ellis Co. Xerox Corp. IVA II, VI IVA IVB II IVB I, II II,VIVI II IVB IliA VI lIliA I V IVA II II II VI I II II, VI V II IVA II V VI IVB IIlB IIIB IVB IVB I1 If, IVB VI II, VI I, lIlIA VI 11 I1 Ila IVA

APPENDIX C THE STUDY COMMISSION ON U.S.POLICY TOWARD SOUTHERN AFRICA In 1981 the Study Commission on U.S. Policy Toward Southern Africa concluded a two-and-a-half-year study project, financed by the Rockefeller Foundation, with recommendations to American companies, shareholders, and the U.S. government on how best to promote peaceful change to end apartheid. Ford Foundation President Franklin A. Thomas served as chairman of the commission, which included 10 other U.S. foundation, education, business and labor leaders. It released its findings and recommendations in May 1981 in a book-length report entitled South Africa: Time Running Out. The commission's recommendations to U.S. corporations were three-fold. First, it wrote, "U.S. corporations and financial institutions operating in South Africa should commit themselves to a policy of nonexpansion, and those businesses not already there should not enter the country." Second, it said, companies in South Africa should set aside "a generous proportion" of their financial resources for projects to improve the lives of black South Africans. Finally, the commission urged all companies operating in South Africa to subscribe to the Sullivan principles. The report suggested that these three measures be implemented voluntarily "for the time being," but it said the U.S. government should also "strongly endorse them as an important part of overall U.S. policy." Moreover, the report said, these policies should remain in effect "until a new system based on a genuine sharing of political power is put into effect in South Africa." No new expansion or entry: In proposing that business now active in South Africa adopt non-expansion guidelines, the commission rejected calls for U.S. corporations to pull out of South Africa. At this time, the report said, other companies would merely fill the gap and withdrawal would not "produce the kind of changes black South Africans want and the United States supports." Besides, the report argued, "the presence of foreign companies does bring tangible benefits to a segment of the black population." Nonetheless, the Commission supported a moratorium on new investment because: A moratorium on new investment would align U.S. companies more clearly and strongly with the declared aims of U.S. policy. It would create an economic incentive--removal of the ban--for American businesses to work for a more just society in South Africa. Yet black South Africans would continue to benefit from their presence because, although the corporations would grow more slowly, they would still provide employment, training, and social benefits for their employees and dependents. Equally important, the South African government would no longer be able to interpret and publicize new American investment and increased lending-- newsworthy items in South Africa--as signaling the United States' underlying acceptance of the status quo. Although there may be no difference in the potential benefit that blacks derive from old and new investment, the negative symbolism of new investment is greater and, in our judgment, outweighs its benefits. The commission suggested that "non-expansion" could be defined as "limiting new investment--and the level of lending in the case of banks and other financial institutions--to amounts necessary for maintaining a company's market share," but it emphasized that "corporations should be able to make capital outlays to keep pace with product refinements and market growth." The commission wrote, however, that it opposed any expansion--such as diversification into new lines of business--"that clearly steps outside these boundaries." Examples of diversification that would violate the non-expansion proposal, it said, "would be an oil company deciding to turn to coal or uranium mining, a corporation that makes only automobiles building a new plant to make trucks, or a drug manufacturer branching into cosmetics." Signing the Sullivan principles: The commission found that many of the tangible benefits that foreign companies have provided to the black population have come about through implementation of the Sullivan principles. It said that the code had made American and South African managers of U.S. companies more aware of the need to introduce reforms and had extended the concept of corporate social responsibility to some non-U.S. firms. The report recommended that any U.S. companies in South Africa that had not signed the principles--more than 50 percent of the U.S. companies operating there--should do so. It also proposed that a more effective monitoring system be established for the principles, despite the difficulties involved. It noted that the existing system has no provision for on-site inspection of company facilities and said that black employees and their unions should be involved in the monitoring process. Social development expenditure: The "special circumstances" of South Africa require a higher-than-usual level of corporate expenditures for blacks, the commission found, and it recommended that companies establish a "social development expenditure standard" to ensure that they discharge their obligations. Using the standard, companies would set aside "a generous proportion of corporate resources" to improve the lives of blacks. Ideally, the report said, all corporations should observe the same standard, based on some combination of profit, sales and number of employees. In practice, it noted, that may not be possible, just as it has not been possible to develop a uniform standard for corporate philanthropy in the United States. In such cases, the report said, the next best approach may be to build on the individual standards for corporate giving within the United States. It suggested that each corporation might set aside at least twice as much each year from its net pretax profits, in proportion to the size of its South African operations, as it does for corporate philanthropy in the United States. Shareholder activism: The commission also said that shareholders had a role to play in helping to assure that companies adhered to these guidelines. The commission recommended that shareholders should try to persuade companies to adopt the non-expansion and no-new-entry standards, the social development expenditure standard and the Sullivan principles. If a company is unresponsive, the report said, shareholders should consider selling most of their stock but holding on to a few shares in order to retain a voice at the annual meeting.

Investor Responsibility Research Center Washington, D.C.