Shilling For Profit: A Case Study Of ALEC’s Campaign Against Divestment From Apartheid South Africa

As the movement for public and private divestment from apartheid South Africa grew throughout the United States in the 1980s, the American Legislative Exchange Council (ALEC) aggressively mobilized against South African divestment, stymying state and federal efforts to sanction, isolate, and divest from the Pretorian regime, according to documents newly uncovered by People For the American Way and the Center For Media and Democracy.

ALEC used state and federal policy papers, monthly newsletters, “fact-finding” missions, panel discussions led by lobbyists on the payroll of the South African apartheid regime, and other means to pursue an anti-divestment agenda, one that relied solely on “corporate beneficence” to pressure the country to reform. This effort, in turn, was funded by corporations that were heavily invested in South Africa and had the most to lose from divestment.

In 1984, ALEC described itself as the “nation’s oldest and largest individual membership organization of state legislators and Members of Congress, with over 2,000 members.” ALEC’s reach and access to policymakers was then, just as it is now, formidable.

ALEC used this access to lobby state legislators and even key members of the Reagan administration to stand against divestment, playing a key role in delaying meaningful U.S. action to pressure the apartheid regime.

The Serious Threat of Social Investing

In 1984, ALEC held a “Celebrity Golf Tournament” at its annual meeting in San Diego. The tournament’s champion, a financial services company representative, won a silver tea set donated by the Zale Corporation, a diamond retailer with operations in South Africa. For hitting the longest drive, state senator John Donley of Colorado received a go-cart replica of an Indianapolis 500 race car donated by Texaco, Inc., an oil company with operations in South Africa. ALEC’s annual fundraising report that year featured a photo of a state representative from Missouri standing alongside then-ALEC executive director Kathleen Teague as they admired these prizes. “ALEC,” the report noted, “serves as a liaison between lawmakers and the business community.”

Protecting corporate interests was (as it still is) ALEC’s raison d’etre, and corporate interests were severely threatened by the South African divestment movement. Large American corporations including Exxon, the Dow Chemical Company, IBM, and Pfizer Inc. held substantial, high-yielding assets in South Africa. All of these were members of the American Legislative Exchange Council.

By 1985, the United States was South Africa’s largest trading partner and the source of one-third of the country’s international credit. American corporations controlled roughly 50 percent of South Africa’s oil industry; 75 percent of its computer industry; and 23 percent of its auto industry. U.S. investors held approximately $8 billion in shares in South African mining industries. The divestment movement directly threatened the bottom lines of many major ALEC corporations.

Yet, as ALEC made clear in its literature at the time, the divestment movement indirectly threatened much more than just profits made from South Africa. The possibility of “social investing” taking off in the United States threatened profit margins of corporations across the world. “The underlying problem is the strategy itself,” ALEC posited in a 1983 policy paper. “Although South Africa is the initial target it is not likely to be the last… If successful on the South African issue, these activists can be expected to broaden their disinvestment strategy. And, it will be increasingly difficult to contain because a precedent for it will have been established by state law.”

With so much on the line, ALEC and ALEC corporations knew they had to act swiftly to squash divestment efforts.

ALEC and the Reagan White House

In 1983, ALEC distributed a “legislative update” to its members and coalition partners titled, “The States and South Africa: A Study of the Disinvestment Issue.” The 16-page memorandum was published on ALEC letterhead and edited by J. Daniel Bray, the director of ALEC’s research department – a department that, according to ALEC fundraising literature from 1982, “strive[d] to facilitate the exchange of information and greater cooperation between the private sector and state government.”

ALEC distributed the memorandum to key members of the Reagan administration, with astounding results. In an article published in ALEC’s monthly newsletter in January 1984, the organization boasted of the impact the memorandum had on administration policy, writing “Since the publication of … ‘The States and South Africa: A Study of the Disinvestment Issue,’ several prominent leaders and groups, including the U.S. Department of State, the Department of Agriculture, the United States Trade Representative, and the Secretary of Commerce have gone on record against divestiture.”

ALEC had good reason to assume that it had directly influenced Reagan administration policy on divestment: Both U.S. Trade Representative William E. Brock and U.S. Secretary of Commerce Malcolm Baldridge wrote personal letters to ALEC’s executive director, Kathleen Teague, to assure her of their opposition to divestment.  Baldridge’s letter directly referenced ALEC’s white paper:

We urge American firms doing business there to improve their obligation to social responsibility. Without mandating that they must do so, we will continue to encourage U.S. companies to voluntarily adhere to the Sullivan principles, which are committed to equal pay in employment practices, non-segregation of work facilities, and the training and promotion of blacks. Your Legislation Update does an excellent job of highlighting the accomplishments of U.S. firms in promoting real social change in South Africa. I hope that State and local legislators carefully consider these accomplishments.[emphasis added]

ALEC’s ties to the Reagan administration ran deep. Every year for the first six years of his presidency, Reagan addressed ALEC’s annual “Washington Briefing,” which brought state legislators to Washington to discuss White House initiatives and “solicit their active support back home.” In the words of one White House official, the process helped identify “a cadre of effective spokesmen for the president’s policies.”

ALEC demanded reciprocation for such access to state lawmakers. A 1986 White House memo discussed ALEC’s request that the Reagan administration hold “some sort of ‘event’ for the top players in each state” working against South African divestment because “ALEC believes some sort of ‘reward’ or recognition would be useful” in keeping up morale for anti-divestment efforts.

Yet even the Reagan administration, which staunchly opposed divestment throughout the ‘80s, was viewed by many in ALEC to have “sold out” when Reagan issued a toothless executive order in 1985 prohibiting certain trade with South Africa.

ALEC and the States

As a state-based organization, ALEC was also tremendously effective at pushing anti-divestment policies at the state legislative level. In the previously mentioned 1986 White House memo, an administration official confirmed that “ALEC is providing most of the intellectual firepower to those state legislators fighting disinvestment petitions.”

One way ALEC provided this “firepower” was by hosting training sessions for ALEC lawmakers led by industry insiders. At its 1983 annual meeting in Philadelphia, ALEC offered a “legislative working session” led by a Mobil Oil Corporation lobbyist and the director of a South African business association whom a South African business magazine later named “the most effective foreign lobbyist in Washington.”

In 1986, ALEC held an “issue workshop” at its annual meeting in Denver titled, “The South African Divestment Movement: 1986 and Beyond.” The workshop was led by International Public Affairs Consultants Inc., a lobbying firm that was on the payroll of the South African government at an annual rate of $390,000.

When divestment legislation was pending in a statehouse, ALEC would disseminate talking points to its members in that state. A front-page article in ALEC’s May 1984 newsletter demonstrated how effective the organization could be at blocking divestment legislation.

“Illinois political observers are convinced,” the article stated, “that the pin that punctured the balloon was the disinvestment economic impact analysis of the Illinois pension fund portfolios prepared by the American Legislative Exchange Council and distributed to House members in the late afternoon on the day before the expected vote.” According to ALEC board member and Illinois House Minority Leader Penny Pullen, because of the ALEC memo, “[the bill’s] central nervous system is dead.” The article went on to explain how ALEC members used similar tactics to thwart divestment bills in Rhode Island and Nebraska.

Polling, the Sullivan Principles, and False Perceptions

In its anti-divestment efforts, ALEC often referenced the polling of professor Lawrence Schlemmer of the all-white University of Natal in Durban to declare unequivocally, as one ALEC article put it, that “black South Africans oppose disinvestment.” Schlemmer’s methodology drew criticism at the time, largely because he ignored the fact that speaking out against apartheid was a jailable offense.[2] In fact, more reliable polls suggested that the opposite was true, and in-depth focus group studies demonstrated that most black South Africans resented the Reagan administration for opposing sanctions and divestment.[3] Yet ALEC relied exclusively on Schlemmer’s study and offered copies of it to lawmakers to counter divestment legislation.

In addition to relying on dubious polling, ALEC consistently referenced the Sullivan Principles in an attempt to prove that the status-quo approach to the South African apartheid was producing results. The Sullivan Principles were a corporate code of conduct drafted in 1977 by the Baptist minister and General Motors board member Leon Sullivan that encouraged corporations to end policies of racial discrimination in the workplace in South Africa (Sullivan later abandoned the principles and called for full divestment). Opponents of divestment frequently touted the Sullivan Principles as an example of how corporations, left to their own devices, could regulate themselves to bring about positive social change.

Companies voluntarily signed the principles and then submitted themselves to a review by an outside auditor based on their performance. By 1985, only 128 American companies out of the 284 operating in South Africa had signed the principles, and over half of those that had signed had either failed to report or received a failing grade.  As evidenced by countless attempts by U.S. corporations to block collective bargaining rights and wage increases in South Africa, corporate commitment to wage improvement for black South Africans wasn’t always sincere. As MIT professor John E. Parsons wrote at the time, “U.S. corporations continue to operate in South Africa because it is profitable. Apartheid makes it very profitable.”

Who Speaks for South Africa?

ALEC’s anti-divestment literature leaned on testimony from a handful of black South Africans – most notably, Zulu Chief Gatsha Buthelezi, the former chief executive officer of the KwaZulu territory and an outspoken critic of sanctions and divestment – to reinforce its stance.

The 1983 memorandum that ALEC sent to the White House quoted Buthelezi at length, substantiating ALEC’s anti-divestment views with statements like, “It is morally imperative that American firms remain active [in South Africa].” In 1985, an ALEC monthly newsletter featured photographs of a meeting between Buthelezi and ALEC’s executive director Kathleen Teague. In the interview with Teague, Buthelezi was unambiguous about his views on divestment: “[Investing in South Africa] is the only way in which foreign companies can contribute something toward advancing the cause of my people.”

Yet despite relying on Buthelezi to validate their claims, ALEC did not disclose that the chief had grown to be regarded by his contemporaries as a government puppet. In an exposé for the New York Review of Books, investigative journalist Michael Massing documented how the more than six hundred groups that made up the United Democratic Front – the largest political umbrella movement that resisted apartheid in the 1980s – though they disagreed on many issues, largely viewed the political organization that Buthelezi founded and led, the Inkatha Freedom Party, “as an arm of the white regime.” Subsequent investigations made by the Truth and Reconciliation Commissions revealed that the South African apartheid regime directly subsidized Inkatha and provided the organization with arms and training to form death squads.

Massing was blunt in his assessment:

Buthelezi spends far more time attacking other black groups than he does the Pretoria government. Throughout Inkatha’s eleven-year history, the organization has rarely attempted to challenge the system. It has undermined consumer boycotts and other kinds of popular protest. Inkatha has also been loath to call strikes, and when it created a labor federation in May 1986 it chose a well-to-do businessman as its leader. Buthelezi, moreover, has campaigned tirelessly against international sanctions.

Indeed, the ALEC-celebrated Buthelezi did campaign tirelessly against sanctions, often on trips arranged by conservative advocacy groups who themselves were funded by corporations active in South Africa.  By 1987, Buthelezi had visited the United States 12 times, and had met one-on-one with President Reagan, Vice President Bush, and Secretary of State George Shultz. When he visited New York on these trips, Buthelezi would often stay in the home of a Mobil Oil executive.

Yet ALEC presented Buthelezi as the undisputed voice of South Africa.

Divestment Then, Divestment Now

On June 30, 1990, Nelson Mandela – recently released from prison – spoke to a crowd of 60,000 people at the Oakland Coliseum, and thanked them for their efforts on behalf of divestment. “It is clear beyond any reasonable doubt that the unbanning of our organization (the African National Congress) came as a result of the pressure exerted on the apartheid regime by yourselves,” Mandela said. Throughout the previous decade, ALEC had been insisting, “Those who believe that divestment of American business in South Africa will speed or encourage social progress and end apartheid are woefully mistaken.”

Eight years after Nelson Mandela was released from prison, ALEC adopted a model resolution, the “Principles of ALEC Regarding ‘Socially Conscious Investments and Controversial Stock Divestiture,’” that doubled-down on its views on social investing.  The resolution states:

Today a particular company or industry may be unpopular, like alcohol or tobacco, but tomorrow’s controversy could be animal rights, nuclear power, defense contractors, the oil industry, etc. Many profitable companies have businesses that could become controversial and setting the precedent today of restricting choice to advance some “cause” will only result in fewer choices for fund managers later as activists for more and more “causes” are encouraged to protest the latest politically incorrect investment.

ALEC’s playbook for opposing South African divestment in the 1980s provides something of a guide for its efforts today to unravel social, economic, and ecological progress.  Notably, as activists mobilize to divest endowment funds from fossil fuel companies and transition to a green economy, ALEC is doing everything in its power to stop these efforts from taking off.

In issue areas from worker’s rights to prison privatization to corporate tax breaks, we can expect that ALEC will continue to use skewed polling and cherry-picked spokespeople to push the agenda of its corporate funders to state and federal lawmakers.


Ben Chang and Tali Ramo contributed to this post.

[1] Source documents were retrieved from the Library of Congress, the Reagan Presidential Library, and the Berkeley Bancroft Library. 

[2] David Hirschmann, “The Impact of Sanctions And Disinvestment on Black South African Attitutdes Toward the United States,” from Sanctioning Apartheid, 1990, Page 92.

[3] David Hirschmann, “The Impact of Sanctions And Disinvestment on Black South African Attitutdes Toward the United States,” from Sanctioning Apartheid, 1990, Page 93-108.