The Count Goes Full On the HMC
According to last week's standings, Jack Morris's $5.5 million arm is bringing in the worst Earned Run Average in the American league for the Toronto Blue Jays. Even in Baseball, this "Price/earnings" ratio doesn't check out. Was his stock inflated by bullish bidders?
The darling of the '91 World Champion Twins' turned down a generous offer to stay in the city where he grew up and became an ex-patriot for an ex-tra million (and is now assuming the persona of an ex-star). With no dividends, and a waning fan-club, questions about his worth remain.
J.M.'s slump makes a wry analogy for the performance of another J.M.: Jack Meyer, a.k.a. Junk issues and Mismanagement. The president of the Harvard Management Corporation has been acquiring unforced errors recently at the rate. Morris was signing autographs in the fair weather of '91.
This other J.M., the one with the M.B.A., has acquired a knack for throwing wild pitches with more at stake than an ERA. With an arm valued a mere $0.75 million, Meyer has the privilege of throwing the $5 billion baseball: the Harvard Endowment. With no instructions from the catcher, Meyer's strikes have become as few as Morris fans.
The recent setback from Marriott's division of its stock is only the latest in a series of blunders that have plagued HMC. The university has a 12% stake in Marriott preferred shares, worth about $35 million. (Incidentally, dividends on this investment to date cannot even pay Meyer's salary.) In an upcoming split, announced last fall, Marriott will become two different companies, Marriott International and Host Marriott of which the latter will absorb most of the company's $2.9 billion debt. The terms of this split, made clear in March, will stop dividends on the preferred stock and allow conversion only to the vastly weakened Host Marriott. Read: big losses for this year's endowment performance.
That the HMC has shown poor descretion in this one investment is not really the issue, despite Meyer and Co.'s continued purchase of shares in Marriott even after the company announced in March that no further dividends would be paid. The stinging embarrassment for Harvard, one of the few institutions of higher learning that has the resources to boast an endowment management corporation, is that its financial performance is not even competitive with the average national university's endowment portfolio.
The irony only gets stickier, as if Meyer was given pine tar for his glove, and his pitches got worse. Sporting the top graduate school of business administration in the country. Harvard cannot even manage its own finances. (An anology with the second-to-last place Oakland A's bloated payroll and its spoiled children, comes to mind.) It has brought to life in the HMC a mutant of one of Crichton's dinosaurs: a Moneysaurus-Rex. In place of the don't-play-God-with-nature message of Jurassic Park, we get a don't-play-ball-with-the-Harvard-endowment.
In the buy-out atmosphere of the 80s, it was okay to pay our top fees for outside help. The protospecies of the financier could be hired for a fee to come in, clean house, do a little short term restructuring, and sell our for a killing Boesky traded inside, and no one objected to Milken's $550 million base salary for his Junk services in 1987.
Now we have a different president, Boesky has since cleaned bathrooms for 11 cents an hour, and Milken is down to his last $125 million. Those in power now disparage of paying big fees. If the ghost of the generation of excess lives on in baseball, it must be exorcised from the investment world, above all in an academic setting. As an institution that prides itself on critical thinking, Harvard must learn to examine itself and its corporate ethics.
Why not draw on a few of its own human resources, as well? To start, is there a need for the HMC, with the Harvard Business School just across the Charles? Why not draw on the few elite who not only exercise their prowess in the business world, but are qualified to teach it to others? A small committee of HBS faculty would not only be in position to examine and redirect the endowment's investment's but could also draw on this direct management of a large corporation as a hands-on teaching tool.
It certainly would be a response to accusations that HBS students spend too much time in the classroom. Why not learn to play as well as watch America's favorite pastime?
The Harvard endowment could and should become a primary case study for Business School students. Extensive human resources could be devoted to analyzing the past and future of the markets at a fraction of the cost of Meyer's salary. Actual management decisions would be only be made by the committee.
Arbitration would never be an issue, and the players would always be on the home team. As tenured professors in the field of management, not only would the committee members have a stake in the performance of the investments (stock options, for committee members could be arranged), their expertise in management would be open to evaluation.
Given the current state of the endowment, making the post season may not be in the cards for a couple of years. However, with a good pitching staff, at least spectator turnout might improve, and the ones that come would be to boo the guy on the mound.