HMC Board Needs Reforms
TO THE EDITORS
Harvard Management Corporation (HMC), the entity responsible for the investment of the University's nearly $7 billion endowment, appears to be materially out of step with the way Harvard usually conducts its business. Some example, listed below, show this divergence.
1. HMC is not subjected to Visiting Committee oversight unlike other members of the Harvard family. In other words, HMC has none of the periodic meetings with whom the legal folks call "disinterested" persons who are charged with asking probing and possibly awkward questions.
2. HMC instead has a Board of Directors of 11 members--far smaller than a Visiting Committee. The Board consists of six officers of the University of HMC, two members of the University's governing board (the Corporation) and three from the financial community.
3. Qualifications and procedures for election as a candidate to be an "outside member" are not in the public domain. In contrast, it is well known that for a Visiting Committee election, interest, knowledge, sponsorship and monetary generosity to Harvard are key.
4. HMC has an aroma of conflict of interest which is never the case with the Visiting Committees. One of the directors of HMC has long been connected with a major securities firm with which HMC has long done business. A previous director was co-Senior Partner of the investment banking firm which sold many hundreds of millions of Harvard bonds as well as conducted an active stock brokerage business.
5. HMC is unresponsive to inquiries and one cannot take much comfort from what little it does release. A large percentage of HMC's investment are in non-marketable securities. The result is that HMC has the freedom to decide when to recognize a profit or a loss.
The "marking to market" which is normal investment procedure is minimized, because so many of the investments are not in publicly-traded securities. This partial avoidance of the discipline of the marketplace should raise red flags. The job of the Visiting Committees is oversight, but at HMC it is nowhere in sight.
6. The expenses of HMC do not seem to be affected by the cost-cutting to which Harvard has subjected one and all in Cambridge for several years. Salaries of many Harvard employees--including the president, officers and professors--seem to be taken as a right. Maybe it is because HMC is not in Cambridge but in downtown Boston!
I urge an overhaul of the governance of HMC. I would propose that individuals who receive a paycheck from Harvard or who are charged with major decision-making at Harvard--with the exception of the University president and the president of HMC--not be on the board. I would propose that directors be elected from 1) the rolls of alumni as is the case with the Overseers and the Alumni Association and 2) one each from the graduate schools and the undergraduate ranks.
Harvard and its reputation are too precious to put at risk by an entity which is maverick to Harvard's way of doing things. If you have your doubts as to what happens when time-tested procedures are not followed, just take a walk over to the Medical schools and take a gander at the power plant!
Harvard calls on thousand of us to raise money in mega-amounts. For us to have the money to give Harvard in most cases means we have knowledge about money. Does Harvard not trust the education it gave us? Albert F. Gordon '59