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Profit Without Honor

The Ethical Investor Universities and Corporate Responsibility By John G. Simon, Charles W. Powers and Jon P. Gunnemann Yale University Press, $2.95 paper

By Michael E. Kinsley

OF ALL THE TRADITIONALLY finessed contradictions in the position of great private universities in America, none is greater than the stake in corporate capitalism by which they largely finance themselves. In this, of course, as in everything, Harvard leads the way, with an endowment twice as large as that of its nearest rival, the college in New Haven. So great is the potential for exploding the myth of the ivory tower, that the failure until very recently of the student movement to make an issue of it is a testament to that ever-exciting phenomenon's instinct for ineffectiveness and tokenism. But even as the battle has been joined this past Spring, that instinct appears ready to reassert itself.

The first major challenge to Harvard over the moral implications of its investment policy came in 1969, when The Crimson published a series of articles about the minority hiring practices of Middle South Utilities, a company of which Harvard was a major stockholder and of which Harvard treasurer George Bennett sat on the Board of Directors. More vexing problems arose with the first Campaign GM in 1970, when the University was faced with several dissident proxy items to vote for or against. After some tepid debate in the community about these confusing new issues, the Corporation voted with management, saying that "In our view, the Board of Directors and not the stockholders of a corporation constitute the proper body for the determination of difficult questions of allocation of resources." Similar movements last year among the stockholders at General Motors and Union Carbide brought a similar response from Harvard.

This year, attention switched to Gulf Oil Corporation and its operation in Portuguese Angola. Gulf oil fields in Angola have profited the Portuguese government by $30 million in the past 16 years, the last ten of which this vestigial European colonial power has spent suppressing black liberation movements in the country, with the help not only of Gulf's $30 million, but of $320 million in military aid during the last 20 years from the U.S. Government. The Angola operation produced one per cent of Gulf's profit last year. Harvard owns 683,000 shares, three-tenths of one per cent, of the company, worth about $18.5 million, making it the largest University stockholder. The University this year faced both a proxy battle over certain disclosure resolutions proposed by the Gulf Angola Project and the demand of a black student group called the Pan-African Liberation Committee that Harvard sell its Gulf stock as a protest against Portuguese colonialism. This demand gained wide student support (including that of The Crimson), it introduced a new word .."divestiture".. into radical rhetoric, and eventually led to the occupation of Massachusetts Hall for a week. Until the PALC campaign, most corporate responsibility buffs had considered divestiture to be a cop-out, and had criticized both Yale and MIT for selling their G.M. stock to avoid having to vote on dissident proxy questions. Harvard eventually decided not to sell its Gulf stock and not to vote for the disclosure resolution--the later on the grounds that it had gotten Gulf's promise to provide all the requested information as long as Harvard didn't vote to require them to do so.

Throughout, the University's statements on its relation to corporate responsibility have been confused, contradictory and evasive. Following the first Campaign GM, President Pusey appointed a committee to study and report on the matter. The so-called Austin Report of January 1971 is a limp, uninformative document, which copies most of its ideas, and much of its language, from an earlier study by the Committee on Governance. "Harvard and Money." Without saying how, it recommends that the University should concern itself with the social behavior of companies it has already invested in on the grounds of maximum financial return, then goes on to suggest the establishment of several more committees plus a "Faculty for the Study of Social Problems," an idea whose time will never come. Over the past year, President Bok and the Corporation have issued and propagated several documents on Harvard investments, revealing escalating anguish but no consistent policy, not even that of expediency.

AS A WORTHY METHOD for Harvard students to expiate some of the guilt they should feel at their comfortable position vis-a-vis most of the rest of the world, the action against the University concerning its shares of Gulf has little merit. And as what appears to be a defense of principle (for Harvard had nothing in particular to gain by retaining Gulf which, for all its raw imperialism, is a weak investment), the administration's response has even less.

Gloria Emerson, the New York Times reporter who witnessed so much suffering in Vietnam, was walking through Holyoke Center a few weeks ago and ran into a crowd of Harvard students protesting the University's Gulf investment, chanting to the effect that "we must hold up the blood-stained banner 'til we die." She asked, "If I were to set up a booth offering a chance to enlist in the Angolese rebel army, how many do you suppose would sign up?" This is somewhat irrelevant, as is black Professor Martin Kilson's insistence that black students should give up their scholarships before demanding action from Harvard which might threaten its investment return. Nevertheless, the connection between such protests and relief from oppression for Angolese people is about as distant as it can be. One wonders if the president of Gulf was even vaguely aware of the crisis to which the president of Harvard had to devote full-time for nearly a month for even if Harvard were forced to divest it would hurt neither the company nor the price of its stock. But a protest directly against Gulf, or against the U.S. Government because of its military aid, would not have served what may have been a more immediate purpose--the unification and political reawakening of black students at Harvard. As for white students, the insistence that Harvard end its involvement with Gulf in Angola--as opposed to all the other oppressive activities of American capitalism its $18.5 million would be hard put to avoid being implicated in--seems arbitrary at best and, given Vietnam, stupid and crude at worst. One wonders how many of them will continue this specific concern for Angola, or could even point it out on a map. As for divestiture as a demand, whatever publicity value a Harvard sell-out might have in placing the University's prestige behind the struggle of the Angolese people, would evaporate with the widespread knowledge that it was only done because students had taken over a building.

In spite of all this, the prize for hypocrisy in the Gulf affair probably goes to the Harvard administration. A memo by presidential assistant Steve Father published in the March 10 Gazette and supposedly representing his advice to Bok on the subject, was obviously prepared for public consumption. Its consideration of the pros and cons of divestiture, while highly informative concerning Gulf and Angola, bore no relationship to what were obviously the administration's main concerns--not just such cynical but nevertheless real questions as "Will this get those students off our backs?" but even others, more appropriate for official published reports, such as "How will this affect our total investment policy?" or "How will this affect alumni giving?" Farber's report also is the first appearance of the argument that even though Harvard showed no concern about Gulf's role in Angola until black students began to make a fuss, it shouldn't sell its stock because someone even less responsible might buy it.

Once the crisis was at hand, President Bok encouraged the Kingman comparison by issuing Brewster-like noble irrelevancies such as "I am revolted by the colonialism of the Portuguese government in Angola," while the Corporation played Eisenhower by announcing that it would Go to Angola, or at least send a representative "to provide us first-hand information on Gulf's performance" (though the information provided by PALC and Farber left little in doubt). In defending the Corporation's stand against divestiture. Bok pointed out that life is a web of guilt-by-association, equating Harvard's Gulf investment with personal income tax payments which support the Vietnam war.

Faced with this situation, we can attempt to disengage from all these forms of indirect support, but it would be difficult to do so without virtually retiring to a desert island. My point, however, is not that it is impractical to take this course, but that it is self indulgent and immoral as well.

Nicely put and, in my opinion, correct. But let's face it: Harvard did not risk a crisis which cost thousands in police overtime, printing bills, hotel rooms for freshmen disturbed by the building occupation, etc., just to protect itself against enforced self-indulgence. Harvard's ongoing stake in the corporate status-quo-the network of personal relationships and common assumptions that allies the University too often with Wall Street and State Street is demonstrated by its failure even to vote in favor of the Gulf disclosure resolution. That Gulf would prefer to "tell all" rather than have Harvard's .3 per cent voted against it shows that the precedent of an anti-management vote by this University was more threatening to them than whatever information they are protecting. By abstaining, Harvard pulled more of a cop-out than if it had just sold the stock.

THE MORAL BANKRUPTCY of divestiture points up Harvard's dilemma: there is no place today where $1.2 billion can hide from involvement in the transgressions of American capitalism and still generate a decent return to be spent on education. Many of those involved in the Gulf and similar campaigns will concede if the issue is forced that they don't mind threatening Harvard's central mission if that's what it takes to untangle this contradiction. (For a few, like SDS, this is the whole point.) But most of us do mind. Is there any way a rich old educational institution can do right by society with its millions and still continue its primary contribution to society as a haven of free enquiry?

Yale thinks it has found a way. Out of a seminar last year on universities and corporate responsibility it has produced a thoughtful and well meaning book, The Ethical Investor, and adopted the book's detailed guidelines as its own. In fact, the book is quickly becoming the standard liberal solution to the dilemma. You know it's the genuine article when the New York Times editorializes ("Yale: Moral Investor") that it "will satisfy neither hands-off conservatives nor militant interventionists."

The Ethical Investor bases its guidelines on the notion that universities, like all individuals and institutions in society, have a "moral minimum" duty not to participate in injury to others. Stockholders are thereby implicated in the socially injurious actions of their companies, while large institutional holders have a special responsibility to protest because of their greater ability to be effective. This "negative injunction" applies to Yale or Harvard "because it is an institutional investor, not because it is a university." On the other hand, in order not to challenge "the prevailing understandings about the nature of the universities," the guidelines are structured to protect what the authors call "the Academic Context" both from financial crippling and from politicization, the latter by keeping investment decisions as distant as possible from the day-to-day life of the university. The authors carefully dispatch both the theory that stockholders can't or shouldn't influence the companies they own, and all arguments in favor of divestiture except in very specific circumstances. They conclude that investments should almost always be made for maximum financial return, with universities exercising their moral duties as stockholders of companies they have bought for that reason, and they establish that the dollar cost of such stockholder activism is small.

The guidelines themselves are complex, but overall they seem too timid in requiring university action, and too prone to escape clauses when they do. They forbid both buying stock in a company just to make trouble, and secondary action against already-owned companies financially involved with socially injurious firms (part of a generally benign view of U.S. corporations and the interplay between them). They forbid universities generally to initiate proxy actions, even when they would be permitted to support those initiated by others. They forbid cooperative action by universities owning stock in the same company. Meanwhile, they allow a university to refrain from action "where harm to the Academic Context can be anticipated" or where "criteria" have not been "developed" to decide whether a corporate activity is socially injurious; these would seem to cover most circumstances. In the 19 detailed case studies, decisions too often rely on outside standards such as international law, rather than on the university's own resources of moral judgment--so that, for example, action against the maker of bombs for Vietnam hinges on whether the bombs are killing people other than those they're aimed at.

This indicates the main weakness of the book, which is not in the guidelines but in the philosophy behind them. In their endless series of distinctions, the authors gloss over the crucial one-that between universities and other institutional investors. The millions in university endowments, unlike those of mutual funds and insurance companies, carry with them the assumption that they are being used to serve the public good; it is on the basis of this assumption that they were collected, and, in fact, that the University remains open. The humanitarian assumptions that are supposed to thrive in the "academic context" should force the University into a greater role, not a lesser one, for these assumptions can't long exist with the widespread knowledge that they are financed by contradictory ones. The authors conclusion, therefore, that ethical investment decisions should be made as distant as possible from the day-to-day life of the university is exactly wrong (and is confounded by the very existence of their book, which emerged from a Yale seminar). The humanitarian impulse of the university is precisely what should drive it toward stockholder activism, while such activism can be proof to the skeptical that such an impulse exists. Indeed the separatism the authors propose is exactly what now exists at Harvard, with the treasurer's office in downtown Boston and away from the campus vibes, and is exactly what has made Harvard so slow to meet its responsibilities as a moral investor.

THE EXISTENCE OF HARVARD'S billion itself destroys the myth of the Ivory Tower. You can't be neutral with $1.2 billion, and, in fact, Harvard's investment policy is filled with establishment presumptions. Would it invest in whorehouses? Or gambling casinos? Many of us on this side of State Street would rather finance our educations with prostitution (sexually unbiased, one had better add) than with napalm, if it came to that: and we would want to pressure a company in Harvard's portfolio to switch from one to the other. Harvard and other universities must justify their privileged positions in society, their claims to high service and moral leadership, by actively using their endowments in an attempt to reform the American corporate system as a whole. This means buying a few shares just to make trouble (becoming an institutional Wilma Soss). This means acting in concert for maximum leverage. This means initiating stockholder action, not waiting for others--because if the beneficiaries of free enquiry won't act, who will?

Obviously, American corporate capitalism does many good things, supporting this University among them. But it also does more bad things than those who benefit from it, including this University, have been willing to admit. The assumptions implicit in Harvard's dependence on corporate capitalism--without which it cannot survive-are intolerable unless it works actively to bring the benefactor in line with the humanitarian attitude the University claims to represent, and without which its survival is equally threatened.

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