A New Generation in Financial Affairs

In spring 1971 George Putnam '49 was chairman of the Overseers' special study group that proposed the Committee on University Financial Policy, a move designed to temper some of the tremendous power Treasurer George F. Bennett '33 had built up in Harvard financial affairs. Putnam cited a report on Harvard's finances prepared by the University Committee on Governance as expressing the views of his study group:

"The fact that the treasurer, financial vice president, investment manager, and managing partner of the State Street Investment Corporation are all one person and a member of the Corporation raises not only the familiar problem of overload but doubt about how the rest of the Corporation is to achieve the human distance to monitor his judgement and performance over the full range of his responsibilities," the report stated.

Bennett had managed to consolidate what are now four entirely separate and unrelated positions. In addition he served on the board of directors of no less than ten powerful corporations, a direct conflict of interest situation with any of his other responsibilities.

When President Bok came into office, he set about to disperse the management of Harvard's financial affairs. And when Walter M. Cabot '55 takes over management of Harvard's portfolio in two weeks, Bennett's domain in the University's financial world will have been reduced to his chairmanship of the University Committee on Resources, hardly equal to his previous stronghold.

A view from the outside indicates that the 61-year-old Bennett has eased himself gradually out of Harvard's financial picture in an effort to lessen his work load as he ages toward retirement. Bennett announced last year that he was retiring as treasurer to devote more time to his State Street Management and Research Co. Later he said that State Street would bow out as Harvard's portfolio this July


But even before he stepped out as treasurer and portfolio manager, Bennett's power had rapidly eroded under Bok's administration: The view from the inside is that Bennett's style of financial management was wholly incompatible from the outset with Bok's plan to disperse responsibility and power in all facets of his administration. Bennett, like John Dunlop, former dean of Faculty, had too much power in his particular domain. In addition, Bok and most of the members of the Corporation found themselves at odds with Bennett's attitudes toward shareholder responsibility, investment policy and other aspects of Harvard's financial dealings.

If it was fitting that Putnam should succeed Bennett as treasurer, in light of his original role in the move to wrest power from Bennett, it is ironic that Cabot should succeed Bennett as the new portfolio manager: Cabot's uncle was Paul C. Cabot '21, former Harvard treasurer and co-founder of State Street Management and Research and Bennett's mentor. It was Cabot senior who trained Bennett and hand-picked him as his successor at State Street and Harvard. But the younger Cabot has already proven himself to also be wary of the financial management style his uncle and Bennett brought to Harvard.

Like most of the new faces President Bok has brought to Harvard since the beginning of his administration, Cabot and Putnam reflect many of the philosophies Bok himself has come to hold. Although none of them can be accused of completely agreeing with student or public interest groups on such issues as shareholder responsibility, conflict of interest, financial disclosure and investment policy, the new guard has come a long way from the policies of their predecessors.

One of Cabot's first announcements when he became president of Harvard management in April was that none of the employees of his company would be allowed to sit on the board of directors of "any corporation in which there is any possibility that Harvard might invest." This was a move long-awaited by students and one that was necessary to ensure that Cabot does not find himself in the position that Bennett encountered many times:deciding where his stronger loyalties be. Putnam has said all along that none of the Putnam family's financial companies will handle Harvard money for the same reason.

In addition, Cabot and Putnam both contend that they will remain keenly aware of Harvard's social responsibility as an investor and will try to avoid putting Harvard money into companies which, in their opinion, are not socially responsible. Companies which have poor minority hiring records, or which blatantly disregard environmental concerns or follow other oppressive policies may be able to profit in the short run, but eventually will have to pay for the damages they have caused, Cabot and Putnam contend. Therefore, they say, such companies are not worthwhile long term investments.

Obviously the attitudes Bok, Putnam and Cabot take on these issues are necessary ones in an age of increased public awareness and sensitivity to issues of corporate power, the environment and minority rights. Ten years ago no one cried out when Harvard unquestioningly voted its stock with corporate management on every proxy issue. Two years ago, 30 students took over Mass Hall when Harvard voted its shareholdings with Gulf Oil management. Ten years ago, only a few local citizens protested the building of new and potentially harmful power plants by public utilities. This year a group of Arkansas farmers marshalled state-wide support and enlisted students and faculty at Harvard to help fight a coal-burning power plant proposed by Arkansas Power and Light Co. Harvard is the largest stockholder in Middle South Utilities, a holding company for AP&L. Pressure at Harvard grew to the level where the Corporation subcommittee last month sent a letter to AP&L criticizing their plans for the plant as inadequate--the first time Harvard has taken any shareholder action not related to a proxy vote.

What remains to be seen is whether Cabot will steer Harvard clear of future investments in companies such as Middle South. Cabot is inheriting a portfolio which is well-stocked with oil companies and public utilities, two of the most controversial spheres in this day of energy shortages. It is highly unlikely that there will be any immediate move to get Harvard out of such companies, no matter how regressive their policies are. There may be a slight alteration of this make-up over time, but if Harvard ever does decide to divest itself of its Gulf Oils, Middle South Utilities and other controversial stocks, the process will be eternally slow. Cabot and Putnam are fine Boston gentlemen, bred in the best Harvard tradition. They still adhere to the norms of financial management followed by the great money houses of New York and Boston.

So even if Cabot and Putnam do keep Harvard from making any new investments in "questionable" corporations, Harvard still must deal with the problems posed by its current holdings. The Corporation Subcommittee for Shareholder Responsibility is the body which is charged with debating and voting upon all shareholder resolutions facing Harvard stocks. The Corporation also has the ultimate say in setting the investment policy that Cabot and Putnam will follow. All of the members of the Corporation maintain close ties with corporate management and some, like Albert L. Nickerson '33, a member of the Corporation subcommittee, have served as directors of companies in which Harvard invests.

The 15-member student-faculty-alumni-Advisory Committee on Shareholder Responsibility which Bok set up to advise the Corporation subcommittee has made a serious effort in the last two years to take an unbiased look at the management practices of Harvard stocks on specific proxy issues. The delegation of Harvard's proxy votes to this body would enable Bok and the Corporation to sincerely claim that Harvard is seeking to alleviate problems of conflict of interest and to squarely confront Harvard's responsibilities as a stockholder. GENERAL INVESTMENTS   Market Value COMMON STOCKS (continued) Utilities (continued) Electric (continued) 100353 shs. Kansas Power & Light Co.  2,533,913 555000 " Middle South Utilities, Inc.  11,238,750 62968.45 " Missouri Public Service Co.  1,094,076 162009 " New England Electric System  3,766,709 65884 " New England Gas & Electric Association  1,120,028 92116 " Ohio Edison Co.  1,957,465 118905 " Oklahoma Gas & Electric Co.  2,630,773 122004 " Public Service Co. of Indiana, Inc.  4,331,142 118916 " South Carolina Electric & Gas Co.  2,482,371 128009 " Southern California Edison Co.  3,088,217 38570 " Texas Utilities Co.  1,070,317 261121 " Union Electric Co.  4,471,697 38123 " Virginia Electric & Power Co.  657,621 252396 " Wisconsin Electric Power Co.  5,647,360   86,776,935