In Search of Ethics

DID you know that millions of dollars from Harvard's endowment propped up a firm that specialized in fetal tissue research? And that additional endowment funds supported a technology business whose founder was convicted of conspiring to sell supercomputers to the Soviets?

If you aren't familiar with these dealings, you aren't alone. Neither is the Advisory Committee on Shareholder Responsibility (ACSR), the student, faculty and alumni group formally charged with advising the Corporation on the ethics of its investment strategy.

The reason is that the committee was formed in 1972 to examine Harvard's holdings in publicly traded stocks, which at the time constituted almost 100 percent of the University's investment strategy. But now, the endowment's money managers have sunk more than $1 billion into the high-risk and high-yield realm of "private placement" investing that includes venture capital and leveraged buyouts. Although profitable, such deals have been recently questioned by Congressional panels and consumer advocates for their ethical and economic implications. But because these deals aren't covered by ACSR, they haven't been questioned at Harvard. Now it's time to start.

RATHER than merely purchasing stock in an already existing company, employees of Harvard Management Corporation (HMC)--the body that maintains the University's $5 billion-plus endowment--now take a more active role in the creation and oversight and even management of these corporations through buyouts and industry deals. As a result, Harvard is not just an educational institution; it is a major player in a nationwide venture capital market.

And those who have made Harvard a major player are being well-rewarded. Making six times as much as President Derek C. Bok, HMC's investment jockies--Scott M. Sperling and Michael R. Eisenson--took in more than $1 million each last year. And while the compensations awarded to Sperling and Eisenson constituted only a small portion of their total contribution to Harvard's coffers, the size of these sums is indicative of the University's growing position along the cutting edge of Wall Street trading.

But it seems that as the stakes increase, the extent of Harvard oversight dwindles. Sperling and Eisenson report directly to the Corporation--bypassing all established safeguards for ethical investment. It's a very small loop that doesn't include students and whose decisions are not reported regularly.

THIS situation is not acceptable for a non-profit educational institution that purports to uphold a set of ethical standards. Open discussion and careful consideration of all activities are implicit mandates in a high-profile university that advocates social and economic responsibility.

Currently the ACSR is the only group that has any role in setting ethical guidelines for University investments. Harvard's recent forays into the realm of venture capital and other untraditional high-risk investments demonstrate that the ACSR is woefully underequipped for this task. In order to remedy this situation, we suggest the following measures:

. HMC should issue a report on a quarterly basis detailing the names and activities of all firms in which Harvard has any type of investment.

. The University should expand the role of the ACSR so that it meets for the entire year, rather than simply for two months.

. The University should empower the ACSR to enact strict ethical guidelines which all Harvard investment affiliates are bound to follow.

Venture capital makes money. Lots of it. But rather than merely slobber over high yields, University officials must not be afraid to ask questions about the sources of the financial bonanza. They must ask whether such investment is consistent with the goals of the University. Only by allowing for full participation by the academic community can we ensure that Harvard's ethical oversight structures are up-to-date with its investment strategies.