Fair Harvard Fund Makes Progress: Alternative Endowment Should Be Permanent & Democratic

The Responsible Investment at Harvard Coalition recently announced it had invested contributions from 450 donors in a socially responsible fund withheld from Harvard University. The Fair Harvard Fund, designed as an alternative endowment fund, will be invested in the Portfolio 21 Global Equity Fund.

According to Harvard undergraduate and investment committee member Michael Danto:

We are choosing Portfolio 21 because the fund fits our rigorous investment policies and has a demonstrated record of solid returns. We are particularly impressed by their holistic approach to balancing environmental and social concerns with financial results.

The Fair Harvard Fund was invested through the Responsible Endowments Coalition as the first partnership of the Responsible College Fund, a vehicle through which students and alumni at schools across the nation can invest withheld funds. Federal Street Advisors, a Boston-based investment consultant with a distinguished record in sustainable investing, is providing pro bono services to the Fair Harvard Fund, including helping to create an Investment Policy Statement, providing advice on asset allocation, and aligning the Fund’s mission and investment goals to find the selected fund manager.

“We hope students and alumni at more schools follow in investing responsibly through the Responsible College Fund,” Responsible Endowments Coalition Executive Director Dan Apfel said. “Students and alumni will find ways to invest their money responsibly, whether colleges’ want to help or not.”

The Fair Harvard Fund was created to encourage Harvard to create a social choice fund as an option for alumni donors. The university announced the creation of a social fund in December, but the Responsible Investment at Harvard Coalition is continuing to withhold the Fair Harvard Fund because Harvard administrators have not agreed to minimum standards for the social choice fund’s fiscal sustainability.

Responsible Investment at Harvard Coalition member Nicole Granath said,

The university has given no indications they will assign an employee to fundraise for the social choice fund or actively solicit donations. Moreover, the university’s decision to spend 20% of the fund each year raises questions about their commitment to the social choice fund’s long-term success.

I’m delighted with these latest developments. However, in reviewing the Investment Policy Statement statement, I think the group is out of date with such a strong emphasis on negative screening. I’m currently reviewing Robert Monks’ brilliant new book, Citizens DisUnited (my review should be posted next week), and just got done writing the following small portion:

Monks rejects two “solutions.” I’m with him on divestment. “Divestiture is tantamount to declaring moral victory, deserting the field of battle, and leaving festering in place whatever was offensive enough to merit the divesting, along with CEOs who frankly don’t give a damn who owns the stock as long as someone does.” I recently wrote to the CalPERS Board, advising them to oppose California legislation that would ban their investment in nonmilitary gun manufacturers.

While certainly well intentioned, Assemblyman Dickinson’s measure would be counterproductive to his own purpose. If the thinking caring Board of CalPERS agrees to divest of companies manufacturing guns for nonmilitary purposes, CalPERS will only end up selling its shares to those with fewer moral qualms. Better to be arguing from inside these companies, as an influential shareowner, than from outside with no effective voice.

The Fair Harvard Fund appears to be where SRI funds were 20 years ago. Although many funds still have some negative screens, they have moved substantially toward an emphasis on engagement and governance. I hope Fair Harvard will do the same. I urge the Coalition and Fund to carefully review examples such as the Global Principles of Accountable Corporate Governance adopted by CalPERS.

I also urge them to set up a permanent alternative endowment, elected by contributing Harvard alum, faculty, and students. Don’t keep negotiating with the Harvard Management Company on individual issues. I would bet that everyone involved will be more engaged and contribute more money if they have a real voice in electing the fiduciaries investing their money.

My advice would be not to focus so much on the symptoms of this or that bad investment but rather on mechanisms that will allow stakeholders to hold those making day-to-day decisions accountable.

Even those long involved in corporate governance have taken a long time to refocus. For years, we’ve been filing one precatory proposal after another… like collective beggars. Better to focus on changing the rules so that we can place our own nominees on the proxy. That’s why Les Greenberg and I filed a petition with the SEC on August 1, 20002.

We finally have that right to petition for proxy access on a company-by-company basis and are doing so. Once directors are nominated and elected by shareowners, they will seek out our opinions on social and environmental issues such as global climate change, diversity and unreasonable political influence, as well as on governance issues like classified boards and spitting the CEO/Chair roles.

Similarly for the Fair Harvard Fund. Until they change how appointments are made at the Harvard Management Company, which is governed by a self-perpetuating board, or until they set up a democratic alternative board, concerned members of the Harvard community will always be begging for attention, instead of giving real authority and voice to their values. Because of its pervasive influence in America, there’s a good chance that a change in Harvard’s governance could lead to a subsequent change in how corporations are governed.  What can I do to help?

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