Deceptive Investing

Harvard’s early 1990s partnership with Harken Energy Company—by which Harvard, despite being Harken’s largest shareholder, helped the oil company remove debts and liabilities from its books—is deeply disturbing. For any company, such financial legerdemain is ethically wrong, even if it does not violate the letter of the law. By hiding Harken’s debts, Harvard was able to sell its Harken stock at an inflated price—a deceptive practice that smacks of the same corporate decadence that has plagued the U.S. for at least the past decade. For a non-profit educational institution, this is patently unacceptable. Harvard must immediately alter its governance and investment policies to ensure that such debacles never again tarnish our University.

While the University should try to get a high return on its endowment, Harvard is not a business; its purpose is not to make money. Harvard’s financial interests should never take precedence over ethical standards. As a university, Harvard should be even more dedicated to ethics and corporate accountability than a business should be.

Harvard’s involvement in Harken Energy Company began just a couple of months after George W. Bush joined Harken’s board of directors. At the time the Harvard Corporation, the University’s seven-member top governing board, included Robert G. Stone Jr. ’45 among its members. Stone retired from the Corporation last spring; he remains a director of Harvard Management Company, Harvard’s investment arm. Stone is a fellow Texas oil executive and a contributor to Bush-family political campaigns. Such close ties between Harvard and Harken offer a possible explanation for Harvard’s involvement with the ailing company, raising the troubling possibility of cronyism driving Harvard’s investments.

Harvard has demonstrated its susceptibility to conflicts of interest before. Harvard’s two representatives on the Harken board of directors, Michael R. Eisenson and Donald D. Beane, both held personal stock in Harken at the same time that they made investment decisions for Harvard—Harken’s largest shareholder. Had Harvard sold its sizeable amount of stock, the value of their own holdings would have been affected. For just this reason, most universities bar their representatives from holding personal stock in companies in which the university invests significantly. Harvard, however, has a much more lenient policy on conflicts of interest—a policy that should be altered in light of these alarming revelations. These changes would begin to address Harvard’s flagrant disregard for ethical investing.

Harvard must go further to address this problem at its source—it must change the closed, incestuous process by which Harvard Corporation members are chosen. When the University’s name is tarnished, we are all guilty by association, yet students and Faculty have no meaningful input in the selection of the Corporation’s members. Formal undergraduate and Faculty representation on the Corporation’s selection committees would go a long way towards making Harvard’s investing and governance accountable and transparent to the entire Harvard community.