Africa Investments ACSR: Shape up or Ship Out

Last year, I served as the undergraduate representative to the Advisors Committee on Shareholder Responsibility (ACSR), a 12-member body composed equally of students, faculty, and alumni I had conducted some preliminary research of my own and supported the position that Harvard should divest from companies operating in the Republic of South Africa.

Membership on the ACSR not only afforded the opportunity to learn about the South Africa question and other ethical matters of relevance to the University as a stockholder, but also a chance to gain insight into the ways in which an influential institution reacts to an emotionally charged issue that poses a challenge to the very world view of the institution's chief officers. I am speaking of the dilemma that the seven Harvard Corporation members face in deciding how to handle the University's investments in companies doing business in South Africa.

Over the course of the year, the Committee spent roughly half of its time discussing the resolutions that Harvard receives as a shareholder in some 200 companies and making recommendations as to how Harvard should cast its vote.

For the remainder of our meeting time, we tried to inform ourselves about various aspects of the South Africa issue. We looked into the social, economic, and political conditions in South Africa, the history of the ACSR's recommendations regarding South Africa-related stock and the Harvard Corporation's actions in response: the philosophical questions concerning both the proper role of the University as an ethical actor in society and the part foreign companies play in sustaining or changing apartheid: and the financial implications for the University of whatever policy it should choose to adopt in the future.

PUPPET:

The Committee met in private about 15 times from December to May in the comfortable surroundings of the Faculty Club. Fairly early in our consideration of the South African question, we decided to hold an open hearing in order to receive input from those members of the Harvard community who wished to express their views on the University's South Africa investment policy. Several Committee members came away from this hearing convinced that a sizable portion of the student population is deeply concerned about this issue.

Part of the reason for this conviction is that the ACSR was roundly lambasted by several of the speakers for being a puppet of the Harvard Corporation. These student and alumni spokesmen asserted that the ACSR serves as a lighting rod to deflect criticism and protest from the real policy makers, the seven members of the Harvard Corporation, whom the ACSR is supposed to advise. These speakers contended further that the Corporation then proceeds to ignore practical: all of the ACSR's counsel regarding South Africa policy. One student went so far as to say that when examined in historical perspective, the ACSR is "more than a sham. It is a mockery of a sham.

While I did not at the time and do not non-subscribe to the view that the ACSR is a puppet group. I believe that because of certain faults in the guidelines governing Committee members' selection and because of the nonuniform way in which these guidelines have been implemented, the Committee representativeness and integrity must be called into question.

PURPOSE

The Advisory Committee on Shareholder Responsibility was established in 1972 by President Bok to advise the Harvard Corporation "concerning the social and ethical implications of the choices it must make as a major shareholder in many companies," according to the University. The creation of the Committee constituted a formal recognition of the fact that in certain circumstances, considerations of good citizenship on the University's part supersede economic calculation.

With the rise in the 1970s of shareholder resolutions as a way to try to influence corporate policy, the ACSR spent its early years giving advice on how Harvard should cast its proxy votes.

Last year the 41 proposals we dealt with covered a wide range of corporate activity, from a call on Emerson Electric to adopt ethical criteria for accepting military contracts: to a demand that Merck & Co. cease making contributrions to charitable organizations and non-profit institutions: to an appeal to Standard Oil of California. Baxter Travenol, Texaco, and Xerox to abide by minimal standard of ethical conduct in their South African operations or withdraw from that country.

CONSENSUS

The 12 members of the ACSR had little difficulty agreeing what to advise the Harvard Corporation on most of the resolutions we examined. Twenty-five of the proxy recommendations we made went to the Corporation without a single dissenting vote. Of the remaining proxy votes we took, the number of dissenting opinions was small, usually less than three.

The Corporation had no objection to casting its shareholder ballots in the same way as the ACSR had advised for 12 of the 41 resolutions we considered Last year, the ACSR changed the Corporation's preconceived view on a proxy issue only once. This occurred when we persuaded the Corporation to extend criteria it had adopted for voting on resolutions dealing with nuclear weapons-production in order to embrace resolutions addressing more general military contracts under the same criteria.

The reason the ACSR was able to come to a unanimous or near unanimous position on the vast majority of the proxies it reviewed was that the resolutions usually presented us with a ridiculously easy choice to make. The Corporation only differed with the ACSR in matters where a real choice was to be made.

HEART OF THE MATTER

In the four cases where the Corporation and the ACSR were at odds over a proxy vote last year, the ACSR wanted to hold the company in question to more rigorous ethical standards and greater public scrutiny than the Harvard Corporation was willing to go along with Whenever a tough issue arose and Corporation members disagreed with the ACSR's interpretation of a resolution, they disregarded out carefully considered recommendation and voted as they liked.

If the ACSR's function as an advisory panel on proxy resolutions is largely unnecessary, as it appears to be then its work on Harvard's South Africa policy represents an area in which the Committee conducts real research and provides a valuable counseling service to the University. However, the South Africa question is very complex and fraught with emotional reactions. It is also the most enduring and important moral and political dilemma to have faced the University in recent years. Under the circumstances, it is imperative that President Bok and the Corporation take every necessary step to insure the impartiality and legitimacy of their advisory body in the eyes of the public. The President and the Corporation have failed to fulfill this responsibility in recent years.

GUIDELINES

The closest things to a charter that the ACSR has is included in the Financial Report's 10-years review of the Committee. According to this Constitution ACSR members are supposed to be selected in the following way: students are elected or appointed by the student government mechanisms within the college the various graduate selected: alumni are nominated by the president of the Alumni Association: and professors are nominated by the president of the various faculties. The President has the final say in all alumni and faculty appointments.

These rules governing: ACSR selection appear to have been applied in a slipshod manner at least in recent years.

Two of the four student members last year's ACSR reported that they had been appointed by the Dean's office of their respective graduate schools. In the case of the Business School students representative, the Dean by passed the recognized Students Association and approached the student directly, without even advertising to see in other students might be interested. While several of the graduate schools do not have formal "student government mechanisms," almost all have some kind of student association through which interested students should be solicited.

The guidelines for alumni selection to the ACSR appear to have been completely disregarded. Presumably, the ACSR charter specified that alumni nominations be made according to certain "criteria" in order to guarantee that alumni be fairly selected and represent the full range of perspective and experience existent among Harvard alumni ae.

After trying to determine the content of these criteria, I must concur with the conclusion reached last year by Undergraduate Council Chairman Brian R. Melendez '86, who conducted extensive research on this same question, the "These criteria may exist on paper, but certainly not in practice."

IRREGULARITIES

The guidelines governing selection to the ACSR specify that seats on the ACSR are always to be reserved for one student from the college and one professor from the Faculty of Arts and Sciences. The charter sets forth a system by which the other student and faculty positions are to be rotated among the various graduate schools. All ACSR appointments are for two-year terms.

However, President Bok has not followed the rotation schedule properly in making recent appointments. At the end of last year, four members left the ACSR because their two-year terms had expired Four others resigned after completing only one year because they either left Harvard or, like myself, were no longer interested in serving on the Committee.

President Bok's appointments to replace two of the other three mid term departures are in violation of the rotation schedule laid out in the ACSR charter. The Business School student who resigned from the Committee because he graduate should have been replaced this year by a student from the same school. Instead, a law student is taking this seat.

Likewise, the Law School professor who served as Chairman of the ACSR for one year should have been succeeded by another law professor who would have completed that School's two-years faculty slot on the Committee. The law faculty position is currently being held by a professor from the Business School.

Incorrect implementation of the membership rotation schedule could have a bearing on the Committee's deliberations. For example, consider the fact that one-third to one-half of the Law School faculty actively oppose the University's current South Africa investment policy, while similar sentiment is less widespread at the Business School.

When taken in a historical perspective, irregular appointments such as these lead to distortions in the Committee's membership and perhaps even misrepresentations of the Harvard community's will.

For instance, the ACSR guidelines state that the Law School and the Business School are supposed to have an equal say on the ACSR. Yet in the past seven years including this year. Business School students have been represented on the Committee for only one year, while Law School students have served for five of these seven years. The Business School has had a faculty member on the ACSR for three out of the past four years, while Law faculty have served only one year during this period.

In one other instance that I am aware of, President Bok did not follow the letter or the spirit of the guidelines he promulgated in establishing the ACSR. The guidelines state that four faculty members are to serve annually on the Committee. Yet last year, only three faculty members served. The fourth faculty slot was held not by a professor, but by an Associate Dean.

I presume that the ACSR charter specified "faculty members," rather than "faculty and administrators," because only tenured professors have the job security and independence necessary to render objective judgement on delicate matters facing the University. It is possible that nontenured faculty members and administrators could find themselves in a situation in which their sometimes tenuous career status could influence their position on an issue before the Committee.

MINORITIES

Another area in which the Advisory Committee on Shareholder Responsibility has come under persistent criticism has been the lack of minority and female representation at its table.

At the Committee's open hearing two years ago, speaker after speaker attacked the University Administration for allowing 12 white men in consider the ethical issues which were of concern to the who: University community Last year, President Bok made a step in the right direction by appointing for the first time two white women only one of whom still serves on the ACSR.

The President is record on minority appointments of the ACSR, however, is lamentable. Several Black students have been elected to position on the Committee, but to the best of my knowledge, only one Black faculty or alumni appointment has been made in the 13-year history of the ACSR. This person was a professor at the School of Dentistry who served in 1979 and 1980.

The absence of minority appointee, is particularly distressing when one considers the fact that the major task of the ACSR has been to make recommendations of South Africa investment policy and that racial and ethnic minority groups, and Blacks in particular, feel that they have a greater interest and stake in the South Africa issue than do most whites.

Though Bok may have trouble finding a representative from the small minority, and declining Black, Faculty pool, he should have no trouble finding minority alumni ae in the Boston area who would be willing to serve for a year or two on the Advisory Committee. Perhaps now is the time to make a move and, in fact, the President is presented this weekend with the ideal opportunity to recruit Black alumni ae to serve on next year's panel. Of the college's 1600 Black living alumni ae at least 100 will be visiting Harvard for the first-ever Black Alumni Weekend.

WEIGHTING THE COMMITTEE

In contrast to the lack of minorities on the ACSR, President Bok has appointed an unusual number of people with financial backgrounds to this year's ACSR. Combined with a carryover appointment from last year, these selections give this year's Committee a distinctly financial character.

Last year, the manager of Northeast Investors Trust, who continues to serve as an alumni on this year's Committee, was one of the ACSR's most conservative members. This year, President Bok had four appointments to make, not counting the students representatives. Of the four, President Bok appointed three men with financial backgrounds. His sole alumni selection is another financial manager, the vice-president for investments of the Boston-based investment counseling firm, Scudder, Stevens & Clark. Two of the three faculty appointees are financial specialists.

If President Bok intends to ask this year's Committee for a financial analyses of the various options on divestiture, one wonders if he will receive a comprehensive report on the financial aspect of divestiture that incorporates all schools of though concerning ethically sensitive investing.

I am sure that the two finance professors whom President Bok appointed this year, being academically principled men, are aware of the school of thought which holds that an investment portfolio can be structured in such a way as to exclude certain companies on ethical grounds without harming investment return. However, I am not sure that either of-the professors subscribes to this school of thought. I know that the two alumni who work in the financial world do not subscribe to this belief.

DIFFICULTY

In fact, one of these alumni works for an investment consulting firm, Scudder, which in at least one instance in the past had difficulty complying with clients' demands that it construct a South Africa-free portfolio for them. The case of Michigan State University is instructive. In 1978, the Board of Trustees of Michigan State, who are elected by the state's voters, decided to clear the University's portfolio of South Africa-related stocks. The Trustees instructed the University's portfolio manager, Scudder, to divest. However, Scudder reportedly had difficulty abiding by the South Africa-free guidelines, either because of ingrained resistance or unfamiliarity with the approach to investing.

In 1982, the Michigan State trustee, partially because of Scudder's inability to cope successfully with the university. South Africa policy, decided to change portfolio manager. Michigan State's three new portfolio, management firms completed the divestiture action. By taking advantage of marks conditions, Michigan State made 51 million by divesting.

Dr. Marcy Muringhan, president of the Social Investment Services Division of the Mitchell, Investment Management Co. in Cambridge, reports that many large investment management firms have trouble advertising to socially responsible investment criteria because they are philosophically atuned only to the conservative approach of investing in companies regardless of the ethical character of these companies activities.

BALANCED ADVICE

Given the dilemma in which Scudder may have found itself following the Michigan State directive, we can see how President Bok may not receive the full range of advice regarding the financial attractiveness of the various options on divestiture from this year's ACSR, at least as far as the alumni financial experts are concerned. However, President Bok should know that there are Harvard alumni ae with strong backgrounds in finance who believe firmly that divestiture would not have to harm the University portfolio's standing.

It is extremely important that if President Bok asks his advisory panel for estimates of the financial cost of divestiture, the panel give him the comprehensive and balanced advice he deserves. The financial side of any South Africa investment policy lies at the heart of many people's views regarding the appropriate approach for the University to take towards its investments.

Last year's ACSR conducted some preliminary research into this question of financial cost. Many members of the Committee concluded that previous estimates that Harvard would lose millions of dollars by divesting were very excessive and have been refuted by the recent divestiture experiences of other institutions.

SUMMING UP

Taken individually, any of the oversights, irregularities, and appointment selection I have touched upon would not be cause for much alarm. But taken together, these inconsistencies belie a certain lack of commitment to maintain the integrity and good reputation of the ACSR, and make it imperative that we reexamine the ACSR's purpose and role.

Where, then, does the ACSR fit in: as a fully representative body whose judgement fairly reflects the views of the entire Harvard community, or as a shield to prevent the seven members of the Corporation from facing up to the hard questions on divestiture being posed today by so many diverse elements of Harvard society?

If the Committee fits in somewhere between these two extremes, is this acceptable? Do students wish to continue being associated with a University committee if their voice on the Committee is possibly being misconstrued and misrepresented because the guidelines insuring the Committee's fairness and usefulness are being overlooked?

In light of the concerns raised in this analysis, I believe that undergraduates have the right to ask President Bok for certain clarifications and reforms in the ACSR charter in order to reinvigorate the Advisory Committee's good reputation. First, we must be assured that the central University Administration will follow the letter of the guidelines governing ACSR membership as closely as possible and that the Administration will monitor the deans to make sure that they are following the correct procedures in selecting student and faculty nominees.

Second, we must ask for revisions in the way all ACSR nominees are selected. ACSR openings, along with a description of the Committee, must be publicized through posters and advertisements in student, faculty and alumni newsletters, and through student government, faculty and alumni meetings. We should see that this requirement to publicize Committee openings is included in the criteria regulating alumni selection, if these criteria do in fact exist.

The University should publicize Committee openings and the list of candidates who submit their own names. This would make the whole selection process much more open and honest, and would be a positive step for a Committee whose openness and honesty have been questioned in the past.

If in fact the President of the University himself selects some of the faculty nominees directly in order to bring to the ACSR expertise in certain areas of potential discussion and debate, as has been suggested by a former faculty member of the committee, Bok should try to recruit someone who is familiar with the South Africa situation.

Unfortunely, the Faculty lacks a real expert in South Africa history because the Andrew Mellon Chair in African History, the only full professorship in that field, has been left empty for the last four years and no efforts have been made to fill the vacancy in the last three years.

The Undergraduate Council, in a report issued last year has further called for direct election of faculty and alumni representatives, a proposition President Bok disapproved of in his preliminary response dated September 6, 1984.

I suggest that the Undergraduate Council take another look at the question of its representation on the ACSR. If it decides to send another resolution and report to President Bok and the other members of the Corporation, then the Undergraduate Council should affix a firm deadline at which time it will take additional action if a satisfactory response has not been received.

President Bok stated that his September 6, 1984 letter offered only "preliminary reactions" which could not be finalized until he received a separate report from the Board of Overseers concerning matters of shareholder responsibility. Apparently, the Overseers have not yet finished their report. It has now been almost a year since the original Undergraduate Council report was sent to the Corporation. Where is the Corporation's official response to last year's developments?

A forthcoming response from the Corporation is imperative. Our aim should be to insure full and fair representation on an untainted Advisory Committee on Shareholder Responsibility. Our hope should be to prevent the Advisory Committee from becoming a sham, or worse, a "mockery of a sham.