Worried Again

LAST YEAR, The Crimson reported that Harvard Management Company (HMC) officials had shifted significant portions of Harvard's endowment funds into high-risk, high-yield capital ventures not under any outside supervision. We were worried. Harvard's money managers, we argued, should never operate without external ethical oversight.

Last Friday, The Crimson reported that two top HMC traders own shares in a company in which Harvard's venture capital arm retains significant investments. We are worried again.

ACCORDING TO Securities and Exchange Commision documents, Harvard owns $28 million, or 30 percent, of the outstanding stock of Harken Energy Company. At the same time, Michael R. Eisenson--vice president of Aeneas Venture Corporation, the holding company for Harvard's capital ventures--owns 10,000 shares in Harken. Donald D. Beane, former chief operating officer of HMC and vice president of Aeneas, has also retained 10,000 shares in Harken, despite leaving HMC last year.

Professional athletes cannot bet on their own games--even if they bet on their own team to win. Similarly, traders cannot be trusted to make objective decisions about Harvard's investments when their personal interests are tied to the same companies. If Harvard were to decrease its holdings in Harken, the investors' personal holdings would plummet. They would benefit if Harvard purchased more Harken stock.

HMC actually has a policy in place to prevent conflicts of interest. HMC investors may not buy or sell stock in companies on HMC's "restricted list" of firms that Harvard is heavily invested in. In this case, Eisenson purchased 3000 of his shares a few weeks before Harken was added to the list.

These personal investments are barely permissible by the HMC policy. Nonetheless, the holdings violate the spirit and the underlying logic behind the conflict-of-interest restrictions.

HMC President Jack R. Meyer has said that he realizes that personal and institutional interests may be at odds over Harken investments. "There is the possibility of conflict," Meyer said. "There is that potential."

HMC should allow Eisenson to sell his stock in order to eliminate that potential. And Eisenson should do so promptly.

EISENSON AND BEANE sit on Harken's board of directors. By law, they are required to disclose the amount of stock they own in the company. Otherwise, we would never have heard about Harken Energy Corporation.

The most troubling aspect of this affair is what we don't know. We don't know if other HMC traders own Harken stock. We don't know if they own shares in other corporations in which Harvard is a major shareholder.

What we do know is that Meyer should strictly enforce the letter and spirit of HMC's conflict-of-interest policy. He should ask all HMC traders to sell their stock in Harken. He should ask them to dispose of their holdings in other companies that Harvard is heavily invested in. Meyer should disclose information about potential conflicts of interests for public examination. Meyer must do so if he wants to restore confidence in HMC's management of the endowment.