Investments The Austin Report

THEY HAVE built a stone wall around the ivory tower. The wall is thick. In the past, occasionally a stone would crash and crumble on the outer gates; inside, we would hear only a muffled thud. At times, a big rock was hurled, big enough to shake the walls, not big enough to topple them. We remember those times as Crises, and after they passed and the rocks lay in sandy ruin on the ground, we reinforced the walls.

But in recent years, the rocks have become bigger. They are thrown more forcefully, and more frequently. And more accurately. For look! the wall's not solid. It's pierced by countless little holes, too small to let things in, large enough to send them cut. More and more we see the walls are honeycombs. More and more the rocks are aimed at all those tiny holes. And, most dangerous, more and more those rocks are crashing on the inside of the wall. They are being thrown by people who live here.

When the keepers of the wall heard reports of the attacks, they considered their options. They could tear down the wall. They could plug up the holes. Or they could disguise the wall, drape plants over the holes, vary its height to blend it into the landscape. But they couldn't just leave things as they were. The rocks were becoming noisy, and the men inside the tower were finding it very difficult to work.

So they set up a committee to study the options.

THAT WAS almost a year ago, when President Pusey established a seven-man committee, with Robert W. Austin as chairman, and asked it to "concern itself with examining and clarifying the relationship of universities (and in particular this University) with corporate enterprise in general in the United States." The request came during the Campaign GM controversy, in which a group of Washington lawyers, backed by Ralph Nader, hoped to push through two administrative reforms in the General Motors management. Polls of Harvard students and alumni, and a Faculty resolution, indicated widespread support for the drive. The Corporation decided not to vote with Campaign GM in the proxy fight, but the debate on the issue compelled the creation of the Austin Committee.

Early this month, the Austin Committee issued its report. Beginning with a definition of the University as "a center of free inquiry," the Committee's report proceeds to say that the "University can best serve society by concentrating on that function [inquiry], and maintaining a neutral stance as a university on all political and social questions except those propositions (and it is a small list) where there is no longer room for argument among people who accept our basic socioeconomic political system..." According to the report, this small list includes protection of individual freedoms and opposition to racism.

Transferring these considerations from paper to practice is a delicate matter, the report stresses. In choosing investments, the University "should strive fundamentally for maximum return." The one positive exception to the "maximization-of-return policy" concerns investments involving "the University's duty to the more or less surrounding community." The report urges Harvard to engage in community projects. On the negative side, the report continues, the University can avoid investments in some particularly offensive enterprises: for example. tobacco companies. South African corporations, businesses with discriminatory policies. But this list too would be very small, for the report remarks that "almost any corporation might be found to be engaged in some activity that some would consider deleterious to the public welfare, and those that discriminate on one score (say, business contacts with South Africa) may have a particularly good record in another respect (say, nondiscriminatory hiring practices at home). And the report specifies that in the case of American companies doing business in foreign countries like South Africa-that is, Polaroid and GM-"a policy line would be even more difficult to draw."

The Austin Committee chose not to draw guidelines, fearing they would be "too broad and sweeping on the one hand or too narrow and detailed on the other to be operable." Instead, its report advocates creating the position of fact-finder, who would advise the Corporation on investment possibilities that are both socially responsible and potentially lucrative.

THE FACT-FINDER would have to weigh profitability above responsibility, the report maintains. Constricting financial pressures force an emphasis on fiscal returns. But more importantly, the report emphasizes that the University cannot "depart from the essentially neutral pursuit of truth."

The argument that the University must remain "neutral" teeters on a faulty foundation. The University is not neutral, because the University is more than a "center of free inquiry." It is also a billion-dollar corporation. By investing in politically and socially offensive enterprises, it is engaging in political acts. Since most corporations pursue some objectionable policies, the place to draw the line is not clearly marked. But some corporations are particularly offensive. If Harvard has no stock in them, it should buy none. And if it does own shares, it should use its influence to effect reform. At any rate, Harvard must realize that social responsibility is a factor that demands consideration.

Complex issues could cloud the proper emphasis of social consideration in Harvard's investment decisions. The Committee chose to leave the clouds undisturbed. An important issue is the relationship between profitability and responsibility. Recent financial writing has suggested that, by encouraging public good will, by generally indicating flexibility in management, by avoiding costly lawsuits and proxy fights, those companies commonly considered "socially responsible" prove to be more profitable to their investors than those companies that are not. While this is hardly a fixed rule, the opposite assumption-that socially responsible organizations are relatively risky and unprofitable investments-is just as questionable, Blue-chip stocks, once considered the safest and best bet, are no longer sure moneymakers. As Forbes magazine noted in an editorial last year, the concept of blue-chip stocks "as a kind of Maginot Line behind whose ramparts [investors] could sit safe and sound" is obsolete. Blue-chip companies like GM are not only offensive; they are also often unprofitable.

The question of profitability is a complex and technical one. However, it would appear that there are enough profitable corporations to permit differentiation on a social responsibility basis. As the Austin Committee notes, the University has no mechanism to make these judgments. But it could help sponsor one. In a meeting last February, the National Council of Churches began a study to measure corporate responsibility, particularly in matters of racial discrimination and environment pollution. It set up a preliminary comparative case study of two corporations. Harvard could and should support this project.

SINCE the University is involved in the outside world, pretending otherwise results only in permitting its outside activities to proceed unregulated. Studying the University from inside the wall, the Committee report sees only the ivory tower and ignores the view from outside. It ignores Harvard the corporation, which invests money in companies guilty of offenses from A to Z, at home and abroad. Discussing proxy fights, the report notes that Harvard "need not remain passive in the face of substantial evidence that the company is acting in an antisocial way." Indeed, the report continues, the University "may properly, and sometimes should, attempt to influence management in directions that are considered to be socially responsible." But the University should not itself litigate or solicit proxies; it should not "join forces with other large, tax-exempt organizations in policing the conduct of business organizations." No leadership role for Harvard; no obligation to consider questions of social responsibility. That is the Austin Committee's message.

The Austin Committee was asked to set up guidelines; it set up no guidelines. Instead, it proposed creating a fact-finder who would set up his own guidelines. Masking the problem another way, it devised a grand scheme-establishing an interdisciplinary faculty on social issues-which it outlined in fuzzy borders. Ultimately it decided that the issues are too complex to decide, and what's more, since Harvard is a "center of free inquiry." and since the issues are unrelated to education, the issues need not be decided.

But the rocks are flying, it's much too noisy, and what are we to do? Read the report. The Committee's true interests are revealed in a remarkable sentence, in which it warns that University "policies should not heat up' the academic climate to the point where the scholars and students that make up the University are distracted from their pursuit of knowledge." Since stones thrown closest hit hardest, the report makes exceptions to its investment guidelines in case involving the "surrounding community." It is the stonethrowers-especially those within the walls-who worry the Committee. So they have chosen to cover up the wall, drape it over with interdisciplinary faculties and fact-finders and equivocations. They have chosen not to tear down the pretext of a billion-dollar corporation existing solely as a "center of free inquiry." They have chosen not to plug up the holes through which Harvard channels money to irresponsible corporations. They have chosen to mask the issue in words without purpose. They have chosen to avoid the issues and hope that the rocks miss.