A Conflict Of Interest

WHEN HARVARD MANAGEMENT CO. takes over $1 billion of Harvard's $1.4 billion endowment on July 1, men who do not have a direct interest in any corporation comprising Harvard's portfolio will manage it for the first time in over a generation.

Last week Walter M. Cabot '55, president of Harvard Management, decided not to allow members of his hand picked professional staff to sit on the board of directors of "any corporation in which there is any possibility that Harvard might invest." This announcement was a long-awaited move to alleviate conflicts of interest in Harvard's financial affairs.

But conflict of interest still remains a serious problem among those who have the ultimate say in setting Harvard's financial policy: the fellows of the Harvard Corporation. Although Cabot's new company has control over the investments which Harvard makes, the Corporation is charged with overseeing Harvard's responsibilities as a stockholder.

The Harvard Fellows maintain very close ties with corporate management. When, if ever, they advocate policies which do not serve the best interests of corporate management, they are, in effect, voting against their golf partners and luncheon colleagues. No matter how open-minded these men may be, this is no easy task.

Cabot and Harvard Treasurer George Putnam '49 both said last week that they are wary of the style of money management which led former treasurer George F. Bennett '33 to serve as Harvard's chief financial officer, as President of the firm that managed Harvard's money, and as a director on several corporations in which Harvard has multi-million dollar holdings.

As treasurer and an adviser to the Corporation Bennett never gave much thought to social considerations. His rationale was always that his job was to earn maximum growth for the university and to consider any other factors was to vitiate this effort. Putnam and Cabot on the other hand believe that social factors must be taken into account in any investment decision because, they say, in the long run socially irresponsible companies will have to pay for their misdeeds out of profits. This will be a factor in all new investments made by Harvard.

But the Corporation Subcommittee of Shareholder Responsibility decides how Harvard will vote its current stock on proxy and disclosure issues.

Three members of the Corporation along with Putnam comprise this committee. Last year the sub-committee decided to abstain from voting Harvard's Mobil Oil stock on a resolution to have the company's foreign affiliates (including Mobil South Africa) institute affirmative action programs for minority employment. Albert L. Nickerson '33 one of the Fellows on the sub-committee, disqualified himself because he is a former chairman of Mobil's board of directors. If Corporation members removed themselves from every issue in which they were chummy with some of the principals the proposed action is directed against, the subcommittee probably would not be able to take nearly so many votes.

In October, 1972, President Bok created an Advisory Board of Shareholder Responsibility (ACSR), composed of 15 students, faculty and alumni representatives to recommend to the Corporation subcommittee how it should vote Harvard's stock on shareholder resolutions. Although the ACSR, too, has sometimes taken a conservative, pro-management outlook, the group has made a serious attempt to take an unbiased look at management practices of many of Harvard's stocks. The Corporation should invest in this body full power to vote Harvard's shareholdings and to consider other shareholder issues.

Cabot's decision last week was an important milestone in eliminating conflicts of interest from Harvard's financial dealings. Now it is time for the Corporation to take the initiative.