Can Corporatin Members Serve Multiple Master?

Robert G. Stone Jr. '45 is a very busy-- and very wealthy--man.

His Harvard responsibilities alone would be daunting for anyone. As a member of the seven-person Corporation, Stone is in charge of "all the property of every department of the University," according to the 1978 Report Concerning Harvard's Governmental Structure.

But his University job constitutes just a tiny fraction of what Stone does. In addition to being chair of the Kirby Corporation, Stone, who does not have full-time job, serves as director of 12 public or private companies.

Stone is well compensated for his time. In fact, he receives approximately $250,000 a year just for his service in nine public corporations, including industrial giants such as Coring Inc. He may receive even more money for his work with private companies, but those figures are unavailable.

Arrangements such as Stone's are not uncommon for members of Harvard's governing boards-- the seven member Corporation and the 30-person Board of Overseers.

In fact, five of the seven Corporation members and approximately a third of the overseers sit on the board of directors of at least one other public company.

Those who serve on other boards--which range from small growth companies to fortune 500 businesses such as IBM--say they gain important experience and fundraising connections that ultimately benefit Harvard. But some ethicists question whether the close ties of the University's top officials to corporate American representsa conflict of interest.

"The conflict of interest is an ever presentpossibility," says Ronald Green, director of theEthics Institute at Dartmouth. "They [Universitytrustees] should have judgment of staying out ofissues not only when there is a conflict but whenthere is an appearance of a conflict. And onlywhen there is also a conflict of interest policywill have adequate protection."

Nowhere is the potential for conflict moreclear than in the stocks the University holds. Asof June 30, 1990--the latest date for which listsof the University's major stock holdings areavailable--Harvard had holdings in at least fourcompanies for which members of the governingboards now serve: Atlantic Richfield, IBM, J.P.Morgan & Company and The Pittston Company.

Some wonder how closely Harvard is keeping tabson the financial commitment of governing boardmembers. Michael W. Roberts, secretary to thegoverning boards, say he is not aware of anyofficial document disclosing members corporateaffiliations.

The University adopted a conflict of interestpolicy in 1975, but it is unclear how or evenwhether is it is enforced. The policy stipulatesthat a conflict exists when a governing member "has an existing or potential financial or otherinterest which impairs or might appear to impairthe individual's independence of judgment in thedischarge of responsibilities to the University ormay receive a material, financial or other benefitfrom knowledge of information confidential to theUniversity."

But Vice President and General Counsel MargaretH. Marshall says she is unaware of any past orpresent conflict of interest involving Harvard'sgoverning boards. "I don't know why the policy wasadopted," she says.

Ethicists argue that oversight andopenness are essential to dealing with real andperceived conflicts of interest.

David H. Smith, director of the Poynter Centerfor the Studies of Ethics at Indian University,says a conflict arises when the University is in aposition to do business with the corporationsaffiliated with the members of the governingboards.

"It's not hard to imagine overseers on boardsof corporation where it would be convenient to getscientists to do the research for them," Smithsays. "The excessive overlapping of corporateboard members as general phenomenon is troubling."

Smith says one way to combat such conflicts isfor universities to draw more members of theirgoverning boards from outside the corporate world.

And Yale research scientist Peter D. Hall saysconflicts are frequent when entrepreneurs serveboth on non-profit and for-profit boards.

"Something legally okay often isn't in theethical sense," Hall says. "But many non-profits,in order to survive, have to have these kinds ofrelationships."

Dr. Lachlan Forrow, coordinator of teachingprograms in medical ethics at the Harvard MedicalSchool, says it is crucial to reveal all corporaterelations.

"Conflicts of interest are common and the mostimportant responsibility for anyone with apossible conflict is being open about what it isand letting others judge whether there is aconflict," Forrow says. "The most important thingis disclosure."

And Green, the Dartmouth ethicist, says theacademic and corporate realms are very distinctand should not always be mixed.

"Sometimes business managers make the mistakeof entering into the university culture when theirexpertise is really in business, " Green says.

But members of the governing boards whoagreed to be interviewed say conflicts of interestare rare among Harvard's to officials.

"[Overseers] are there for helping Harvard andthere is no ulterior motive," says OverseerStephen B. Kay. "The overseers are just a resourcegroup who represent a lot of different walks oflife."

In fact, members of the governing boards arguethat their experiences in the corporate wouldallow them to make better-informed decisions forHarvard.

Richard A. Smith' 46--a member of theCorporation as well as CEO and board member ofGeneral Cinema Companies, Inc.--also serves asthe chair of Harcourt General, Inc. and NeimanMarcus Co. He says he learned a lot from sittingon boards of for-profit companies.

"Many problems and challenges are similar,"Smith says. "Probably the most important is thediscipline of private industry in planning andlong-range thinking in order to articulate andform objectives and describe mission of theorganization."

Geyser University Professor Henry Rosovsky, amember of the Corporation and former dean of theFaculty, says his experience as a director ofpublic corporation makes him a better contributorto Harvard.

"I have a much better understanding of howorganizations function and the problems they faceand the solutions to them," says Rosovsky adirector of Corning, Inc. and Paine Weber Group,Inc. "Corporations are supposed to have moreoutside directors, and the Harvard Corporationalso functions as a public board for Harvard.

But the not everything learned from publicboard service is valuable. Arthur L. Liman '54says the knowledge he gains as a director toEquitable Companies, Inc. has little to do withhis duties as an overseer.

"You get a sense of responsibility and howother entities do business," Liman says. "But99.999 percent of what overseers do is not relatedto what I or others have done at otherorganizations."

And Christopher T. Bayler '60 says his role asa director to the semi-conductor manufacturerInterpoint Corp. And his position as a Harvardoverseer are very different.

"Nothing at all is similar," Bayley says."Nothing is comparable to being on the Board ofOverseers."

Governing board members say they areexpected to help the University raise money. And,they say be serving on other public boards, theymake the contacts that allow them to do that.

Peter L. Malkin '55, an overseer and a directorto U.S. Trust Corp., says serving on boards offor-profit companies exposes him to potentialsources of financial gifts to Harvard.

"Someone has to bear in mind that there's anobligation to raise money for scholarship forstudents who go here," Malkin says. "[Overseersshould be] watching over finances of theUniversity and fundraising for the University."

Such arrangements are common at other schools.Richard P. Chait, a professor at the University ofMaryland and author of The Effective Board ofTrustees, says the ability to contributefinancially to a university is often an importantconsideration in choosing people to sit ongoverning boards.

"On balance, it's more desirable to have peoplewith more wealth than not," Chait says. "Everytrustee recognizes the standard applied that eachmember will support the institution in accord withhis or her means."

And smith, the ethicist with the PoynterCenter, says governing board members are looked onas potential donors at universities everywhere.

"Trustees are regarded as donors themselves orpeople who can marshal those who can support theuniversity," Smith says. " They will be approachedas donors and their resources will at one time oranother be tapped into in fund campaigns."

But Roberts insists that the ability to give orraise money is not a prerequisite for being aboard member. He notes however, that overseers andmembers of the corporation have given generouslyin the past.

"It is the case that members of the two boardshave been remarkably generous to our institutionover the years," Roberts says.

And Bayley says there is not expectation thatboard members must financially contribute to theUniversity.

"We're unusual because people on the Board ofOverseers never discuss whether they cancontribute financially," Bayley says. "In acapital campaign we'd want to be able to say we'vesupported it 100 percent, but that could be $10for those who don't have any money."

Of course, the people serve on theHarvrd's governing boards are far from poor. Andthose who sit on the board of public companiesearn stipends and committee fees that can add upto hundreds of thousands of dollars per year.

In exchange for the responsibility ofoverseeing a company and attending four to 12board meetings per year, directors of for-profitcorporations often receive annual stipends ranginganywhere from $9,000 to $55,000.

In addition, the annual retainer is frequentlyaugmented by extra fees for attending board andspecial committee meetings.

Perks such as stocks also awarded at times.

Overseer Thomas S. Murphy, chair and chiefexecutive officer of Capital Cities/ABC, sits onthe board of corporate heavyweights such as IBM,Johnson & Johnson and Texaco--all of them membersof the Standard & Poors 500 Index.

For his work at IBM, Murphy received a $55,000annual retainer last year as well as an additional$5,000 for serving as chair of IBM's ExecutiveCompensation and Management Resources Committee.IBM also awarded Murphy 100 shares of thecompany's stock upon completion of his membershipyear.

In addition, Murphy received $53,000 fromJohnson & Johnson and approximately $60,000 from.Texaco in 1993. In total, Murphy garnered morethan $ 170,000 from the three public corporations.

Chait says such practices are not exclusive toacademic institutions.

"It's a common practice," Chait says. "The vastmajority of those serving on trust boards arepeople who serve on boards of directors offor-profit corporations."

Terrence L. Moore, chief of characterand ethics development at the U.S. Air ForceAcademy, says there is an upper limit to thenumber of other boards a member can sit on.

"There is only so much time they can come togrips with all the information to make decisions,"Moore says. "They've got to have the time toconsider the issues."

That is the University's concern too, accordingto Robert. He says that as part of the process ofelecting overseers and Corporation members Harvardevaluates whether candidates will have enough timeto watch over the University.

"The only thing the University is in theposition to do is to consider the amount to timethey [governing board members] have," Robert says.

And ultimately, says Corporation member Smith,it is up to Harvard to decide whether there shouldbe a cap on corporate commitments. To this point,there appears to be no official limit.

"There is an upper limit somewhere," Smithsays. "It's the judgment of the management."CrimsonAlex B. Livingston

"The conflict of interest is an ever presentpossibility," says Ronald Green, director of theEthics Institute at Dartmouth. "They [Universitytrustees] should have judgment of staying out ofissues not only when there is a conflict but whenthere is an appearance of a conflict. And onlywhen there is also a conflict of interest policywill have adequate protection."

Nowhere is the potential for conflict moreclear than in the stocks the University holds. Asof June 30, 1990--the latest date for which listsof the University's major stock holdings areavailable--Harvard had holdings in at least fourcompanies for which members of the governingboards now serve: Atlantic Richfield, IBM, J.P.Morgan & Company and The Pittston Company.

Some wonder how closely Harvard is keeping tabson the financial commitment of governing boardmembers. Michael W. Roberts, secretary to thegoverning boards, say he is not aware of anyofficial document disclosing members corporateaffiliations.

The University adopted a conflict of interestpolicy in 1975, but it is unclear how or evenwhether is it is enforced. The policy stipulatesthat a conflict exists when a governing member "has an existing or potential financial or otherinterest which impairs or might appear to impairthe individual's independence of judgment in thedischarge of responsibilities to the University ormay receive a material, financial or other benefitfrom knowledge of information confidential to theUniversity."

But Vice President and General Counsel MargaretH. Marshall says she is unaware of any past orpresent conflict of interest involving Harvard'sgoverning boards. "I don't know why the policy wasadopted," she says.

Ethicists argue that oversight andopenness are essential to dealing with real andperceived conflicts of interest.

David H. Smith, director of the Poynter Centerfor the Studies of Ethics at Indian University,says a conflict arises when the University is in aposition to do business with the corporationsaffiliated with the members of the governingboards.

"It's not hard to imagine overseers on boardsof corporation where it would be convenient to getscientists to do the research for them," Smithsays. "The excessive overlapping of corporateboard members as general phenomenon is troubling."

Smith says one way to combat such conflicts isfor universities to draw more members of theirgoverning boards from outside the corporate world.

And Yale research scientist Peter D. Hall saysconflicts are frequent when entrepreneurs serveboth on non-profit and for-profit boards.

"Something legally okay often isn't in theethical sense," Hall says. "But many non-profits,in order to survive, have to have these kinds ofrelationships."

Dr. Lachlan Forrow, coordinator of teachingprograms in medical ethics at the Harvard MedicalSchool, says it is crucial to reveal all corporaterelations.

"Conflicts of interest are common and the mostimportant responsibility for anyone with apossible conflict is being open about what it isand letting others judge whether there is aconflict," Forrow says. "The most important thingis disclosure."

And Green, the Dartmouth ethicist, says theacademic and corporate realms are very distinctand should not always be mixed.

"Sometimes business managers make the mistakeof entering into the university culture when theirexpertise is really in business, " Green says.

But members of the governing boards whoagreed to be interviewed say conflicts of interestare rare among Harvard's to officials.

"[Overseers] are there for helping Harvard andthere is no ulterior motive," says OverseerStephen B. Kay. "The overseers are just a resourcegroup who represent a lot of different walks oflife."

In fact, members of the governing boards arguethat their experiences in the corporate wouldallow them to make better-informed decisions forHarvard.

Richard A. Smith' 46--a member of theCorporation as well as CEO and board member ofGeneral Cinema Companies, Inc.--also serves asthe chair of Harcourt General, Inc. and NeimanMarcus Co. He says he learned a lot from sittingon boards of for-profit companies.

"Many problems and challenges are similar,"Smith says. "Probably the most important is thediscipline of private industry in planning andlong-range thinking in order to articulate andform objectives and describe mission of theorganization."

Geyser University Professor Henry Rosovsky, amember of the Corporation and former dean of theFaculty, says his experience as a director ofpublic corporation makes him a better contributorto Harvard.

"I have a much better understanding of howorganizations function and the problems they faceand the solutions to them," says Rosovsky adirector of Corning, Inc. and Paine Weber Group,Inc. "Corporations are supposed to have moreoutside directors, and the Harvard Corporationalso functions as a public board for Harvard.

But the not everything learned from publicboard service is valuable. Arthur L. Liman '54says the knowledge he gains as a director toEquitable Companies, Inc. has little to do withhis duties as an overseer.

"You get a sense of responsibility and howother entities do business," Liman says. "But99.999 percent of what overseers do is not relatedto what I or others have done at otherorganizations."

And Christopher T. Bayler '60 says his role asa director to the semi-conductor manufacturerInterpoint Corp. And his position as a Harvardoverseer are very different.

"Nothing at all is similar," Bayley says."Nothing is comparable to being on the Board ofOverseers."

Governing board members say they areexpected to help the University raise money. And,they say be serving on other public boards, theymake the contacts that allow them to do that.

Peter L. Malkin '55, an overseer and a directorto U.S. Trust Corp., says serving on boards offor-profit companies exposes him to potentialsources of financial gifts to Harvard.

"Someone has to bear in mind that there's anobligation to raise money for scholarship forstudents who go here," Malkin says. "[Overseersshould be] watching over finances of theUniversity and fundraising for the University."

Such arrangements are common at other schools.Richard P. Chait, a professor at the University ofMaryland and author of The Effective Board ofTrustees, says the ability to contributefinancially to a university is often an importantconsideration in choosing people to sit ongoverning boards.

"On balance, it's more desirable to have peoplewith more wealth than not," Chait says. "Everytrustee recognizes the standard applied that eachmember will support the institution in accord withhis or her means."

And smith, the ethicist with the PoynterCenter, says governing board members are looked onas potential donors at universities everywhere.

"Trustees are regarded as donors themselves orpeople who can marshal those who can support theuniversity," Smith says. " They will be approachedas donors and their resources will at one time oranother be tapped into in fund campaigns."

But Roberts insists that the ability to give orraise money is not a prerequisite for being aboard member. He notes however, that overseers andmembers of the corporation have given generouslyin the past.

"It is the case that members of the two boardshave been remarkably generous to our institutionover the years," Roberts says.

And Bayley says there is not expectation thatboard members must financially contribute to theUniversity.

"We're unusual because people on the Board ofOverseers never discuss whether they cancontribute financially," Bayley says. "In acapital campaign we'd want to be able to say we'vesupported it 100 percent, but that could be $10for those who don't have any money."

Of course, the people serve on theHarvrd's governing boards are far from poor. Andthose who sit on the board of public companiesearn stipends and committee fees that can add upto hundreds of thousands of dollars per year.

In exchange for the responsibility ofoverseeing a company and attending four to 12board meetings per year, directors of for-profitcorporations often receive annual stipends ranginganywhere from $9,000 to $55,000.

In addition, the annual retainer is frequentlyaugmented by extra fees for attending board andspecial committee meetings.

Perks such as stocks also awarded at times.

Overseer Thomas S. Murphy, chair and chiefexecutive officer of Capital Cities/ABC, sits onthe board of corporate heavyweights such as IBM,Johnson & Johnson and Texaco--all of them membersof the Standard & Poors 500 Index.

For his work at IBM, Murphy received a $55,000annual retainer last year as well as an additional$5,000 for serving as chair of IBM's ExecutiveCompensation and Management Resources Committee.IBM also awarded Murphy 100 shares of thecompany's stock upon completion of his membershipyear.

In addition, Murphy received $53,000 fromJohnson & Johnson and approximately $60,000 from.Texaco in 1993. In total, Murphy garnered morethan $ 170,000 from the three public corporations.

Chait says such practices are not exclusive toacademic institutions.

"It's a common practice," Chait says. "The vastmajority of those serving on trust boards arepeople who serve on boards of directors offor-profit corporations."

Terrence L. Moore, chief of characterand ethics development at the U.S. Air ForceAcademy, says there is an upper limit to thenumber of other boards a member can sit on.

"There is only so much time they can come togrips with all the information to make decisions,"Moore says. "They've got to have the time toconsider the issues."

That is the University's concern too, accordingto Robert. He says that as part of the process ofelecting overseers and Corporation members Harvardevaluates whether candidates will have enough timeto watch over the University.

"The only thing the University is in theposition to do is to consider the amount to timethey [governing board members] have," Robert says.

And ultimately, says Corporation member Smith,it is up to Harvard to decide whether there shouldbe a cap on corporate commitments. To this point,there appears to be no official limit.

"There is an upper limit somewhere," Smithsays. "It's the judgment of the management."CrimsonAlex B. Livingston