Management Troubles Darken HIID's Future

Since the presidency of Derek C. Bok, Neil L. Rudenstine's predecessor, Harvard University has been anxious to minister to the world.

But even as Rudenstine pledges to increase Harvard's commitment to reach out from its ivory tower, one of the most visible and long-standing pieces of Harvard's real world involvement is fighting to remain intact.

The Harvard Institute for International Development (HIID) was founded during Bok's tenure to provide developing countries with the expertise they need to improve their economies. HIID's experts--sometimes drawn from the Harvard faculty--get a chance to do real-world research while they consult.

Today's HIID has funding in the tens of millions of dollars--mostly from the U.S. government--and advises about 60 countries.

But international scandal, management difficulties and budgetary troubles have tarnished HIID's reputation. As a result, the Institute's days could well be numbered, according to Provost Harvey V. Fineberg '67.

If HIID does survive, its future will likely be dictated by a special task force convened last spring. This committee is considering options including spinning HIID off as a private venture or dividing it up among Harvard's schools.

And so anxiety runs high at the HIID headquarters in the sleek University office building at 8 Story Street. The Institute looks to be in as much trouble as the governments it advises.

"It does not depress me," says acting HIID Director Richard Pagett. "But it would be disingenuous to say its business as usual here. It creates a morale problem--we've got 200 people who are going through a pretty tough time right now."

The Early Years

HIID began in the early 1960s as an advisory group of faculty from Harvard and elsewhere, charged with advising foreign governments.

In 1974, that advisory group was christened HIID, and the Institute expanded its scope to include more countries and economic areas.

HIID now deals with the environment, sociology, education and public health. Starting out with a budget of $3 million in the late 1970s, today HIID uses a budget of between $30 million and $40 million a year to help foreign countries with their development.

In Indonesia, for example, HIID helped assemble a credit program through local banks that lends to the poorest segment of society without the need for any government subsidies.

With more than 20 overseas projects and another 25 international efforts run out of the Cambridge office, HIID has been able to provide a world of good for decades.

Roughly half of HIID's budget comes from the United States Agency for International Development (US AID). The other half is assembled from groups including the World Bank and the governments the Institute consults for.

A Few Dollars Short

R. Kim Kiley '72 still hasn't seen what he says is his share of that money.

Kiley, formerly senior vice president at Wall Street investment bank L.F. Rothschild, worked for the Institute's project in Slovakia until 1997, advising the government on ways to reduce pollution and improve its environmental record.

To this day, Kiley says, HIID owes him money. He says this oversight is part of a larger problem with mismanagement within HIID.

"I'm really pissed off," Kiley says.

The Slovakia office was a part of HIID's larger Eastern European effort--all bankrolled by the federal government, through the U.S. Agency for International Development (US AID).

The project reportedly overspent its budget by more than $100,000, but, Kiley says, no one knew exactly how much money had been spent.

"They simply lost control of the program," Kiley says. "I asked how much money was left in the budget--it took five months to get an answer and even then, the number was clearly too large."

This problem became personal for Kiley, he says, when he tried to make use of the common practice of getting reimbursed for unused vacation time.

HIID told Kiley they didn't want to use Harvard money to pay him, but the US AID money had run out. Kiley, who had recently refurbished his apartment in expectation of the additional money, says he then found himself in fiscal jeopardy.

His wife, a Slovakian national, lost her visa to come to the United States because of this debt, Kiley said.

Harvard, for its part, says it does not owe Kiley any money, though it will not comment on the terms of its employees' contracts.

But Kiley says HIID's organization makes it prone to disputes like his. HIID project managers are expected to write monthly reports, detailing for the home office how each program is running. But, Kiley says, the reports are often little more than rehashed versions of the previous month's--sometimes with nothing more than a change of date.

"The Institute is way undermanaged," Kiley says. "I thought it would be super to work for HIID because I loved Harvard. But HIID did not represent the Harvard I went to--they felt no compunction about screwing over their advisors."

Oversight

With operations touching some 60 countries around the globe, HIID is undoubtedly a complicated organization to keep in check. It is a situation, some say, that is ripe for disaster.

Last spring, Fineberg commissioned a Coopers and Lybrand audit of HIID's management structure, which he says basically signed off on HIID's current organization.

But already the Institute has tried to make some basic reforms suggested by the audit. HIID's overall operation has been divvied up into four areas, each with a team leader.

Now, operatives report to their team leader, and not the perennially over-worked HIID director.

"We do not have a management problem here," says Pagett.

Instead, Pagett says, HIID is faced with dilemmas with a life outside the management structure.

"If people are going to do bad things," Pagett says, "having systems in place isn't going to stop them."

The Unraveling

The biggest "bad thing" to happen to HIID in recent years was the messy, public unraveling of its Russian program.

In the early 1990s, the Institute advised the Russian government on its transition to a capitalist economy. Economics Professor Andre Shleifer '82 oversaw the project, which was paid for by a $57 million grant from US AID.

But in 1997, Shleifer and another HIID consultant, Jonathan Hay, were accused of using their positions for personal gain and investing in Russian securities while advising the Russian government.

US AID immediately canceled the remainder of its grant, depriving the program of some $14 million. Sachs fired Hay, and Shleifer was forced to return to the economics department.

And the situation got blacker: U.S. Attorney Donald K. Stern decided to move ahead with a federal investigation, which is ongoing.

Stern's is a familiar name to Harvard's lawyers. In 1996, Harvard agreed to a $775,000 settlement after Stern charged the University with improprieties at its pharmacy.

All in all, Russia was the culmination of HIID's fears.

"Russia represents what could go wrong anywhere we're working," Pagett says. "HIID does get involved in a lot of risky situations."

And at the same time the Russia scandal broke, HIID raised further ire in the administration by running a deficit.

"The way Harvard runs, if there's no scandal and you're not losing money, you're off the radar screen, but if you have a scandal or you lose money, you're dead center," says one University official close to HIID. "HIID did both."

The next blow came last May, when HIID's then-director, world-famous economist and Stone Professor of International Trade Jeffrey D. Sachs '76, announced he was leaving the Institute in little over a month.

Sach's departure was, by all accounts, unrelated to the scandal in Russia. The economist simply had too many other projects and decided HIID was the one he would give up.

Instead, he would focus his time on various other international programs at Harvard, in particular his job heading up the newly formed Center for International Development--intended to be a more research-oriented corollary to HIID.

But Sachs' departure only piled more uncertainty on an organization reeling from high-profile difficulties.

Under Review

Those doubts crystallized after Sachs left when, instead of creating a search committee to find a replacement, Fineberg convened a task force charged with reviewing the very mission of HIID.

The committee's mission was to consider "all options" for the troubled institute's future.

Pagett says the task force was a "prudent measure" on the part of the administration, following the scandal in Russia.

The institute has continued to accept new projects that will last several years, in what is a sign of confidence in its own future.

Still, Fineberg says, "The world of international development has evolved from since HIID was started... There are really significant questions of whether the education is really best served in that form today."

The task force of four, headed by Associate Provost Dennis F. Thompson, has met five times, though it has not yet reached any conclusions about the Institute.

But while the task force is considering keeping HIID as an allied institution with its director working out of the provost's office, a number of radical proposals are on the table.

"HIID could be legally and financially independent as an institution," Thompson says.

Under such an arrangement, HIID would still have a special relationship to the University where students would have special access to its work, but its official ties to Harvard would be severed and it would probably moved off Harvard property.

The task force is also considering folding HIID into one of Harvard's schools or distributing its work among several of them.

Putting Knowledge to Use

Pagett says difficulties are inevitable in any endeavor that mixes academic work and real-world consulting so thoroughly.

"You're gong to have problems any time you're dealing with messy real world situations," Pagett says. "But the benefits far outweigh the costs."

Harvard, however, forbids its professors to consult more than one day a week, and US AID refuses to pay more than $455 per day. Most Harvard professors can consult for more, and today HIID employs virtually no professors from the teaching ranks of the Faculty.

With management problems ranging from deficits, to unpaid and disgruntled employees, to scandal that impinges on the international relations of two superpowers, Harvard may well decide the time has come to retire its international consulting operation.

"There is a certain irony," says Kim Kiley, "with [the institute] going around the world advising governments how to do their finances when HIID can't even get its own house in order."