University Endowments – Fidicuiary Duties – Whose Money is it — What Are “Societal” Responsibilities?

by Hank Boerner – Chairman, G&A Institute

Many of our nation’s colleges and universities — which are “Social Institutions” — have long had established endowments. Some are truly wealthy — these are pools of assets designed to serve future generations.  Other types of  various types of social institutions” are similarly wealthy. Endowment assets are managed in-house or by outside professional money managers.   Over the years, the college and university endowments have been in focus for sustainable & responsible investors (SRI advocates) — as they are right now.

For example, Harvard University has an endowment fund reported to have  US$36 billion in Assets Under Management (AUM) — the largest of these “funds-for-the-future” of the higher education community in the USA.

The students and other stakeholders would like to see “more responsible” investing by the Harvard endowment, such taking the decision to divestment shares of traditional fossil fuel companies in the portfolio. (think: “ExxonMobil“). Among the arguments, gaining ground. including beyond the university endowments discussion, is that these public companies have “reserves” (such as coal, oil, natural gas) that are important parts of their capital markets valuation, and with climate change and the development of renewable fuel sources and other factors, the reserves on the balance sheet will over time become “stranded assets” – thus, devaluating the business enterprise. That is, the coal or crude oil in the gorund will not be harvested and sold…they will be stranded and of little or no value.  And therefore, as fiduciaries, responsible for the fund in the future, a collision course is set up:  the fund needs in 2050 will be diminished as the value of the corporate holdings moves downward.

And so, students of the Harvard Law School have filed a lawsuit seeking to compel the endowment fiduciaries (the trustees) to divest holdings in fossil fuel enterprises.  Interesting:  their case is based on 17th Century transactions (back when whale oil and wood were the primary energy sources).  In 1640, Harvard College was established as a seminary and documents were filed with the Massachusetts Bay Colony.  Under those documents, the 21st Century students argued that they had standing (to bring the action) under “special interest” provisions.

The endowment leadership responded:  “The endowment is a resource, not and instrument to compel social and political change…” (The New York Times). Harvard President Drew Gilpin Faust has spoken on fossil fuel divestment.  In October 2013, a statement to the Harvard community said in part:  “[I] and members of the Corporate Committee on Shareholder Responsibility have benefitted from conversations [with students] who advocated divestment…while I share their belief in the importance of addressing climate change, I do not believe, nor do my colleagues on the Corporation, that university divestment from the fossil fuel industry is warranted or wise…”

The president also said that “…especially given our long-term investment horizon, we are naturally concerned about ESG factors that may affect the performance of our investments now and in the future…”  Harvard policy is engagement and collaboration, rather than “ostracizing” companies based on their product (such as fossil fuels). The Harvard Management Company brought on a VP for sustainable investing. (You should  read the full statement here: http://www.harvard.edu/president/fossil-fuels to understand the university’s official position on these issues).

Alice M. Chaney, who with six other Harvard students filed the lawsuit to compel Harvard Corporation (the governing body of the university) to divest fossil fuel companies, said the following: “We allege that Harvard’s investment in those companies violate its duties as a public charitable institution by harming students and future generations.” (Cheney is a law school student and member of the Harvard Climate Justice Coalition.)

The students — organized as “Divest Harvard” — have been campaigning on the issue.  The first step was a survey of students in 2012 — 72% at the college and 67% at the law school voted in favor of divestment.  Since then 200 faculty members, 1,000+ alumni, and 63,000 community members have signed divestment petitions, the group says.

The legal arguments:  the Harvard Corporation’s public charitable obligations include managing its endowment so as to protect the ability of Harvard students to learn and thrive. The Corporation also has a responsibility not to act in ways that threaten the health and welfare of future generations. (You can read her statement at: http://billmoyers.com/2014/11/22/suing-harvard/)

The pressure on universities to divest holdings in companies based on ESG issues is a long-time tradition.  American university interests were deciding factors, I believe, in the American and global campaigns to abolish Apartheid practices in South Africa in the 1980s and the aid to combatants in the civil war in Darfur more recently.  (The drive was to get investors out of the stock of US companies “supporting” the Sudan government which was making war on its own populations.)

Beth Dorsey, CEO of Wallace Global Fund and leader of the Divest-Invest Movement, commented on the Harvard University leadership’s opposition to divestment:  “In the last great divestment campaign, Harvard said ‘no’ before it said ‘yes’ and I think if just a matter of time.  Unlike the anti-apartheid movement, this is not just an ethical issue.  There is a powerful financial reason as well…”

As the lawsuit in the Commonwealth of Massachusetts / Suffolk County courts winds on, and the Divest Harvard protests continue, half a world away, the world’s largest Sovereign Wealth Fund – the US$800+ billion AUM Norway Government Pension Fund — just announced it will divest holdings in coal mining companies.  the list of companies will be made public on December 1.  The SWF will not divest oil and gas companies.  (Consider: the wealth of the wealth fund is primarily based on taxes on the country’s North Sea fossil fuels.)

While you think about that last tidbit, consider that the descendants of John D. Rockefeller — the 19th Century Titan of Industry who assembled the giant Standard Oil Company — have decided to divest their fossil fuel investments (in September 2013)! Great and great-great grandchildren Peter O’Neil, Neva Rockefeller Goodwin and Stephen B. Heintz are in the lead for the Rockefeller Brothers Fund, which has $860 million AUM.

Said Stephen Heintz:  “John D. Rockefeller, founder of Standard Oil, moved American out of whale oil and into petroleum.  We are quite convinced that if he were alive today, as an astute business man looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy…”   (More about this in The Guardian coverage of the announcement at: http://www.theguardian.com/environment/2014/sep/22/rockefeller-heirs-divest-fossil-fuels-climate-change)

The Rockefeller family announcement was an important part of a “momentum moment” for fossil fuel divestment proponents.  The influential World Council of Churches joined the divestment movement. American cities are adopting similar policies (as many did in the anti-Apartheid movement).  Advocates are working under the umbrella of the Divest-Invest Movement.  To date some 800 institutional investors have pledged to withdraw more than $50 billion in fossil fuel investment over the coming 5 years.

ExxonMobil’s position?  In October The Wall Street Journal headline read:  “Exxon Blasts Movement to Divest From Fossil Fuels…the oil giant seeks to counter the campaign…”  The article by Ben Geman said that the company published a “lengthy attack about the divestment movement, positioning the argument that [the movement] is at odds with the need for poor nations to gain better access to energy, as well as the need for fossil fuels to meet global energy demand for decades to come…” The author is Ken Cohen, VP for Public and Government Affairs (writing in the company’s blog.)

“Almost every place on the planet where there is grinding poverty,” he wrote, “there is energy poverty.  Wherever there is subsistence living, it is usually because there is little or no access to modern, reliable forms of energy.”

And so, the battle lines are formed — advocates vs. university, asset owners (and managers) vs big fossil fuel companies, institutions and fiduciaries (in Exxon’s view) vs. the people of poor nations.

The positions (and actions) of two important institutional investors could create a tipping point:  Harvard University (with considerable wealth, influence, prestige, powerful alumni, world-class faculty, a powerful publishing arm and on and on) and the Norwegian Sovereign Fund, which invests in literally thousands of public companies…and soon will have $1 trillion in AUM to leverage in pursuit of its social / societal issues policies and investment actions.

Stay Tuned to the Fossil Fuel Divestment Movement…and the push back by giants of the fossil fuel industry and their allies in the US Congress and other power centers.

 

 

 

 

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Remembering Nelson Mandela from John Taylor CEO of National Community Reinvestment Coalition

John Taylor PhotoOur friend John Taylor shared this remembrance of Nelson Mandela.  John is the CEO of the National Community Reinvestment Coalition in Washington DC.  He is an effective advocate for social justice and fair lending practices.

I would be remiss not to share with you a brief story of when I met Nelson Mandela. It was six months after he was released from prison.  As many of you know the Kennedys, particularly Robert, were very engaged in speaking out against apartheid in South Africa.

Robert Kennedy went to visit Mr. Mandela while in prison and upon leaving South Africa had his plane fly low over Robben Island, where Mandela was imprisoned.  Back home the Kennedys were very vocal in calling for a free South Africa, supporting Rep. Ron Dellums (D-CA) and others who passed legislation in 1986 (it actually had bipartisan support) imposing economic, military another sanctions against the nationalist South African government. Of course that legislation was vetoed by Ronald Reagan.  Fortunately, Republicans and Democrats in the Congress came together and procured the needed votes to override the veto.

In any case, when Mandela came to the U.S. after finally getting out of prison, his first stop in our country was to Boston to thank the Kennedys and the City of Boston (the first U.S. city to take a stand against apartheid by imposing sanctions on companies and banks that conducted business with the South African government).

Robert’s son, Rep. Joe Kennedy II (D-MA), invited me and one other person, to a small gathering of people who would be meeting Mr. Mandela at the JFK Presidential Library in Boston, not too far from where I grew up in Boston.  What an honor.

Of the 50 or so people there, it seemed that everyone was a celebrity, I was half expecting someone to ask for my ID and then be escorted out of the building.  Fortunately, that didn’t happen, and as we stood around waiting for Mr. Mandela’s arrival I was having one-on-one conversations with people like Stevie Wonder, Paul Simon, Danny Glover and several others.

My congressman, and friend, Joe Kennedy II then introduced me to Jacqueline Kennedy Onassis.  He said, “John have you met Mrs. Onassis?” I replied I had not; she smiled and began to talk, when behind her a door opened and out walked Nelson Mandela, Winnie Mandela and Senator Ted Kennedy to the thunderous applause of the gathered celebrities.  Like a starstruck fan at a rock concert, I immediately moved towards the star of the show to give him my best and thanks.  To this day I regret not being able to show Mrs. Onassis more deference and to talk with her – what an incredible human being she was.

Mr. Mandela did not disappoint.  He spoke of his appreciation for those who stood up against apartheid, and along with his message he exuded a warmth, graciousness and deep humility that touched me like no one before.  It struck me then, what kind of human being spends 27 years in prison and rises from it with such gentleness and forgiveness as this special man possessed.

I would love to say how much of his intimate speech I remembered, but it was a bit of a blur at this point. The man, his love for mankind, for South Africa, for all things ‘justice,’ just floated out over the audience like a misty and intoxicating perfume. What an honor to have met this very special being.

I am eternally grateful to Joe Kennedy for including me in this special event . As I left the John F Kennedy Library I do remember how peaceful the ride was in my little red Volkswagen bug as I reflected on my own life and work in the field of economic justice.

How trivial my challenges seemed but at the same time how critically important the work we were doing locally in economic justice was.  I was inspired by this slight man from a rural area at the very bottom of this vast continent of Africa.

He showed me that we can endure a great deal, but at the end of the day, the goodness and righteousness of people will prevail.  Like others, I mourn the loss of President Mandela, but at the same time I join billions of people who now celebrate his greatness and commitment to a better society and kinder world.  We are all blessed to have known him, better off as human beings because of his love for mankind, and this is as true whether we witnessed him from afar or up close and personal.

John Taylor

President and CEO, National Community Reinvestment Coalition/NCRC

President Nelson Mandela – Tributes on Passing – His Influence Reached to SRI Community in USA

by Hank Boerner, Chairman, G&A Institute

Today the world mourns the passing of one of the 20th Century’s most distinguished statesmen – President Nelson Mandela of South Africa. Among his greatest accomplishments was the lifelong struggle to end the system of Apartheid and oppression of the majority black citizenry, which led to establishment of a “rainbow democracy” with all elements of the country’s society included and having a voice and vote.

Apartheid seems so long ago now but the struggle was very present in the United State of America. The issue was debated on college campuses – President Barack Obama said that his very first “political” issue involvement was about Apartheid. Over time as the issue gained greater public visibility, pressure was applied to the U.S. and European companies operating in South Africa. U.S. companies withdrew — among them giants like Eastman Kodak and General Motors, The US Congress in 1986 passed the “Anti-Apartheid Act” which finally banned trade and investment in South Africa — and banned most S.A. exports to the USA. (This was a Republican-controlled Senate, we would note. President Ronald Reagan vetoed the measure but the Senate overrode the veto – imagine that happening today!) Military sales were stopped. I remember SAA — South African Airways — ceasing operations on their busy NY-Johannesburg route when I was in the airline business.

Speaking of GM, one of the largest US industrial powers — a board member, Reverend Leon Sullivan, suggested a process for dealing with the issue and the resulting “Sullivan Principles” were widely adopted by US companies (a shout out to the GM board of that time for their courage).

A familiar force in sustainable & responsible investment and in encouraging good corporate governance began operations around the issue: today’s ICCR (Interfaith Center on Corporate Responsibility). ICCR members manage US$100 billion AUM and influence the actions of other asset managers and stakeholders with their activism on key ESG issues.

The trade association for the SRI community — US SIF — commented today on President Mandela’s passing: “US SIF honors the life and action of Nelson Mondela. The roots of today’s sustainable investment field can be found in the efforts of investors, often undertaken with civil society partners in South Africa and around the world, to help eradicate Apartheid by putting pressure on companies doing business in S.A. Sustainable and responsible investors have continued effort to support human rights and address inequality in the decades since. The life of Mandela will continue to influence…”

Many of the public and private sector veterans of the 1960s-1980s divestment campaigns targeting U.S. companies doing business in/with South Africa are today recalling their own individual and collective efforts to bring attention to the campaign for equality and fair treatment of South Africa’s majority population.

General Colin Powell today added his remembrances of Mandela and wondered to his CNN interviewer…what might our own country have looked like if President Abraham Lincoln was not assassinated…what in the Reconstruction Era following the Civil War would have been different…avoiding Jim Crow laws, segregation, outright discrimination against our own African-American citizens? Interesting to think about as we remember Nelson Mandela and his struggle a century later…and his comments about President Lincoln’s inspiring example.

Soon after the changes in South Africa I attended a lecture in Washington DC by the former leader (under Apartheid), F.W. DeKlerk, who came to discuss the changes taking place in his country. At one point he said he wished that the system that he ruled would have ended much earlier. Mandela was right.  He touched my heart, the former leader of the white majority government said.  Mandela in his 95 years touched many hearts.

And that suggests the immense power of an idea whose time has come — concepts of freedom, equality, democracy for all, fairness, protection of human rights, the responsibility to society of large corporations  — that armed forces, security thugs, bans, institutional blocks, and other means cannot stop.

We have before us today the example of President Mandela, who was jailed for 27 years in the prime of his life to look to for what can be possible. He forgave his jailors (another powerful idea) and brought his rainbow nation together. We are all in his debt. I will remember these things as I mourn his loss.