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Endowment Politics

When advancement strategies are defensive.
University Business, Jul 2007

IT IS CERTAINLY MORE RARE than common for a university's actions, such as taking down a cross at a campus chapel or investing in companies that do business in Darfur, to directly affect donations, but that relationship-between behavior and endowments-is evolving, and some say the link may strengthen in the future.

"There clearly has been in the past couple years a kind of renewed interest in ethical, moral, and environmental ramifications of endowment investment," says David Bass, director of government relations and institutionally related foundations, at the Council for Advancement and Support of Education (CASE). "I tend to think of that more though as sort of an activist push from students, faculty, and other stakeholders who say let's use them [investments] in a way that keeps with the institution's values, not compromise the institution ethically."

So what about a school's activities-do they or can they affect donations?

"There are many things that happen on a college campus that can encourage or discourage an individual in terms of giving to an institution," says Sean Pieri, vice president for development at the College of William and Mary (Va.). It could be something as simple as their child not being admitted to the school. "It could be because of a policy decision," Pieri adds. "It could be investment strategy. It could be a curriculum change. The possibilities are endless."

Earlier this year, the decision to remove a cross from the College of William and Mary's Wren Chapel prompted a small number of alumni to say they would withhold donations to the public school. At the time, President Gene R. Nichol explained he had the cross removed from the chapel's altar so no one in the campus community would feel excluded. The cross couldbe replaced on request. Opponents said the removal dishonored the school's original Anglican roots. The estimated 18 William and Mary alumni who said they would not donate make up a small percentage of the college's donors.

According to the William and Mary Office of Development, nearly 16,000 donors gave $4.77 million in fiscal year 2006, including 10,677 alumni. Then on March 1, a donor withdrew a $10 million pledge he had made years earlier. Five days later, Nichol and the William and Mary Board of Visitors issued a joint statement saying the William and Mary Committee on Religion in a Public University recommended a compromise practice on the display of the altar cross in the Wren Chapel.

Pieri says it's important for development officers to pay attention to what alumni and other potential donors are saying but also know that not everyone is going to see eye to- eye on every action at the college. "As development officers, it's our responsibility to maintain relationships with people and understand that we will hear many differing opinions on a variety of issues and that a consensus opinion is rarely achievable," he says. "We understand we are developing relationships with individuals who are investing in the institution. Listen to their concerns and be open and honest with regard to the issues and understand that not everyone is going to agree."

"Not everyone is going to agree" is key to many IHEs' decisions to stay out of socially and politically charged issues when managing endowment investments, regardless of what current and former students think about it. But several schools in the last year or so decided to make exceptions to that thinking following organized campus protests over investments in companies supporting the ruling regime in the Darfur region of Sudan.

Earlier this year, the University of Colorado's (CU) Board of Regents departed from its "neutral investment policy" when it adopted its Sudan Divestment Policy, which directs the treasurer to recommend investment strategies for divestment from any companies operating "to the detriment of the Sudanese citizens." The move is contrary to a CU policy approved in 1996 that specifically stated social issues would not be a factor in investment strategies. "The university took a bold step years ago saying we're not going to consider any social issues, and [investment] managers, you're not allowed to consider any social issues," says Chris Bittman, chief investment officer for the University of Colorado Foundation.

'Generally our policy is to ignore issues that people who have reasonable intelligence can disagree on.'
-Don Eldhart, University of Colorado

While the foundation's investment policy statement doesn't speak to any socially responsible issues, the foundation "by default" follows the CU policy, passed by the board in January. The resolution, approved in December 2006, followed a student led campaign claiming the funds support genocide in Darfur. "As a money manager for the university, just like any other money manager would be, we would be asked to abide by that policy. And the policy is pretty clear," Bittman says. The policy directs the foundation treasurer to recommend financially equivalent alternatives for divestment from Sudan. "We've completely met the spirit and intent of the university policy," Bittman adds.

-Don Eldhart, University of Colorado

Recalling the decision-making process, CU Treasurer Don Eldhart says the board decided to divest from companies in Sudan and depart from its neutral policy because it felt the issue is more than a political one. "Generally our policy is to ignore issues that people who have reasonable intelligence can disagree on," Eldhart says. But genocide is an exception to this, he adds, out of the realm of Asian sweatshops-another socially charged issue on U.S. campuses. "There isn't anybody who's going to take the case that genocide is good," he says.

Brown, Harvard, Princeton, Stanford, Yale, the University of Illinois system, and Wheaton College (Mass.) are among the institutions that have announced they will no longer invest in companies that do business with the Sudanese government. But not every school decided to change policy after the protests. The University of Chicago, with an endowment valued at $4.86 billion last year, said in a February statement that it would stick to its "long-standing practice of not taking explicit positions on social and political issues that do not have a direct bearing on the university."

"I understand that the decision not to divest will be a disappointment to some, especially to the students who have given great time, thought, and energy to their proposal," University of Chicago President Robert J. Zimmer said in a statement announcing the decision. "At the same time, the campus deliberations on this topic have reaffirmed for me the extraordinary value in our university's commitment to engaging the broadest range of perspectives." But he said the board "shared the widely held view that the university should seek to identify means to contribute to greater understanding of the conflict in Sudan in ways consonant with the university's mission, with the hope of adding value to ongoing efforts to end this international crisis." Zimmer said he had established a $200,000 fund to support faculty and student work and activities on those issues.

Whether donors or potential donors see the new University of Colorado divestment policy as a positive move is not clear- neither Bittman nor Eldhart has heard of anyone not donating due to the previous neutral policy. Eldhart says he figures CU investment policies matter to about 20 percent of the endowment cases and may be a strong issue in about 10 percent. "Not a lot of people are thinking about that when they're donating," he says, whether to the University of Colorado or to any university or college.

A Goldman Sachs Global Marketing Institution survey in January 2005 that looked at public perceptions of university endowments showed most donors (70 percent) see yielding the highest possible return as the top priority. Sixty-four percent of those surveyed said avoiding investments that are out of step with a university's values is a top or high priority, and 44 percent said it was a high or top priority that investments were socially responsible, such as environment-friendly.

"That suggests that people think it's important, but the bottom line is the bottom line," says Bass from CASE. But he thinks the "socially responsible investor" is changing. It's not as simple as in the old model, in which an investor would try to avoid tobacco or oil companies or lean toward green companies. Investors are perking up to more issues and taking more of an ownership approach to the companies. "It's a 'we'll pay attention to what you're investing in [attitude],'" Bass says.

Seventy-five percent of those surveyed in the Goldman Sachs study said university endowments should only invest in funds that disclose which companies they invest in, because endowment donors deserve to know how their donations are being invested, while 21 percent said university endowments should have the freedom to invest in funds that do not disclose which companies they invest in, such as hedge funds, because those funds might have higher returns than other investments.

The 2006 National Association of College and University Business Officers (NACUBO) Endowment Study said 72 percent of colleges and universities do not consider socially responsible issues specifically in their investments.

Some higher ed foundation managers say it's not easy, particularly for universities and colleges with smaller endowments and staffs, to keep a constant track of what companies are in the investment portfolios. But some institutions have created socially responsible advisory boards, which are typically comprised of university staff, students, and alumni.

At Hampshire College (Mass.), thecommittee on investment responsibility is known on campus as CHOIR. The panel, which includes trustees, faculty, students, staff, an alumnus, and the college treasurer as an ex officio member, assists the board of trustees' investment committee in identifying "socially responsible" corporations and those that can be identified as causing "social injury," such as through their discriminatory practices, practices harmful to employees, or practices harmful to the environment.

Other examples include Dartmouth, which has an Advisory Committee on Investor Responsibility (ACIR), whose faculty, administrators, students, and alumni members advise on shareholder resolutions pertaining to social and environmental issues at companies where the college holds shares directly. In November 2005, based on recommendations from the ACIR and the finance committee, the Dartmouth Board of Trustees directed the investment office to avoid investments in six companies deemed to be directly complicit in what the U.S. Congress and Department of State have determined to be genocide in the Darfur region of Sudan.

Other institutions with these types of committees or boards include Cornell, Duke, Harvard, The University of Vermont, Vassar College (N.Y.), Williams College (Mass.), and Yale. These are among the same schools that pay attention to their "grade" on the annual College Sustainability Report Card published by the Sustainable Endowments Institute.

Cornell was named one of the institute's "Campus Sustainability Leaders," receiving high marks for administrative efforts, green buildings, energy conservation, and recycling programs. But the school didn't fare well in the category of how universities invest and manage their endowments in environmentally and socially responsible ways. The reason, according to the Cornell Chronicle, is because Cornell's investment portfolio is not open to the public. There was one exception to that though: the public announcement last year that Cornell would bar investments in oil companies currently operating in Sudan or in obligations of the Sudanese government, as a response to the genocide in Darfur.

The Sustainable Endowments Institute positively rates institutions that factor social or ecological considerations into investment decisions, work to positively influence companies whose shares they hold, and make public information about their investment process.

The report, released in January, recognized 26 schools as "campus sustainability leaders" and only one, Williams College, as an "endowment sustainability leader." Mark Orlowski, executive director of the institute and an alumnus of Williams, told after the report came out in January, "This means there's a whole lot more upside potential on the endowment side."

The University of California system was among the institutions that enacted a new divestment plan following student demonstrations and organized calls for divestment from companies doing business in Sudan. Its board of regents adopted a divestment policy in March 2006. "The regents felt it was important for a public institution like the University of California to separate itself from, and take a stand against, the violence in Darfur," says Trey Davis, director of special projects. "The act of divestment has both a symbolic and a catalytic effect. It is a rallying point for opponents of the ongoing genocide and provides a spark to spur economic actions by other parties."

But it wasn't just students who supported the divestment proposal, he says. Many faculty, staff, and community members were in favor of the divestment at the regents' meetings, he explains, and were actively involved in the study group that the regents established to analyze the situation in Darfur and several potential investment options.

Investors are perking up to more issues and taking more of an ownership approach to the companies.

Like Eldhart, Davis says the Sudan divestment was an "extraordinarily rare action, one based on an urgent imperative to seek to stop an ongoing genocide." UC's only other divestment was related to companies doing business in apartheid South Africa in 1985. "The UC regents have a fiduciary responsibility to maintain the strength of the university's pension and endowment funds and therefore principally rely upon financial criteria in making investment decisions," Davis points out.

As far as informing the public about the move, Davis says the way UC released information about the Sudan divestment policy is not unlike how it would handle information about its investment practices and decisions in other cases and about its research, academic, and public service efforts. Donations did not factor into the Sudan divestment decision, he says. "Supporters and prospective donors to any organization will always base their choices to make or withhold contributions based upon their views about the organization, its values, and its actions."

It does seem to follow that college or university leaders should let the public know about good behavior to possibly increase donations, just as they would do spin control for controversial behavior to avoid losing donations.

Tom Audley, director of gift planning at Rockhurst University, a small Jesuit university in Kansas City, Mo., says he thinks there is certainly a connection between planned gifts and what happens on campus and that it's important to get the word out about behaviors that reflect positively on the school and its students.

Audley says he spends a lot of time talking to potential donors, particularly alumni, about what's going on at the university. "With planned gifts what people are attempting to do is extend their values," Audley says. Often an alum that's considering a planned gift will call and want to know whether the university is doing today what it did when he or she was in school. "What I have to say is, the answer is yes and no ... that things change but that the core values that make Rockhurst what it is endure," Audley says.

A planned gift is a legacy gift, and potential donors want to know the money they work so hard to earn and save will not be spent on a school that shows signs it will change its core values 50 to 100 years from now. "We have to constantly work to not only describe what's going on campus but also interpret it in terms that will allow people, particularly the older alumni, to understand that there is that 'commonness' in what [they] experienced," Audley says.

It's not that donors aren't interested at all in how the school is investing its money, or in fiscal responsibility. Certainly there were questions from donors when the stock market crashed in 2001. "But they're looking more at what's happening on campus than they are behind the scenes," Audley adds.

Toni Cardarella, a freelance writer based in Kansas City, Mo., specializes in business and finance topics.

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