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Taking a Stake in Campus Finances

Spreading the power of making investment decisions
University Business, Sep 2008

IN APRIL 2008, STUDENTS AT the University of Florida in Gainesville staged a hunger strike to protest the investment policies and lack of transparency for the campus’s $1.2 billion foundation endowment. It was dramatic if not exactly effective. Foundation trustees agreed to consider general social criteria along with financial criteria when making investment decisions. 

The protest was almost touchingly retro, because the new version of campus investment activism has students investigating proxy issues, campus financial officers considering ways to make money by investing in the community, and alumni activists questioning whether a university with a multi-billion-dollar endowment has an obligation to share the wealth.

The Responsible Endowments Coalition, a network of student, faculty, and alumni groups on 65 campuses, lets campus stakeholders share information. It recommends that students work with administrators to develop shareholder campaigns. Every year, for every stock held by an endowment, the university receives a proxy statement that allows the endowment’s representative to cast a vote, based on policies established by the governing board, on matters such as board of directors members, certain types of compensation programs, and a range of shareholder proposals covering employment, environmental, and international business policies.

Students can turn activist energies into an educational experience by writing recommendations for the trustees.

These proxies can be voted regardless of investment strategy, says Morgan Simon, the coalition’s co-founder and executive director. (With some investment strategies, such as indexing, the university can’t sell a company without affecting the position. With others, such as hedge funds, the investment manager will probably not allow for detailed disclosure of all holdings but may pass along proxy statements.)

“It’s such a clear win-win,” says Simon. Students can turn their activist energies into an educational experience by researching issues and writing recommendations for the trustees to follow. By voting according to their findings, the endowment can create social change while still honoring the responsibility of supporting the institution.

This arrangement is just one example of how colleges and universities are giving stakeholders a say in investments.

An endowment is just part of the campus’s financial assets, of course. Macalester College (Minn.) has long been committed to promoting growth in the Minneapolis and St. Paul communities. For example, an alumnus once pointed out that using a local bank would be a great way to show a local commitment. The college’s trustees knew that a small bank would not be able to handle all of the college’s needs, but Macalester’s treasury account had the luxury of a substantial cushion that could be kept on deposit.

In 2007, leaders at the institution solicited bids from area banks to handle a $500,000 deposit. In addition to information on rates, security, and community investment, they asked for ideas on how the bank could work with the Macalester community.

University National Bank won the bid. The bank is a designated community development financial institution, so its mission is to provide banking services to customers who might not be attractive to larger banks. It uses deposits to fund small businesses and community development projects, and it proved to be a good fit.

“We certainly want St. Paul to be as strong as it could be,” says David Wheaton, vice president for administration and finance at Macalester. The bank created internships for the college’s students and sends officers to campus to give guest lectures. Students have performed class projects with the bank, developing guidelines for green real estate development and investigating the economics of a neighborhood microlending program. University Bank installed ATMs on campus and markets its checking account services to students. “It is a way for us to make a richer arrangement than just an arms-length depository arrangement,” Wheaton says.

Alumni don’t just advocate; they have the power of the purse. Many are pushing for their donations to be invested in socially-responsible ways. At Williams College (Mass.), alumni formed their own investment fund, the Williams Social Choice Fund. Launched by the class of 2000, the fund is part of the university endowment with a different investment approach.

The fund works with the Advisory Committee on Shareholder Responsibility, which advises the board of trustees on the nonfinancial performance of companies in the endowment portfolio and makes recommendations on voting shareholder resolutions. The committee designates the investments for the Social Choice Fund, meeting social, environmental, and community criteria and working within the overall endowment portfolio guidelines.

One goal of the fund was to encourage the Williams trustees to think about social investing, although that’s not a new concept on that campus. The greater goal was participation. “The idea that we had is that it would bring people into the fold who had never given before,” says Bernie Kluger, a Williams graduate and member of the fund’s steering committee. “It’s not about the big donation for the next library. It’s about people making a statement about what’s important to them about Williams.”

Williams’ alumni office sends an annual fundraising letter to graduates who have given to the fund and to those who were involved in such affiliated campus clubs as the Environmental Studies Group. “That was a huge help to us,” Kluger says. The annual giving page links to the fund, to help promote it as an option. Mount Holyoke College (Mass.) established a community investment option for its donors in 2005, and Brown University added a social investment option in 2007.

Harvard University’s endowment, worth $34.9 billion as of June 2007, is so large that many alumni question whether they should contribute to it at all.

Harvard Alumni for Social Action members worried that wealthy alumni giving to wealthy universities would create a permanent disparity in higher ed.

In 2005, members of the Harvard class of 1981 formed Harvard Alumni for Social Action (HASA) to set up an alternative gift in anticipation of its 25th reunion. They worried that wealthy alumni giving to wealthy universities would create a permanent disparity in higher education.

One member of the group, Paula Tavrow, is a professor of public health at UCLA with a specialty in Africa; she once worked at the University of Malawi and saw the stark contrast between universities. “It was so hard for any faculty member there to focus on research,” she says. The HASA members had hoped to use their money to establish a fund at Harvard that would support African universities. Harvard officials demurred, arguing that their funds were needed in Cambridge. In response, the university established a scholarship fund for graduate students from Africa that some HASA members support. Others established a separate fund just for African universities.

“There are a lot of people who got financial aid, or who felt that their four years at Harvard were the best years of their lives,” Tavrow says, and they would like to support programs tied to the university, even if it doesn’t need the money. HASA continues to target each new 25th reunion class and says that it has collected $343,000 in donations from 650 alumni.

The key point, says Mark Orlowski, founder and executive director of Sustainable Endowments, which publishes the College Sustainability Report Card, is that managing money with social goals in mind does not mean that investment performance will suffer. “It’s a false dichotomy,” he says. When his group grades institutions, many of the richest have the best performance; it assigned Harvard an A- in the 2008 report.

Ann C. Logue is a Chicago-based freelance writer who specializes in covering financial issues and news.

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