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DIALOGUE: Mumford and other APIR
members discussed divestment and disclosure with
students in April.
Linda A. Cicero |
The curly-haired
freshman was poised as he
addressed the professor from the Graduate School of Business.
“I don’t want the endowment that’s supposed
to be serving me and this community invested in a country that
conducts genocide,” Seth Silverman said after being told
at an April town hall meeting that Stanford has about $1 million
invested in PetroChina. The Chinese-owned oil company, he added, “facilitates
the Khartoum regime and its oil extraction from Sudan” and
operates in a country that is off-limits to American businesses.
Finance professor George Parker nodded, but also observed
that $1 million is a “very small” percentage of
the University’s $12 billion endowment. He nevertheless
encouraged Silverman to formally present his argument to
the Advisory Panel on Investment Responsibility (APIR),
which Parker chairs. “Put your thoughts in writing and
make your case,” he
said. “Try to convince this committee that it is
so compelling that this committee would [support] your
logic with a majority vote and send it to the Board of
Trustees, and say it’s our recommendation that the Board
of Trustees tell the management company not to own PetroChina.”
So Silverman and his fellow members of Students Taking
Action Now: Darfur did. STAND presented the 12-member panel
of faculty, students and alumni with a single-spaced, 45-page
argument for divesting from four foreign companies that
support the Khartoum regime: Chinese-owned PetroChina and
Sinopec, Russian oil giant Tatneft and Swiss ABB Ltd. After
extensive discussion, APIR voted in favor of the proposal.
The Board of Trustees voted June 7 to divest any directly
held shares in the four companies. Stanford Management
Company, which administers the endowment, will send letters
to its investment managers recommending divestment of any
shares held indirectly through, for example, mutual funds
or indexes.
Ben Elberger, ’06, said students were “extraordinarily
happy” about the divestment decision. “With South
Africa, it took 10 years for [divestment] to happen, and we’re
saying we can’t wait another 10 years on genocide [in
Darfur].”
Indeed, investment responsibility is becoming a hot-button
issue on campuses nationwide at a level not seen since
the debates over South Africa in the late 1970s and 1980s.
Harvard, for example, announced in April that it was selling
its $4.4 million stake in PetroChina. In addition, there
is a movement for more transparency in universities’ endowment
holdings, led on the Farm by the Stanford Coalition for
Investment Disclosure (SCID).
The Board of Trustees’ primary fiduciary responsibility
is to oversee and maximize returns on the endowment so it can
meet Stanford’s educational mission. Income on the
endowment currently pays 16 percent of the University’s
$2.6 billion annual operating expenses. In 1971, the trustees
adopted a statement on “investment responsibility,” which
stipulates that the University will examine allegations of “substantial
social injury” caused by companies it invests in.
SCID has pressed this year for disclosure of University
holdings. Tell us what stocks Stanford owns, students say,
so that we can object to the wrongdoers. Tell us who the
wrongdoers are and why, the University says, and we’ll
consider whether to try to effect change within those companies
or, ultimately, divest from them. Full disclosure is not
practical for several reasons, officials say: investments
change frequently; disclosure could compromise Stanford’s
investment strategies; and certain potentially lucrative
funds prohibit their investors from revealing their components.
“The whole focus of disclosure is to ask universities
to download their holdings so students can find the bad actors,” says
Linda Kimball, manager of investment responsibility for
Stanford Management Company. “Unfortunately, there is
a lack of understanding of institutional investing.
People think the University is picking stocks, but that’s
not modern portfolio theory. We invest with fund managers who
have specific talents and teams and reputations.”
Kirk Hanson, ’68, MBA ’71, executive director of
the Markkula Center for Applied Ethics at Santa Clara University
and an emeritus senior lecturer at Stanford’s Graduate
School of Business, observes that the new focus on disclosure
is taking place on “leadership campuses” like Yale,
Harvard and Stanford. Such schools have large endowments
and strategies that include venture capital funds and hedge
funds, “neither
of which reveal what their investments are.”
The University is “in a bind,” says Hanson, a former
chair of the President’s Investment Responsibility Committee,
the precursor to APIR. “We committed to being a socially
responsible investor, to evaluate for social injury, but
now we’re not able to exercise the principle we
established, so what do we do?” He proposes that universities
work to secure agreements that allow once-a-year disclosure.
The discussion about disclosure will, of course, continue.
Meanwhile, SCID proposed in April that the University
disseminate information about investment responsibility
more broadly and suggested paying students to investigate
allegations of wrongdoing by companies in which Stanford
holds shares. APIR agreed to a website that will set forth
the University’s
policy and provide details on how to present a case of
corporate wrongdoing. It also will explain how Kimball
votes Stanford’s “social
proxies”—shareholder resolutions on such issues
as adopting employment nondiscrimination policies or monitoring
greenhouse gas emissions—and provide a proxy-voting history.
“The website is a big victory for SCID,” says member
Anna Mumford, a co-terminal degree student who is also
a member of APIR. “We’ve made some changes in a
decision-making body.”
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