As Harvard University puts on a major push to increase its endowment, the University needs to bring how the endowment is managed in line with the its institutional ethical principles.
By Marcy Murninghan
Widely perceived as the world’s most influential university, Harvard occupies a leadership role as a fiduciary—but has yet to fully embrace it. As it embarks on its $6.5 billion capital campaign to increase its $32.7 billion endowment, it’s time to apply the civic moral principles that lie at the heart of its academic mission to the manner in which the endowment is managed. It’s time to address the “house divided” problem, and restore ethical integrity to the whole institution. That’s what an ethical, integrated fiduciary does. That’s the special calling of the university as fiduciary.
Advancing the Public Interest through Fiduciary Ownership
When Bob Monks asked me to join him in his fourth attempt (going back to 1978) to get Harvard to pay attention to its civic moral obligation as a fiduciary, I didn’t hesitate. We’ve been colleagues for years and share the belief that the special responsibility of a university is to advance the public interest. And, we believe that the obligation of a corporation and its investors is to uphold the highest ethical standards, which includes advancing the public interest.
“Fiduciary ownership” is particularly suited to institutions of higher learning because it is ownership responsibility for property – even when the “property” is something intangible, such as stocks or other forms of financial assets.
“The concept of fiduciary duty is straightforward enough,” Monks says. “And that is, that an individual or a group has an overwhelming duty to another individual or a group that overrides every other possible interest, including self-interest. This is a beguiling idea that’s been usefully employed for several centuries. We are most familiar with the legal interpretation of ‘fiduciary’, be it Cardozo, ERISA, the 1940 Act. That’s the enforceability of the trust promise.”
The Practice of Fiduciary Duty
But there’s more, Bob believes. And that “more” involves a higher vision and the actual practice of fiduciary duty. It’s not only that people, or institutions, could actually be trusted to have somebody else’s interest as their chief concern. It’s about the character and conduct of that person or individual. That’s something that can be cultivated in an institution, where the level of responsibility to “the other” is enlarged and expanded, including hundreds of millions of people.
That shouldn’t be a difficult concept to understand, even if it’s hard to attain. But it’s something to aim for. If we don’t, then our representative democracy is imperiled, held hostage by baser human instincts and special interests.
Fostering fiduciary culture: It is our belief that if “fiduciary ownership” is to achieve its promise, it must be rooted in “fiduciary culture.” “Typically we’ve relied on lawyers, accountants, and even investment bankers to define that,” Bob says:
Hopefully, you and I can add ‘universities’ to this second neglected usage of ‘fiduciary culture.’ Certainly they are not less distinctive or less worthy or less responsible than lawyers or accountants. What we have is the opportunity to define the concept of ‘university fiduciary.’ This, of course, has education at its core, but it’s more than that. It’s about its relationship to the community.
It’s critical for our system that there be a level of accountability by other people who have this enormous power to own and run these enormous global corporations. In reality there is none.
How to Foster Fiduciary Culture
The question then becomes, what does it take for an institution to foster a “fiduciary culture?” What are the principles and steps involved? How far, wide and deep must the commitment to those principles go? And how might it “fiduciary culture” be preserved, protected and propagated, by word and deed?
That’s the backdrop to Trusting Harvard: The Cost of Unprincipled Investing, an e-book we wrote based on a letter delivered to Harvard President Drew Faust on the occasion of Bob’s 80th birthday last December 4th. Shortly thereafter, Bob was honored at the Frankel Fiduciary Symposium, where he elaborated on this message.
“The only class of owners who don’t have crippling conflicts of interests are universities and foundations,” Bob told the group of notables—including Ralph Nader, Sir Adrian Cadbury and John Bogle—assembled there. “They’re not the biggest shareholders, but they own a lot of money. Because universities have a fiduciary culture of teaching, of instruction, of trying to train ethical behavior, they should take this seriously.”
We decided to create a framework and set of actions to consider, so that the fiduciary role, and culture, might be taken seriously. Not just at Harvard, but everywhere. The time has come to advance a fiduciary culture. We hope you’ll join us in this effort.
About the Author:
Marcy Murninghan and Robert A.G. Monks are the authors of Trusting Harvard: The Cost of Unprincipled Investing published in January 2014 by Miniver Press. Since 1983 Marcy Murninghan has worked in a variety of capacities to integrate civic moral values into corporate and investor decision-making. She strives to balance theory and practice, because she believes that each informs the other—along with history.