When universities fail to take an active role in the ethical implications of their investments, they undermine their purpose – and their responsibility.
By Bob Monks
Part of the Citizens Disunited series.
I’m a shareholder activist.
By definition, that means being active in the companies in which I hold shares. I mean that for individuals who own stock directly and for trustee owners who work on behalf of beneficial owners. I’ve been trumpeting this issue for a long time now so I suspect you’re not surprised by this.
Universities Know, But Don’t Act...
Investments made by universities or endowments set the bar pretty high because these organizations have missions that require them to do more than just make money. They have an assignment to do good in the world – whether it’s to alleviate a problem or to educate our children – and they’ve taken a position on how to address these issues.
It’s for that reason that I can never understand why organizations like these refuse to be activist owners. Regardless of what they say, by trying to make the world a better place they are activists of some sort or another. So, why won’t they investigate how their investments impact the world and take responsibility for that? Is there a code of ethics in endowment investment? How many endowments reconcile their ownership behavior with their institutions mission or code of ethics?
...And Undermine Their Mission
The relatively finite numbers of individuals who are trustees of major foundations and universities have unique access to scholarship about corporations, about government and about the relationship between the two.
It’s clear that the lines between government and business are blurred and that the corporate sector has a strong hold over national resources. That fact alone should elicit the attention of individuals who have educational and charitable commitments; university and foundation endowments are investing resources in ways that are destructive to our democracy – in ways that undermine the very work they are doing. In brief, this is a problem that can only be ignored by people who are shirking. There is no other way to describe the unwillingness to deal with their responsibility as owners.
Legal vs. Ethical
There’s an inconsistency between the legal position of an owner and what I posit as the ethical position of an owner. There is a subtle but very important conflict in the law. It is absolutely essential to the corporate form of organization, as a competitive structure in which to invest money and to do business, because their legal liability is limited to the amount of money they put up. There is no obligation beyond that legal liability.
But I propose that there is an ethical responsibility for all owners to act with accountability because as Berle and Means said, “the owner of a horse is responsible. If the horse lives he must feed it. If the horse dies he must bury it.”
The way in which I get around the conflict is that I don’t address myself to individual shareholders. I address trustee shareholders, who they have a transcending obligation to manage the asset in the best interests of their beneficiaries and that includes acting as owner.
And, I would say that money is just one aspect of these best interests.
Doing Nothing Is The Same As Doing Wrong
When you acquire securities in publicly traded companies this is not an act limited to the purchase or sale of the securities. As an owner of the securities, you acquire certain rights and responsibilities that are material to the value of the holding. If you’re a trustee, you don’t have the option to do nothing without raising the prospect of being derelict in your duty.
About 70 percent of the stock is held by trustees, a large enough group that could have enormous impact on corporate responsibility.
Doing nothing is the same as doing wrong. Ignoring a problem doesn’t make it go away and it doesn’t mean it’s not your responsibility. Doing nothing is a choice and choosing not to act at all may keep the peace, may make life easier for a while, but it’s not the ethical choice.
By using publicly traded securities as a way of preserving or enhancing wealth, you are taking on the responsibility of ownership and, therefore, doing nothing is not an alternative for someone who wishes to behave ethically.
If your dog bites someone, you’re responsible. It’s that simple.
As owners, we can act responsibly up front or face the consequences later. In the end, we always pay for society’s ills whether we account for them at the outset or we pay for them in cleanup, lawsuits or medical costs. And we pay for them in the further disintegration of the slender trust the public has in major institutions.
Part III: A To-Do List for Shareholders: Three Things We Must Address
Part II: If We Want Responsible Corporations We Need To Be Responsible Owners
Part I: A Simple Solution to Runaway Corporate Power