Professional Documents
Culture Documents
Hampshire College SRI
Hampshire College SRI
APRIL
1983
TABLE OF CONTENTS Preface The Power of Socially Doug TooJ-eY . Some. Philosophical Gordon Kurtiss Legal Issues Report Current Michael . Financial Debbie Issues Knight RePort Another Level with Doug TooleY Production of Weaponry ResponsibLe Investing Page 1 2 4 16 60 91 94
Questions
Injury
and the
VIII.
Adele Sinmons
APPENDICES A. B. C. Sunnary of College and University T'he Af,rica Fund chronology of the Hanpehire college with Regard to social Issues Hampehire CoJ-lege Investment Policy Divestment rnvestment Actions Policy 1O8 110 114
school in In L976, Hampshire College became the first Af rica. Ttris to divest the country f rom companies in South idear that of using opened the door for us to a mueh larger of those of the to reflect instead our ettrics investments capitalistic ideology. In the seven years since thenr w have been exploring ( SRI ) . fn the potential Responsible Investment of Soeially school to pass a comOctober of L982, we became the first pretrensive a and in March of 1983' we included SRI policy investments in companies manufacturing clause barring future nuclear warheads. Although we have led the way, it has not been easy. have challenged us again Our Board of Trustees and President and again to show the feasibility and the appropriateness of SRI. Instead of becoming angryr w responded to these manner. What in a responsible challenges and intelligent lies in your hands is the result of this. publitoward this Some twenty people have contributed cation directly. the real challerge-But in front of us lies Can we make it worlc?
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'Doug April,
Toolgy 1983
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The issue of Socially Responsible Investment, (SRI) h"_"-gai.ned much momentum the last few years, now lllor than ever. YeL few are in aware of what the fu1l i-npact of SRI nay be. Before we go on to the specific issues surrounding colleges and universities let us look to the future and try to understand what, we are reaching for. the economic beast. Not SRI i,s leadi-ng us to a $ray of controlling through socialism nor through goverment regulation, but by transforming the system as it exists. Through considering more than the profit notive a SRI system becomes an evolutionary step forward. A society with cooperati.ve banks, conmunity economic planning' responsible pension funds, college and university endowments, church funds, insurance compani-esand individual investors would have the best of both the strength of the free narket and the beauty of the socialist vision. This nay all seem hard to believe, the clains presented here are very large. So 1et us Look into this in more detail. First how does SRI allow the capitalistic to work when it weakens it, t s prirne profit? notivation, A person or institution might fight for an inefficient or poorly concei-ved goverment progran sinply because of their good intentions. But they will not be so lackadaisacal when it comes to i.nvesting their noney. SRI does not subtract anything from the i,dea of tf,e profit notive, it sinply adds to it the idea of naking those investments responsible. This does lead to a more complicated decision making process and bad decisioins utll be nade. As today those that can handle the chalLenge rrill be the ones to create our society. To put it rhetorically we are giving the invisible hand a heart to go trith its brain. How can SRI have any sweeping beneficial effects when at its core li.es the greed of capitalism. Ihis is a valid criticism. For how can it change the distribution of power in this country? It is obvious that it, can do nothing di.rectly. But what SRI does is attack the disease of which oppresion is only a synpton. Self interest is a fact of human exlstence, as is our capaci.ty to give. The disease is merely the over enphasizing of one half. SRI can help the inequalities in our system in two further hrays. 0ne, it could change the organizational structure of a company so that nanagement riras controlled by the workers and/ or developed from the ranks. Because of the the increased conplexity of the decisj.on making process the size of the managementclass will also gror,r. SRI also lays the groundwork for a decentralized porder structure. Hopefully SRI can acconplish one further thing, the killing of apathy i-n this country. People care about what happens to their money, a tangible thing as opposed to the abstract nature of our politicalness. The actual structure of a society with socially responsible investors is far, very far from conceptualization or reaLizati.on. What I have attenpted to do in this paper is paint an unformed goal for us to work towards. The remainder of this report addresses the the problens that face us today ln making SRI viable in our colleges and unlversi.ties. -3-
soME PHILOSOPHICAL QUESTTONS by Member of rask Kurtiss Gordon Force on rnvest,ment October 1982
Responsibility
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A. INTRODUCTION AND GENER.AL ISSIJES What is the cortext of this study of socially responaibLe lDveatment policy? At llanpshlre Col1ege, the present queation is not whether to inltlate a socially responsible investrnent policy, siuce the College already has a policy statitrg that Hanpehire wLlL not invest in conpaniee whicb cause social injury. The curreot policy is the result of a good faith effort by atudetrts, faculty, adtrinistration, atrd trustees to grapple rith a serles of vexing iaaues. So far, the only applicatio! of the social injury clauee has been to the ridely cotrdenoed plactice of apartheid, or govertuentally lnstltutiolalized racLsn. Over the past trro years, studentE and faculty have raised the isaue of whether this one exclusion adequately representa the Eanpshire co@unity r s grave social concerns - ln particular, policy can fail to address uhether the llvestoent the iseue of uar and peace. Ttris Task Force vas created by the Flnance Comittee of the Board of Trustees rrto exanlne, in consultation slth other renbers of the llanpEhlre conEunity, procedures ald criterla that nould place greater enphasis oa socially responsJ.ble Lnvestneut. rr (ninutes, ltay 1982 rcetfug) Itlhy have a socially responsible investnent policy? Partlcularly io the U.S., noney hae great syu.bolic value (in practlcal addition to its intlllsic value). fire eocJ.ety pays people and insuitutions attention to what do with theLr noney, aud read lnto decLgione involvlng Eoney a great deal about the character aad values of the declsion nakers. Given this eynbolic i.nportance, we believe that if the College it lE going to pay attention to social vaLues j.n any of its pollcle8, ie entirely coDaistent aad proper for the sane values to be reflected in its investEent po11cy. In fact, to have contraating soci.al values eobodied 1n policles governing different aspects of the CoLLege would indicate a kind of lnstltutlonal echlzophrenia. For exanple, one night argue, tf the College is an equql opportunity eoployer, wouldnft it be hypocritical to invest the College's fuads in a fLrn wtdch is kuonn not to be? However if the irctitutlon uorks to change the corporatlo! it is involved 1n the issue of schizophrenia beconeg bLurry. Certsainly the anouat of poEitive chaoge that could be affected is much greater. But to do this requires a Large body of cooperating institutions and indlvtduals to pass shareholder resulotions.
tr
The myth of the neutral institution Every decision has a noral implication, even the decision not to decide or not to take a stand. Many would argue that not to take a stand is to give tacit or even active consent to the status quo (our weapons stocks support the industry even though they are cal1ed for in portfolio theory). At the very least, such a decision inplies that the issue is not i-rnportant enough to nerit serious consideration or a serious conmitnent. One argument raj.sed against the taking of institutional stands on social issues is that neutrality is a necessary precondition for the academic freedom and diversity of the faculty and for Jhe freedon of the institution from governmental control. Both of these factors are essential for the intellectual endeavors of faculty and students But, these intel-lectual alike. endeavors cannot be carried out in a vacuun. trThe pursui.t, of truth is usually held to requj-re a certai.n detachnent from i nrmediate political- and social probLems; yet if institutions are not deeply i.nvolved w-ith the life of the regi.on and the nation, they vJ:ill faiL to produce the well-trained tal-ent both need. tr ( Fletcher , L97 p . 864) 4r
o
A sense of priorities Irlhile there are nany important issues at any tine, one cannot involve oneself effectively in all of then - one has to choose. The priorities change as world conditions change. In the 1960rs, there was more attention to local issues; in the 1980ts the balance of urgency has swung more toward national and world issues. Anong the ftLocaltt issues of the 1960ts one can include racisn and environmentalism. These issues, wh:ile having national scope, are of such a character that the indirridual concrete acti.ons of 1ocal conmunities provide the core of ttre soLution to the problen. For exanple, cleaning up the Connecticut River requires that, individual towns and industrial plants process the wastes which they discharge into the river. Federal laws and tax regulations can provide strong incentives, but in the end the local institution has to take action. SiniJ.arly, providing equal access to higher education requires that individual colleges and universities enploy nondisciiminsf,sry admissions practices, whether or not there are federal laws mandating that they do so. While it would certai.nly be consistent to have a socially responsible investment policy touch upon these i.ssues the investnent policy is probably not the nost effective institutional response. An exception to thls would be the conmunity development movementwhich is in need of capital. The partlcular issue of the 1980ts which instigated this task force and its study is that of the danger of nuclear war. This is a quali.tatively different problen from those described above, in that the actions of individual institutions and 1ocal conmunities are not
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concrete st,eps tor,rard the solution of the problen. Rather, they are prinarily exhortations from membersof a national cornnunlty to action on the part of national institutions representing in one vray or another the interests of the comnunity at large. The, nostly inplicit, recognition of this difference has definitely nuted or restricted stances by educational institutions on the issue of world peace nature. However, world except for those of a rhetorical peace and the avoidance of nuclear war have certainly been high priorities for Eranyyears. The growing arareness of these priorities is i-nportant, and should be seen by all of us in education as an opportunity to put into practice the values we have held all along. Why at a llberal arts college, and why with student involvement,? It is a najor gaal of liberal arts education to develop in (2) students (1) engagenent and leadership in the comunity, inquiring ninds capable of analyzing and evaluating statements or arguments in all areas, rnd (3) noral and ethical values for their lives. t?If we would teach our students to care about inportant social problems and think about then ri.gorously, then clearly our institutions of learning must set a high example in the conduct of . their own affairs. In addition to respondi.ng to its students, a university nust examine its social responsibilities if it wishes to acquire an adeguate understanding of its proper roLe and purpose in present-day societ,y. fr (Bok, L982, p. 10) Ithat 18 the Eoat inportant goal of a socially responsible investneot policy at Eanpehlre? - so that the college Is it to achieve a ttcleanrt portfolio profite onJ.y fron activiti.ea nhiclr ne do not consider norally offensive? Is Lt to nold corporate behavior? 0r is it to cal-l the (nation, world) to atteotion of the College aad the broader co@ulity great and general urgency? To what extent do these goals issues of call for differeot strategiea? It is necesaary to consider not only the intrinsic inportance of these goals, but also the likeLlhood that we ui11 be able to . acconpLish then. Fron thls standpoint, the order nould be, first to call attention to the lssue, second to achieve a rrcleastr portfolio, and third to affect corporate behavior. In order to nake a atatement it lE Eufficieat to design a policy which nakes clear the vaLues whlch underlie It. Ttris, it nould appear, nas the splrit of the student initiative of last spring. Ilowever ae we organize this priority llst should be open for change. Ue should then be able to affect corporate behavior. To achieve a rrcleanrt portfollo is a far more conplex business which lnvolves deflnlng what we nean by rtc1e6trtr, decldlng uhele to draw the inevitable lines and nake the inevitable conpronises, and how nuch effort and cost we can afford to achieve deciding
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ttcleanlinessft. Here we get into tradeoffs and comparison of narginal Under these circumstances, the attenpt to costs and benefits. develop a college-wide consensus could well be extrenely tine consuming. As far as nolding corporate behavior j-s concerned, we are faced with an alnost, hopeless task. If Hanpshire acts alone, the i.mpact of our divestment or our jnpact in proxy votes or letter r,rriting is j-nherently negligible. 0n1y when our example is followed by many colleges and universities can and maybe soneday by TIM/CREF some impact on corporate behavior be hoped for. Philosophical and practical differences of divestment vs. ttresponsible shareholderrt activities Several earlier writers (e. g. trThe Ethical fnvestortr and Derek Bok) .have argued that the effect on corporate behavior is much greater if the institution holds on to the stock and applies pressure through shareholder resolutions even'if the resolutions receive only a sna1l fraction of the votes. cast at annual shareholder meetings. (Any resolution which gets even 3Z of the shares in favor is taken extrenely seriously by nanagement.) This approach may not be as emotionally satisfyiog, and is certainly nore time-consuming and costly to inplenent, than is divestment. Also, because the earlier arguments were made fron the point of view of universities with huge endonments (Yale, Ilarvard), the percepti.on of ttre relative effect of shareholder acti.on over the synbolic value of divestment nay be quite different than would be the case for a smaller school. fn fact, Hampshirets current policy provides both for divestment and for voting the college I s proxies on stock which it owns. On all issues w:lth social inplications the appearing on the proxy ballots, membersof two trustee subcomittees rre polled: CH0IR (wlr:ich includes student and faculty representati.ves) and Investments (which does not,). If the votes of the two subconnittees agree, the collegers shares are voted in accord with the approved posi.tion. If they disagree, the colLege abstains. Since this procedure was put into effect, the two conmittees have often disagreed, with the result that Hanpshire has abstained from voting on a number of shareholder resolutions addressing questions of great social import. Given the effect of the current policy, a proponent of divestment night be tenpted to concede the point that voting proxles makes a stronger statenent than does divestment and then go on to argue that the choi-ce seems to be not between making a stronger or a weaker statement, but between making the weaker statement or none at (And argue further that not making a statement is equivalent to all. supporting the actions of corporate nanagement.) lfhat about controversial issues? To some people, the mere fact of taking a stand is more important than the content of the stand or the substance of the i-ssue. Does the taking of a stand inply a closing off of debate on
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the issue? Does it mean the establishment, of a college-w'ide orthodoxy? Certainly it should mean that the issue is one of surpassing i-mportance to the school and society. First of all, we must distinguish between the issue of the basi.c justificati.on and general forn of the policy on the one hand and, on the other, the particular social issues addressed by the policy. Certainly, no one wants to contenplate an ongoi.ng, perpetual debate particularly one of the scale of the present exercise on the The basic outline or structure of the Collegets investment policy. purpose of having that de.bate now is to come to a decision wh:lch nost people, and then to have that be our policy until satisfies there are again conpelling reasons to change it. So in this sense, it should close debate. With regard to the implenentation of the policy and the specific issues addressed, the situation is just the opposite. Ttre virtue of education is that decisions rre continually challenged. The soclal issues are too inportant to be considered once and then put out of nind. For that reason, the pollcy cannot be static: it must contain provisions and procedures by which the decisions made are regularly reviewed and renewed. It is crucial to .realize that the adoption of such a policy would NOT i-npose a political uniforuj.ty on the canpus. It wouLd not affect the hiring and firing of faculty, ttre adni-sslons or evaluation standards for students, or the abiLity of the nenbers of the conmunity to express their political beLiefs in any way they choose. In no way could such a policy be interpreted as an infringement of anyoners academic freedom. The College cannot avoid having some poLicy on investments. The Finance Conmitteets establishment of this Task Force in response to the student initiatives has opened the question of that policy to discussion by the full conmunity, so that it will be a policy which can be subscribed to openly and consciously by the largest possible segnent of the conmunity. Ttre fact that some people rrill disagree w:lth it is inevitable, but no different in principle fron the demonstrated fact that most people in the connunity (at the very least, in the on-campus comnunity) disagree with the present policy. Ultinately this issue must be decided, if not by unanlmous consent then by negotiation and conpromise to create the largest practical consensus. Most inportantly, or appear to the policy must not be have been - i-nposed from above by arbitrary fiat. How would a revi-sed' investment policy affect gifts already rnade to the College? In the absence of specific instructions to the contrary in the gift instrument, all funds owned by the College are subject to the Collegef s i.nvestment, policy. This flexibility is i-mportant to the health of the insti.tution, and its legal basis is docunented in the legal chapter. However, there are both ethical and practical difficulties raised between an institution and its benefactors, if
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were to undergo a radical change in policy or the institution purpose. This dilemma does not arise for changes which alter specific policies whl1e continuing to express the basic character of the College, since it is a fact of life that for an educational i-nstitution to remain both viable and true to its founding purposes, it has to evolve in response to the changing needs and conditions of the connunity around it. B. STRUqTRAL AND FOR},IAT ISSTIES Can purely positive guidelines be adopted? The aspiration to draft and adopt investment guidelines in rather than negative language surfaced often during the affirnative course of this study. fnstead of a black-list or a set of clauses, could not a school develop guideli.nes that said exclusionary only where its money SH0UID be invested? Beyond the most general, and therefore not very helpful, affirmative verbal formulas, this quest for purely positive guidelines cannot succeed. The effect of having a limited nrrmberof specific affirmative guidelines is much nore restri.ctive than the effect of a limi.ted number of exclusions. Hence the result of purely affirnative language is nuch more likely to be inprudent from the standpoj.nt of managing the College t s investments for their primary purpose. It is certainly appropriate to state some positive goals for a schoolrs investment policy, but any guidelines that nay be developed wilL alnost certainly contain exclusionary language as welL. Avoidance of certain forms of investment cannot be maintaj.ned unless those forms are specifically mentioned. Why can t t Hanpshire put all its nqney into trgoodtt investments that raise no controversies? This question raises another forn of the aspiration to find a simple and affirnative route out of the dilenmas facing investment policynakers for the College. We have come to label it the ttblue-skytr proposal. Surely there are enough conpanies that do socially beneficial things build houses, heal people, grow food, and so on - that the ColJ-ege can invest in these directions and slnple bypass the tornenting questions about weaponsnakers, polluters, and other arguably socially injurious firns. 0f course, the reali.ties of investment decision naking are not so sinple: it would be extrenely difficult to find a large, publicly traded company that doesnt t have both good and bad aspects to its corporate trcharactertf . A somewhat more feasible version of the ttblue-skyrl approach would have a stated fraction (perhaps 2/3) of the endowment be committed to investment categories and firms of demonstrable soci.al benefit. Yet trying to assign one or another company to the rrblue-skyrf group poses constant riddles as described the the follorring paragraph.
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The effort to fornulate a socially responsible j.nvestment policy requires a distinction groups of pernitted and impernissible between holdings. Careful definition must be given to the boundary condltions or threshhold that distinguish al1owab1e from disapproved investnents. l4aking these dj.stinctons will be especially difficult i.n the complex, interlocking patterns of modern business organization.. How can the balance be struck between comslendable and deplorable behaviors among the many rlnits of a large conglomerate? Any proposed guidelines must address this question of structuring the threshold criteria. A guideline focusing on weapons producers night say, for example, that conpanies ulth more than 2OZ (\OZ-3OZ) would be excluded. Setting such structured thresholds seems arbitrary, but they probably will have to be incorporated in the text of any proposed guidelines.
alternative
or non-traditional
A few nenbers of the conmunity recommendedthat Hanpshire put all Such its money into sol,ar energy'trould' of local co-ops or food production. narroring of the endovment violate rrprudent investorrr requirements for diversity and reasonable assurrnce of overall rates More suggestions were urade that the College put a of return. fracti,on of its endowment into a separate fund for speci-al purposes, with very explicit usrrally higher risk projects or activities low income housing). Ttre most intended social benefits(e.g., lnclusive of these proposals recomrmended that Hanpshi.re start its own mutual fund. 0thers urged that a portion (perhaps LOZ) of the endowment be set aside for venture capital projects (as Boston pioposals for a University does ) . A few alunns nba dlmiled revolving fund to support entrepreneurial ventures by Hanpshire graduates. or special Seteral who suggested creation of a high-risk venture portion of the endonnent also said that it should use only earnarked funds raised explixitly for such purposes. The broad ques'tion to be faced in developing an investment policy ls whether any portion should be applied and adrninistered separately from the rest to whatever special projects or unusual investment circumstances may be sancti.oned. While this general appproach does appeal to us in principle, it has a serious practicaldrawback. Ttreoverhead involved in managing Lhis special fund would undoubtably large enough that, for an endowmentof lirnited size the effective rate of return fron these j.nvestments would be severely compromised. However in a larger services nany of school or rrith an organization to provide finacial these things rvould become possible. How public should the investment policy be?
There are different school of though about how a new investment policy shouldbe publicly announced. Representing one point of vietr was an alumnus who responded to our questi-onaire, ttThe quieter we go
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we can be. this policy, the more restrictive about fornulating Hanpshire College thinksr w Since no one really cares what little can probably have cleaner hands and cleaner investnents by keeping these gui.delines internal. tf (James L982) Yet this strongly conflicts vrith the notion of making a political In that statement as the Colllege did in the case of South Africa. case, by taking a symbolic action in rn area of growlng concern, the Despite the college helped to clear the path forother institutj.ons. fact that, Hanpshire was quite reticent over its South african divestnent (there was not even a press release), it is likely that most members ofthe conmunity would want to announce the policy publicly rather than keeping it secret. of alienating The major danger of going public is the possibility the outside comnnity by appearing to assume a rfholier than thourt It would seen appropriate, therefore , to nake some nodest attitude. public statement, but shy away from strldency. It would also seem appropriate to nake this report, and any other results of the research of the Task Force, available toother collegesand universities trying to developtheir own policies on socially responsible investment. rights of ownership and responsible shareholder actions resources and because of the Because of the College t s linited ninuscule fraction of any companyts stock the Collegets holdings can ever encompass, the Task Force is convinced that as long as we work alone responsible sharehoLder actions cannot represent an acceptable substitute for dlvestment in addressing the sociaL issues of major concern to the Colllege. Howeverr w recognize that ethical, noral, or social issues wiLl be raisedby some of the questions and proposals The on shareholder ballots for the stocks in Hanpshire t s portfolio. trustees have the right and resporlsibility to vote their shares in favor of any proposal which would enhance (or against one wh:ich would t dlninish) a company s ability to conduct its business in accord w.ith the principles enbodied in the College I s investment guidelines. This posistion does not represent a change fron the current investment policy. However, the procedure by which the voting decisi.on is reached needs to be improved. Two major aspects of the procedure need to be address. FirsL, we should create an opportunity for members of the commmunitywho have done research on the specific issues to inforn the deci-sion-:making body of the results of their research. Perhaps this should be funded by the school. Second (as noted above), the decision-making process has to benade less subject to deadlock. C. IMPLEI-{EI{TATION MONITORING AND
How much of the college t s energy should be devoted to inplenenting its investment policy? Whatever investment, policy ma be devised must not only specify the boundaries and conditions It nust also of approved investment.
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identify the exact means by which the policy is to be inplemented and its operation monitored. The i-mportant point is that the overhead-ttre cost in tine, energy, and money-of long-tern inplementatoi,on must not be so high as to put serious drain on the hunan and financial resources of the College. we nay expect that Hanpshire w'i11 continue to have a professional portfolio nanager who acts under the immediate guidance of the Investment Subcommmitteeof the Trustees, and i.n conformity with whatever formal guidelines for i.nvestment the Board of Trustees nay adopt. The current stipulati.on regarding investments in companies which do buslness in S. Africa of which cause tf socialinjurytt are monitored by the CHOIRsubcomnittee of the finance committee. If more far-reaching and detailed lnvestment guidelines are adopted, is CHOIRas now constitutedan adequate mechanisn to monoitor confornity to the policy guidelines? Whatever staffr comrnmitteer or volunteer work might be done to check on various firns and their conduct, the total infornation required to inplenent a detailed set of guidelines could be immense. Computer-based resources available to a professional portfolio manager would be essential. Fu1l utilizati.on of agenies such as the IRRC, the interfaith Center for Corporate Responsibility and a national organi.zation of colleges would also be indispensible. Defining the exact procedures for irnpLementation and moni.toring of a socially resPonsible investment policy whithin acceptable overhead costs renains one of the most challenging features of the endeavor to fornulate such a poLicy. How can lde insure schools priorities that the investment poLicy continues
to reflect
the
Two major threads are intertrined in ttris issue. One is the goal that the investment policy not be. a piece neal response to the isiue of socially responsible investnent-a document requi.ring conplete overhaul each tine a new social issue is identified. Ttre other is an answer to the charge that divestnent, rs a tactic, is a once-and for-all response to social issues which require constant attention. For both of these reasons, the inplenenntation ofn the policy needs regular review. The Finance Comnittee should be required to subnit an annual Seport on the success of the pollcy to the Board of Trustees, so that the Trustees reaffirn the Collegets inplenentati.on of the policy. An additional concern is that the social issues addressed by the policy continue to be ones of importance not only to Trustees anA membersof the on-campus conmunity, but also to the less accesible segments of the communtity(alurnns, parents). For this reason, periodic surveys of the enti.re constj.tuency of the College should be undertaken, perhaps every 3-5 years, and the results incorporated into the reports of the Finance Conmittee.
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BIBLIOGRAPTTT Bo]<, Derek University Fletchrr Britannica C. L982 , Bevond the Press ) . Ivorv Tower ( Cambridge : Harvard
Basil A. L974, "Higher Education'f Encvclopaedia (rs ed.)r Macropaedj-a' vol.Bl pp.ffi ( 71F ) L982 , letter to Prof . James Matlack R. dated
Simon, John G., Powers, Charles W., and Gunnemannr Jon p. press). (Wew Haven: Yale University The Ethical Investor
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I,EGAT TSSUES REPORI by Itllehael Current Member of Task Force on Investment Responslbllity October 1982
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Sumnary of legal
Issues Report
Because ny report on the iegal lssues lnvolved in emphaslzLng soeibl responsiblllty ln the Collegets lnvestrnent polley conslsts of approxlmately 40 pages of technl.cal arguments and documentatlon, I have been asked to prepare a sumnary of lts contents. ft should be stressed that the report ltself was distl11ed from several thousand pages of source materlal, and is of the mlnlnum length I felt was adequate to address fu11y the complex lssues under consideratj.on. fhus, Irustees having specific questlons about any of the polnts presented here are eacouraged to revlew the approprlate seetions of the fulI report. I have followed the sectlon headlngs used ln the reportr and have referenced the approprlate page numbers. f. INIRODUCTION(Pp. 1-2)
lbls seetlon frames the speciflc questlons to be consld.ered, ln_ the rdportr and dlseusses the srpeclfic nature of HampshLre College as a legal entlty. llanpshlre ls organlzed as air eleemosynary (charltable) educatlonal corpoiatlon under the laws of tlre state of Massachusetts, and lts lrustees (teehnl,ca1ly, the nnembers of the governlng boardr or ndtreetorsil) are restrl.cted Ln the exerclse of . thelr lnveetnent powers by the statutes under whlch the College rr,as organlzedr-by the prov_lslons of the Collegets eharter, and by the prevalllng Hstandard of caren for the nanagenent of tnvestrnenttegal. funds. [he sectlon establLgheg that the report ls an attenpt to Justlfy _tbe oursuit of social responslbllity goals as an g! 4g piudgnt manasement of ttre Collee-e'i endoiliiletT #re?ct
require a substantl.al saerlflce of the two tradltlonal goals - preservatl,on of the endownent of lnstltutl,onal investlng corpus and naLntenance of an adequate rate or return at an acceptable leve1 of risk.
rI. IJEGAI SIANDARDS OF CARS - ENDOWPIENI (Pp FUND PIANAGERS . 2-21) A. Background (p. 2) B. Conmon Ilaw Roots of Cbaritable Corporatlon Standards 1. 2. 5.
TtE-e s nEffit@frrS-sAAAEFTEIET-T6E1tf
fhe InvestornRule (p. 4) Prj.vate f rust Standards (fp. 4-6 ) Charltable Trust Standards-(pp. 5-g)
-r7-
Surnmary of trega1 Issues Report Fage 2 4, Buslness Corporaii.on Standards (pp. t-9)
corporation as a separate Iega1 Because the charltable various aspects of recent origln, entity is of relatlvely corporation 1aw have been derlved fron th,e comnon charitable and _business corportrusts, ctraritable law of prJ.vate trusts, [hese sections trace tbe evolutlon of investnent atlong.Itstandards of caren through ttrese related areas of the law. ln the cases of They polnt out that the 1aw Ls nost strlngent exlst solely for the prlvate and charitable trusts, which or a or indlvlduals individual economic support of a speciflc are genetally purpos. Suetr trugtees speclfte charltable requlred to conslder- only econonle faetors in the naklng of lnvegtnent deelslons, and are subjeet to e stri,ct standard otr the other BusLness corporation directorsr of l-labillty. to nake bandr possess a much nore I1beral anount of discretlon based on a vari.ety decigions for the beneflt of tb,e corporation for lnvestxsent practlces and nay only be heLd llable of factors, on the order of gross negllgen,eeo C. G:lrarltable Corporatl,ons (Pp. 9- 11 ) -aCorporation Charititte 1 . Hanpshlre 0o11ege as 2. Ihe- trBuslness Slandard of Ca.ret Argun-ent (Fp, 5. lhe n0harter Purposesr Argument (Pp. 15-17) (F. 1 I ) 11 -15)
Ihese seetlons survey tbe devel,opnent of charltable eorporation law over the past .decade, focuslng on key court declslons and new statutg. Because of the need to address the arnblgultles in tb,e connon law, and to make the applleable there is no!{ a trend to apBly a standard of 1aw nore uniforn, care to charltable sinLlar to the one corporation dlrectors Ibls trend applted to the directors of business corporatlons. Institutlonal appears to-be upheld ln the Unlforrn Managenent of Funds Act ( t gOA-MGI/,A.) corporatLons wbleh applles to charitable tn the etate of Massaehusettg. fhe seetions also discuss in sone detail the broad, to act ln tbe directors dlseretlon of college and unlverslty furtherance of the ingtltutlon.lg charter purposes, and the Various afflrmative duty to preserve the climate for education. suggestlons are nade as to how these Iega1 doctrlnes could be used to juetify responslble investtbe enactment of soclally nent polici.es. I would encourage Trustees having concerns about the appropriateness of such polteies for educatlonal institutionito- especlally study t[is seetlon (pp . 15-17) . The flrst of these sectlons reportts prlnclpal concluslons :
- 18-
eoncludes by spelllng
out the
Issues Report
trDo the d.irectors of a charitable corporation organl zed, to provide blgh.er edueation - speelflcally, do the lrustees of llampshire College - have the 1ega1 authorlty to adopt a soclaLly responslble lnvestnent policy whlch would requlre dl,vestnent of those corpoxate seeurlty lssues currently ln the College t s portfollo wbich are deened socially lrreeBoD.and. would l-iuit slble, further investlng to ttroee securityr lssuee whlch neet the Collegets standards of-soclal rsponBased on the two argulnents which (are) advan6ed siblHty. in thls sectlon, the present authorts ansuer would be lgg, subJect to two eaveats: 1. Any pollcy whieh threatened the seeurity of the endownent corpus would alnost certalnly be illegal and wouid thus expostTFlrustees to the potentiil of tia6itlty. 2. Under most cureunstances, lt would seen unllkely that the Irugteee could be sure of their ablllty to Justify a poll.cy whlch bad the potential of causing a severe negatlve lnpact on the faetors of ftrisk and return. n (Both in lega1 and 1n fLnanclal terms, tbLs questlon restg baglcally on the ablltty of the lnvestnent nanagers to nal.ntain a gufflclently divergtfled-portfollo whlle carrylng out the terms of the (Fp. 1O-11) pollcy'.)t 4. Glfts (Pp . 17-19)
fhis sectlon exanLnes the questlon of the legality of utlll.zlng soclal erlterla in .the nanagenent of lnvestment funds whieh cone to the Col3.ege as glfts. It coneludes tb,at ttlt is unllkely that nsoclal Lnvestlngt actlons by charitable eorporatlon -dlrectors could result elther ln llabiltty or in def6asaaee (1.e. forflture) of funds ln favor of a dolor (or his or her helrs or sucessors), exceptlng where such actlvlty j.s expressly prohiblted by the- glft lnstiument . r (P. 19) rlhe fact that one ox more portions of an institutLonts endowment funds are Bo encunbered need not prevent utilizing soeial cri.terla witb the -reit of the fund r so long as the encunbered portion(s) are naintalned ln a separate lnvestment Presently, Hanpshlre College I s endownent does not aBpear Bool. io eontaln any gifts that are restrlcted in this nannerr so it would not seetn to be a problenr. tr (?p. 18-19) lhe secti6n also makes mlnor suggestlons about irnprovements in the College t s record-keeping practlees in regard to endownent glfts. 5, Ineome [ax Exemptlon (Pp . 1g-2O)
lhis seetlon exanines the posslble effects of eocially responslble i.nvesting actlona on the College t s status as exenpt frorn state and f ederal lncome taxe s . It concludes that
- 19-
Summary of !egaL Issues Report Page 4 n (t)tte type of poltcy belng contenplated at Ilampshlre would nej,ther an attenpt to lnfLuence leglslation constitute nor participati.on ln canapalgno for public off ic r and would thus not jeopardLze our conpllanee wlth thb (Federal Internal Revenue) Code. No bars to such a pollcy appear to exlst ln ivlassachusetts state 1aw, eLthr. n (P. 20) Ihe report also eontains a brlef Conelusion (P. 21), and Appendlx A ls 4 copy of the Eanpshlre logl appendicles. (nctriiterr), CollegA-Artlcles of Oiganization and, lppendix B is a copy of the Unlforn Management of InstitutionaLFunds Aet. Appendix C examlnes and critiques jor legal some of the rna arguments advanced against soclally responsible lnvesting schemes. Append.tx D discusses a case on South Afrlcan divestat the PeTt_ A.SIUI0. I. Hunt - currently being litlgated trial court level in the state of Oregon. fn addition, the text ls ful1y annotated and contalns a complete bl.bliography of seeondaryr rnateria.ls eonsulted.
-20-
'.4.
ri'
Michael
Current
At tl|e l,gy 1{, 1982 joirt cn lrrres'tsrE rt Espcnsibility notian tEs oassgl cr'lring
GeUrg (@I$
of tne Imrcs@,
Srbqmittee
of tne Earpshire Oollege Board of T:iustes, of a llask tlre "in cdrerltatlctr dd critria iwesErcnts.'I tJEir dratp
@t lrr\reststEnt, Espdrsibifity. witjr the rErbers of the of ttre OolleEe $ as to ft" rr=nt"* of the Tasl<
!|e lbsk lbrce Es dtalged with exaninirq, Ealp6hile Ocnunity, plae the irwesffi
preeAues resesrsiUe
resporsibnlity
I.
INIMETTCN Oollege Board of Ttuste of an eleaosynary are, techrrically, (dnritable) ffier:s educatioal of the
'directots')
corporattcr organizd lrder tjre povlsicrs of Chryter 180 of the Massachtstts t stabrtes. fhelt ale 'ltustees' by cE]nur usage - ad bf virU:e of tie wlnraticr's dtosen legal nae, sense. "tie A msr "The Ttustees of HatE)ehire @llege" fegaf @.iln is tfEt - ratlrer than in a strict orlnraticr legal a:re kgaf frrd
trustees
of its
a fieriary
Frposes.
ale restrictd
funesurEnt F|lis
by the statutes
rrder *dctt
by tlE pouisicns
of care.'
uhelr capitalizecl,
Ihe fhlsteeg
to potential
porers i.rr ar inplsper c irqlrrdnt Flr. It is thb Potntial riabiuty titigartian jr$resGrt I|nrste Ucr$rt pliclz, agirut of tl|e lrustses t}at rsrld be tne kgal fu tne irclusiqr of sciat Erbjec{ of any i3 its
tlE 6fle6
criteria
- and, d\rercely,
focus.3 The issue of nho ucnld have sta*irg of tleir fidhriary ahlt!, vriu be tDuld
to iniliate qlsidetEd
that liability
if tlre[e is rD haJrnddre. "4 its ercistene trrat t.he Ttustees r*ridt $crdd in\reetiry -
ft ftas been.t]te assuttFLidr of tlre ltaslc lEoe thna$rcut orLl rot be enpectd to edorse 4y sei,ally ssifie
reaarlj.ble
AEt being the case, this 5ryer wilf be cierrteil of rsptr.adtitianal goals as an aspec,t otr t}e guderrt to justify tlle sacrifice
the Frsuit
here is prLnarily
policies to be otsistent
SNUNG
A.
AaO<g3ord. of an rdcrGrt trt tlte pa*iGrfar @rpcatnm fi:nrl rurager - sudt as tlE lta|E)shi-le 6l1ge legal "stardard lb detenire of re" 4plicable Irustees -
to Uassadilsetts be
dfirectors.
the rarge of
rDst of tl|e leea.l qrrtia|s thforbnately, c to nnke tlra govel:rdrq draritable are mde. it
a rcially
r,e+astfe
policy.
is rpt as easy ars ce night tdsh to mke tJGe detennilatiqrs, cbfinitirtely. @pcaticns A revis sturld, of tle evolueio of tne kgal lsr stadards
l*ver,
help us to udelrstard
eEh dleteruirtatjcrs
B.
Ccmsr Iar bs
of Clraritable
@Epo8ate Starlards. rsr legal enlity, of a fs decisicns fairly virtedl ir te!ils re statr*es ilt of tlte tte
ste cfiariitable
@rpcatlar lan.
relatively
that dress
Tec' ficalty
to the charitable
UEEe ms rp cler
otr Institrrticral
fc the nanagem$ of tbe ard respdrsibilitl' Sbdies of tlE legal a*fstty gta@ of tie 1il ir lrDst fr.srds of ar irstituLian lra\re pointd l{) the urertain jurisaicaios. vi:tally tD statutoq7 Lar regarttfug tqstees or governing E ere is boards of efeercsynary institrtiots, alat tJle case La is sSnrse.' tds befurg t}e case, draritable ard drErailictory @r;uaticrr Ld ra to a large e!.tnt dblri\real (often frtn each of the t-hree dher La, areas of lan trilst ibcisicns itt
in q1e*
(hrsiress)
statutes
leferred
be e*aninedt later
this rFort.
reqldrs an uderstardijlg
3rror:aticrr
are.s of tne la. 'hdent ujc fit:stci Jrdicial tufe. statgrnt of a fidniaqr stardard of care irr .briadr opiniqr, writterl
the fist La cm _ -
Itds lEsEadrusetts
in 1831, Btates: AII tl|at can be reEried of a tnrste to inrrst, is, that he Etrall qdrt .lrineelf faithfirtty ard *relse a sowrd aliscreticn. tb is to &genrc tsr Gr of pudene, discretian anal hteufgrE rErage t}|eir ffr affait8, r!'t ir :legatd to EEcrrlatidr, ht in legartt to tne penarant dispositicr of tbeir fr:nds, carsndeliing tne^pqrbabfe iJrE, as uell as tjte g$able Eafety of ttE c4ttal to be inveatd.E Srdr Lcquage @ c 'lrrdent to be *rffr * inneatc') nrle. ae tle lrrdent rur' (nore reertJy, 'trlrrderrt [=rscr" fc aII
S= targrage of tlre 183I case set t]re FttJrn the realnE of charitable in t.he U.U.I.F.A. fonrrlaticr,
_ *
t}at
dr t]e lul are applied h ad t}e sctio "gn&rt ard fifty cr llabillty investc"
trusts
beus a gpoct
of slrilfarity
Thrst Stardads. trusts, reearlz ltrver, that trhe ipaUert lrivate irrvestor" nrle
dd it
is ths
to e*aire
Euets
Are fiatniariea -
Aolleqe v. trcrv case $ere tbe tnrseees a dtirect beneficiai of a spcific (tfie testa'tor's beneficiary (or
tnst
ttentary irstituticral
ltrp existere
gilst. flat
s*port
is tie 'Ihe
rrderly:Lry tJe starrlard of care to tdtidr its trrstees are heldl. fidriary relaticrship is his respcrsibility
- esserr tnst
of tle tnrstee's
propeEtyrfor tlre beaefit of' tJE tnrst beneficiary. "10 " (r)t= birsteer s dlrty of tg tlle nd
tb
irrtirilual."[
rrcdern usage "pnrdknt irnrestc' is eqfloyred
[n decisicts fiEt,
fiduciary
stddad
of carc regtifued of tJre pivate anil restriciive of the t$st $lch staltad.
tnrstee
ltre tnstee
to tlE dictates
of tl ceatc
instrrrE uusual
\Eq'
loFlty
ter=ticiary.l2
rritn *ardards
irrrrestc
nrle. "13
Basically,
arr dqgrate
att eralusive
rotirrati.srs
is gercrally
aooeptd
at la]
rdress
Eicegtirg
of a. beneficiaqr nftd
beneficiaries
ir the trlrst
stadjlg.l.6
Lcses sustalrrd
negligene,
EEl|e arre a fgv excepLicrs r lrever. case In rc LsrlcnlS of q*rasis, @rFoltatjctts ad tlre secalled 'nrle
of antlpritiee.
aryuurts sttrgth
frcn traatitlcnal
rwe rllelling
!rrr-
artlored a rp
in a It78 ${I,lgErt,
lu:stes in ibcidirg uiEtber to irlr est in, c to rtain, tie securities of a orpontict rnay1tt;lerly srsider the soctal perfmrwe of the orpcaticr. Ery rry abclirb b irrt t lr, G to !taful, the seqriLi of ctrnraticns stoee acLivitieE G srrc of t]rrnare qrtr:arl, to frldasrtal ard generafly acoeptd ethical prfncipfes. 8rey my qraidler Eudl nttrs as trnl}rticr, rae diserj.uinaticr, fair qllofrst ad qrsrrer respcrsibility. llt an iJseasit eattert inetituLicnal fi&rciaries, r*rether charitable, sJdt as fqlldaticts, d edralioral ad otlFr draritable inseitrrtiors, or ruFcharitSle, slrdr as tnrat oqanies ad ircurae cttlEnies, have beooF ayare of tnis prdfa as to tlE dDi.e otr iruesEsrts, a[d ha\E @ to realize tbat tfElr ]rane a qern in the social behavtc of the orporaticrs ir rrhose secrrities t}ery irwt. Of orrse tJrey tny ELI betie\re that' a orporatian elfrich has a Froper- sense of social cbligatict is nore Ukely to be sressflrl in tlre ldtg nn than ttD6e r*ddl ar bent qr *taintq gofits. tne mdnn aEnt of, hlt evEr if ttris Fre rDt. so, the irweat*, ttnrgh a tnl8tee of firds fc others, is entitleil to cqlsidbr tlE rclf,are of tlp cuDtty, ad 5gn:afur fton anoriJrg tlre use of tJp fi.rrits irr a mnrEr detrircntal to sieltlr. -* SEtt's tEtise is regufarfy citedl blr tln ccrrts as gg artlsitatine of this statsEnt sq)re 6r Sre
the s@ carreat to Sottrg dbclaratiqr as Es tJc Irr re Isdcn ad 'riule of ileg.Lity" poirts rrtd abone.2l
eust trust Stardards. is a trust established for ctraritable FrrIDes r:ather than A
luever,
sculd ryly
Charitable
st{)port 6g 3 cEcific
_ wide variety
of acLivities
alt}rcirgtl nactfy *Ere tlE lire befr,een dnriEble . FEpo6s, Ir:Epose lies is rpt alra]rs s!, to Aetelmire.23 fe dnritable t:ust, ad the stadad to tlE Fi\rate tnsts Ejc if of care teqnircd 'Ganerally, tJ|Ist
ard rsrdraritabLe
of its
tnEtees
ale to is
inrst.
a draritabl.e
truste
dtariEbl.e
durit$le
tnst
bears @e differere
sisilarity
to tle draritable
rpou.atirrr. bth FrB Srirrate ard draritable rccsaq, for carryirry of sEh
AF fiFt trilste
pEtrDse. to elclcise
are gemrally
t.he erclcke
po,crs rcpt
in cases of ahse.2s
is re*bat
to tne lri\'ate
beet. effectrnte
El tI
dc goartiviry.
tenrs of a draritable
ttre tnrstee3 have aUegeal a dtrty to depart frtr! to ntilize furlvative te*rfqrs to accotPlish lre fG
A fEirEqr Childrsl
U. t.l,8tdr qrnElrts:
(Tlle ltissri S4E@ 6Et...itttd tiat 6rts of eqlrit!, will rct futerfece ldtlr tlle fdr ant rsscnabl.e exercise of suctr discc'etio unless tjte errelcise of disretian aflrurts to $rch a substantial aeparture fifii the prinary Frpose of the cttarity as b aunt to penrcrsiqr of tte trrst prrtrnse.27
Gte sedrt
differerre
befrreen lrivate
ad dsiif:ble
tnrsts r1at
rnless tlre Ferscls rilD ar to benefit frrcm it are of class that t}re omrnity iE irrteresteat in its
a srfficiently enfoarmrt.2S
"(tlh"
trr,restsgtt".30 lds fus rDt Edr tbat. all tfp ptereial to kiJtg arit. beneficiarles of a draritable tnrst
rsrld tE te staniry
beirg eCtjec'ts
sd ureaslble
It
litigaticr
fim
tJE AttGney
GerElral of the stat urder rfio8e La||3 the tt|lgt of draritable prcdirys trqst".32
is usuaUy tfF party cftarged with enfqcesrt GetElal uy of the state. initiate scalled EErenE patrjae
lrrever,
a benefieiary
berEfit
dridl '3il
orporaticrs
be treateal in rue
in the iltscusEiqr
B.rsiress erporati,ar
in tlp
@ponatiidt
stadard
be erahd
sore detail,
ali"sti.nctio
directc's
s _ b:eiress
for a specific
beneficia4,
or beneficiaries
FEpose.
writes:
ft tre ry !e@ects, tlre stardards for a hrsirrss c:rpmtidl cli.rectc eito tfe tquirsEcs of tnrstees: a direc@ lras a dbty to qrilre.t tlre affai:rs of the @rporaticn rith tfie ut@st gDoatfaitfi ant fidbfitlr to the inteEests of tjre @Fffibe-ad rith &n care, skill, ad diligene i.tr the rndertakirqs of rEEgeErC.re ltte @lrlt of dlieseticr afb,gl b8irss lrevrer: spcatisr <li-r**cs tnds to be crsidterabLy
trusteeE,
Itrder t{E our J-an, orrts ale afupoed to dve ttirectcs a rridb latibde in the EDagGrt of tb erpa| icrr s aff,ai.rs, as lcg as they resoaUfy erercise an jrdgwtG. jdgsEnt lust,_rnbiasd Dds is often referreil to as tJE bsiress nrle. "37 -28-
Ic@Edingly, a srsidenble C.
bsirgs
orpratic.r
differere
ftcm strict
Cfrarit bl.e epratims. As t8 noted irr the introdnrLicn to this leIDEt, orporati,*r. grrpshire 611e9e is organizetl rn can bEn to a in generaf. lEre fields
as a charitable of Eaqrsldre,
and of ctraritable
foregodng disgressicn
seerccl necessary becar:se "the 1E!, ltoverniry bmrr*t of tlust areilirg to s@ la, G @rpcafe
1*r, or qttnc.E
!.tent cn all
recent ci.gin.
firds
that " tJe great ard rapi,tl irsease @rpoltaticns lras talen tlp -39 }a
b1zsrrlqiser'
By tnat tire,
l*ver,
ltdesEicnal
arc based.
@rfererre
dt tlrifors
@rporatid!
effect updr r|Erbers Fear of r i rhiLity of a. . . tJrrste tB]r ts\re a tlebilitaling ci$zens. of a govecri.q board, v*o .ir often trrcdQensated pUic-spArtea _Gley grnaing a Erique . . . iastitutisr.{o are tnnagere of rurgofit @rlDlatids, Itp elgEtts Uissing is, fustrusrt i.dentifies.tlc tfc orpooaticr fi-rst, of tl|e tJ|Jst, are absent in tlle case of tbe draritabLe -tlirrtenticr t}re tss to Gate a t$str'r*ridr rlder plae htrictr tjle trust is a dlarter tiat, Eesd, stee @rpon-atiqt.
is to be a&nilistereal
ur its
It foutrs c
lad<s a qvecticrnf
beneficiaries. -29-
be etabcateal
cr shetly, ratler
stadisg
to entroEe
rests with tJ|e state attoErey gerEral, bEfit alaE the trrrst $rt ercists.
Ee trD distincticns
a quite differnt bt
stanitard of
luEvetr,
standard carri
Aftlrrdt a dlaritable orporatlm direc"tor rurld rct be subject to tmst stardards in otielr iJlsuuG ' the ctraritabl.e ortrnraticr is organized- to drdrdster the of afsss ftr edrcatioal dft! 1uryoes and tJris irr@rporaticrr cbes trt lierse tlp <firector 5 rr{ csi trEte the property placedl in tJnlst.- Dr uqz acticr refrAing the'1-umnent dispoeitict of tjteir furlds, " Eliversity airectcs lrrrst be lEId to t]te Prentatiat of er&Nf,frrt fird assets, rat}er tlan Ule riEk inbererrt iI -. profit rrtirraticr. rprate GIE, _ * it turld sea e!rtt@\, ifirestirrgn be notd urf:fcefy sctte tiat tiat mrtd glfficierlt plae jusAificaticr cqrld be forr'd
ttn endcrn:nt Exrrs in jeqarray. t}e cbaritable @rpdatldr 99CES. rdEold lDil..l ad t]rre adrrancd
statdard of cale bas focuseit ot t}te q$restiar of t}e omership of the endorrsrt 8E StELidt is a ocrq*e* on. orpontiat lre rrcst liberal qstnEtiqt of tlc erdolrEnt pr*len filds,
ectrcnticr to adcFt
of Earpshire ollege
irrres@rt elrre*fy
of tlose saially
- lrFoEate security
are dle*d
firtlrer ilrrrestfuq to t]tose securit!, is$es rdrich Eet , i^rresporsiUle, ad rnrld liutt t}e ollger s staldatds of seial respcnsibiuty? Based cn the ED argLnEnts drich sitt _ b dvanoeil in tfds section, tfe poreserrt anthr's ursrer rnrld be E, stJbject. to trp
careatg:
-30-
1.) alm't
threatend the Eecurity of t}re erdarncrn o atd Eu]d t}us eopose Ure $irstes
ns hnld of
etairlly
to ttre Srtential
rirhilfQr. 2.1 Et.ler Dst circtctarcesr ertain of tlEir &ility b jugtify it Errlit seen rnf:ikely tlat a plicy of 'risk u|e Tlustes elrl|l be
r*ridr hd u,e po,teitiar of aar:sing a actdrtutrn.', (eth in legal arrd irt of tlre tnvesilcrtt 6111 t5e te!fis
financiar tcros, tlris Erestl,clr rests basicauy cr t.tre sility tEragel!ts b trEintain a sufficiently
of the policy.")
ta
AiveEsified pctfofio
rdrile carryilg
1.
&:glrirc
@l1ege Ae A Charitable
Corporatiar
gaqlsttre Oollege is organizd utder tne provisicrs of CtraSrter lg0 of the Massadarsetts c;errral r,ars, "cGtDraticrs Its dtarter, tdnically lcffi fior Graritable ad cecitain other RxSnses. " rlraler lbssadrusetts Lar as lts '&*icles of Orgarrizaticr,
"b
ms dopted Septe*er 17. 1965. It trrcyides: qP FirEltt FIriEes of tne corpcatidl are to lErrage ant adrrarce rlr fr6srclEa of lcudedge ad learring' ad to prote tlre .a,'eatlqr of yong ncn srd rrnen Uy estaUfO*ry anil cdrcing a ollege- to be catld naetrire-Offege, atd in firtlcrare of ttlese trrjrrEry prrpoees: 4. to solisit ad ..oeFt Slfts of lurey, securities -illat ral and perscraf !rc[]ertli, eitner for clr:tertt use G for erdomrt ard eitjhr foE gene!:af c ftr s1-clfied trrJriDea, ard to ddnister Fryles ad dlistrnse of t}e sae il ecoordannesith tjle telans of tne several giftsl ,q 5. to irweat,, teinrrest, and ddrrister trhe fi.[lals of tlle or1rraticr...." As noted earlier, tne orpcaticn Farpsldrc @lleger s Thrstees are srbject. to the lars rlrder whictt ms orgarrizeil ad tne dictates of its clrartcr. SiJtce its adrytior
2.
Ap "Asiness te*t
fta cigjnl
cr tlre i4e{rrs
e*clnsively to f,wds held by an elemeynaqr iasLitrrLiqr Itre rcseat lct qflies qr !rrrpo6. fior its erclusive use, Hit, Iblre ttrere erd-sts rD qflic+ bebcen an irre beneficiarlt ard a rtr. irdeutun, lpr is there tbe uenEl fialrrcia4t ar relatianship tmrtls beneficiaries rlridr eilists-rfu-a 6st-t nnaffi--rga tjle erelusive use, benefit, G Fr4Dses gE its ddnisbiator alr are the firds (EEhEsis nite.)-regtdatd b1' this ect. en aside of a sqsrhat is fre$srtly er4)ies h their saEntic nabrre is neoessariy he!e. Ere teun 'fidrciaq," to bAicate a IEr$n behalf ad s$se tj|at ard
nsed, both in lay fargtnge arrf in legal uritjrq, a peiticr tather of sfldere tmrd otheB,
interests
is frequently directors,
to clraritable rrcsarily
rporatiilr
directors, of the ud it
ts in of
sense that tbe telo has beelr q'loFd Et, lrever, "fidrsiary" benefieiariee,
this rport.
and senree as a Ey of cltstirguislrirg tre rcdirlg trnstees of trE !r Eilrpstrj^re ale to nnnage tle fsrils are rS s Frogrrar.'Sl
clirectcs
trd\refsit!,
as a v,irle,
tbe endomrt,
Rat}elr tIE]r aE a ttEans to adde\riJxt tfre uriversityt ortrnnticr is itself tlre beneficiary of t}le fillds it
lEE llrd naq)stUre opjJdqr nliirres! tcse inslitrti.qrs are irr a eitr:atiqr slt}l regidtd to ttEir erdouent frnd.s siffilar to tiat gf a brsiness @rporatiidr wittr respect to tbe adninistratiqr its gtl-l*y....15 lris _ sFllatjclr grrrcnd, reogritncr di-tectcs is tlte Ein tlat in tle mraEacnt. brsiress of their erdddsrt firds, directors, clraritable of
ressble ginapaf
Eporatndr
$hictr guidd
tfle Giginal
l.:
l;
tn gtper Etadard otr lespduibnfity corpontl*r directcl [for a dnrit$le is u a|a:ogils to tiat of a directc of a busiress oorpomtldr than tlrat of a . . . trulrte. Ete kt establish a starda$ of hrsirEss care ald [rr|dere rdtt\in the qrteoct of a tugoflt institxrti@.S4 AE Etadad
ffitct)'ostlnary t'he tie lct'
RR
versidr
(Sec. 6, Starrlard of
Ehall erlelcl,Ee preuaililrg at
"fecificafty hsiress'caE
of a governirrg barrt
urder tt facts ard cinr[gtancE "56 t" staniard $ording. of ca:re porticr l$e cigbaf labeleil st*rtard
of tlp ac+ian c
lsrever'
diffe!irt
sdidr
ItD sectiqrsr
"&rues@rts, of rders. i
"ldrd.rristralicr of care Ls rC
srticnd. tl|e secLisr dl nDwestrErts' of tlre rytable begrin: tftEs of the fssacfusetts fc e"t (?. 6) pEolrides Elis
of fui,es@rrts
a draritabl.e
trporatjar.
Dr dilicr to dr l.rnesffi otlpnrise artJrclzd !1l U!, c by t}le a4plicabl gift instrucrrt, ad qltrcut Estrictjar to in esfisrts a fl.dtriarrr u,I ruke, frre gollernrg 6.d, Effi-alry speciElcffigd-ft inEtnmtt c tn r:ta aplicable to lar3@ than l.a rcIatiry 4plicabfe (EEhasfu drEls-rir|\eststts a fidhrfary, Etz.... I [lrB, irir tlre cctidrr s ir*roartory ftrcrn Ure (trnst) par:agraph the dnritabl ridx'iary @Foo?tirm dffuctof ig
options,
in the sectidr
to be qpide-redl
in t}le e*ercise
carc ad lndere': Er ri'nin.i Ffr?lian of thelners. . . to Eke ard rtaln furtregffirts . . ., od a guternirry boad shalt qrsiibr de!.s lc:g ad Ehort te@ needs of tIE ingtifuCicn fui carryirg cr* its a/trnariorrl , teligiore, cluritSle, or dher arcynry . . ., its EEe$t ad anLieipateil finarsi^af lequirrsrEltts, Frposes eqEcta toEl rear4-dr its irtr es@s, level trrrds, and genenl Irie snrlc dditi-dg.58 -3 3-
factd
b be qrsidbrd,
-tfn versicr.
pdlerc IhfortrirEltdllr,
bae rearltd
Espite
rlErrtidl
airec{ors stariard
fc tcl'
to tte h:sirEss
basd^dr tJn grcrirrg body of case Lan ufridr ppliee Altlsrgtr in tln past 6rrts dio.t*=,60 hane sG.ims sine
to UEi.r aeeivities.
dpotlatian
ttre early
ni.rEteerFse\rsrti
been irr the @oeite directicn. FerfEps the nDst alecisive c:se to utilize tne rbrsirpss stadard argrncnt" y. Irrrt l*bb Fayes Natianal an *Lior qerated by a grqp kailiru Scfrcl fu agai$t lbaspss and lftssidraries.6l of a Dlstric alfegd
lns clearly
of patients
of 6ltr&ia
as a dutitabLe Unir
orporatidr.
fiiircdary.clrlry
to $per/i6e tnrstees
tlre tnstees
quite rajor.
lrn estrEnt Ocmnittee ever rEt or cqducted t19601 until 1971....'52 of all tJris, anat folrt refirsed, the lpwener,
hrsirpss ft,or tlre abte of tf,reir <seaticr En orrt, as laight be elgecteil, gtrifq, of beadr
of, care td
the olt
Basically,
the tn:stees
trcn-mn4pelt,
and
serfdelirgEE ctEritable orpooatiorr is a tre :rp:icaute Lan is rnsettled. tefad\rafy rsr legal ertity driclr does tpt fit reatly^irrto tl|e eetaLfisheal 6ml rr" categories.... (ll he rcdesr trend is to ly coiilte ratlrer t}ran tnrst jn ikttendning tne Uability of tle directus of charitable erIpratiolsr, FillciPfes becarse tneir-$lrticrs arc rdrtlaUy inliseirguishabfe ftqr tneil '1rlre' aorp6ate onterparts.63 [te Stern dbcisicr is rw widely cited, ad t]te leascitiry db{relcped t$elie tEs berr erylqpit in a rar$er of rore reoerrt qlrt qinicrs.64 charitable @rlEnrtidrs, strcurd be that ttte _
fhe girniples
in E=cific
subject to brsiress @rporratjdl stanrdarrls. rt is rcrtlr notint, lurever, sifiilarity le@Sdzd be|trEen $ese irstturLidrs irr tlte -rert cae Larr.65 ard Fivate
ft tfiild
ttnrs sea quite clear that bot]r fui tlms of t}e mnt irrv*d jrr regard to inreslrent
cate tudr rue similar to tne ubenl brafuEss standard t.}rdr to tlre strict ttllst stardard. 'Brcn before tne develogurt otr tne orpuate stadard aPfied to dtaritabl qFratjat directcs
3.
dietors,
t.he H
ms to arnid a slstrrrticn
of crrirers[ip feadj1:g
En 'Gnr*er
Arriges'
to a hsiress
alirectors
dlesisicrs is a goodt dteal broader than tjre lrrsirra.s deGatidl starrtard is rct that directors, brt -
Blsdd
be elgected 8m
draritable
of tlp rnrue
of $Eh institlticts,
tne dircto!:s'
iesporsiJrilities
of trrirrate ard draritable tfilsts. 'are to ensr:re tJrat tlre eahratisraf anil tlEry rrltiretely qrtrol all
of t}re fwds,
lrlogtrins.
i67
-35-
As rrtd
beftEe, epdlire
Gllcger
"tie
1ti.m4r
trrr4oses . .
of krurleitge
a ollege.
decisicrs,
prrtrnee as specified
in its durter.
rEasure of discretio to rnet, tlris cbligatJor Tuiite muLd be lELl to a hrsirress stardad of care.58 It is &eqturtly dmoatic aqued t}rat tJte edsticnl irstitrtio
ir a
_ -
rajcigy"
UV prevaifing
this nudr sesns dviors, at dligaticn ard pliticalty trrilcoftty tlnt ollege
be fortnrlated lnrever,
tsderry,
as beirg reitller
ItE Drustees of 6lutbia irr todayr s wld - ethical ad lumre requires psiticns 6Et rrt
lhiveEsitf,
lrave writtlr,
idea1s."70
AF ltic$igal
tiat
'(a) rni\re!!sit!, ales rpt eldst iJr a \raci.trln. ?t "' wit}r its seiaf respcrsibilities
- h aeordae
agrcnt
c rniversity
Eesunably,
eercatio.
tJris argttrutt
ad ttE tircat
rGsary
' (Ifl idegFeaat caqrrs r.rrrest, detericratirrg _ relaticrs, ail tle dlissatisfac*icn
inrestrE. redless
. .'73
justjqfjrg "the
Dnrestc
strdtert dsrund or gFtest, Fooess ir bfiich tlrstees ouer a particular as cE olrt realltiee.
etirrellsity (tlreir)
di:cctc-s,
eyes to Feserrt.day
'75
tne eahrcatisral.
rust be leEpected by tjle tlri.s stat@tt by elleges aFpears to be arr arrt urircrsities.
orrts."'
stbject
earJier,
of '.oeial
irvestirg'
legality firds
sodal
crttcria
in the
t.,tddt src
as gifts ft Elsrld
the sane issue, ald t}lat t}re oncern realn of Lan. instituticn, c
as vEIl
t-he legar
lhd.taticns
of an drratioal instrurEnt
Aoeptare
of srdl grfts
by tlE instibrtiqr
a recogniticn
tftey Erst !s a;fini ctpretl irr acoord*re by tlE (br c tle qrrts, institrLicrs
with ury $rch specifieal tstrs. are held to a strict -37 stardad
erplieit srsidention -
tid,tatians of inplieit
Sote eutlwities
ttrat hrt
thc nodern trecl is b qrrize, (I)n tle absetr of clr alll abrDr to a draritable
clnrat3or,
tJrat: tlrat
irst.rr.riicns
to tlre 6rtrari/, is fe
it tn:Bt be as$cd
J-
s[=cial
[rlr[Daes,
drtrlbrtes
his acntJihrtl.@
adninisteEd in aoordse
t]re nrles of la
gp\re!:rrirq ctraritabte
giarriarieg.T9
Dre lns
Frerning
of gl'fts
by olleges
ad uriversitiee trusts:
[E elelE[rt of irtentiar to creat a tnrst is abaent irr t]re ilstarr"e of an trd\tersity siJre tJre rniversity t s dtartEr sets fcth tne grrAoses irprponta ald cirties of tlre cgrizaticrr. lte chnors are representd by tfre unirrersity ar;nllatiilr ann ldle @Fo.aticr is bollil to use ttE filds fu drcatiqal
pltpoes *
its orluate
gah36a"a* I
of a trust ilstnurt,
ht ty tl|e govisicns of
of draritable
ortrnraLicr
It i.e tlE state attdrEry gelEraf rdD bas tne gjrury respoeiU"fiA cl tne dtaliticls of cturitable gifts. -' Ccurts are usually besitart prercgatj.ne of tne attorrqr generaf to initiate. . . *tisr,'82 enabcrt
staldilg,
as a draritable
factors in tne mnaganent of a grft, it is urliJ<e.ly tl|at the _ srsiateratic.l cif rgrsuic furd mragers ould fiJd solid erurgh justificaticr to violate sudr t!ils. Cre - qild dri-tahly sed( b lE\re tne teEE difid " erican drrts, lwver, try tlle corts uder.t.be secalleal reluctance
to rcdlify a
ittstnmrt
,.
s sdcrlctrt sith
mrurer, o it sould rS, Eea to be a gSlen. tt tfn cpinicn of the pesent, artlu, it is utfikely tJrat 's@ial either irrestirg" c iJr
rLiqls
by cbaritable G.e.
orporaUo
dlirectcs
@|dd result
in ltabilj'qr
forfitrull
of firds
lcepting
$fEre erh
actilzity
cr tne qlstidt
Itris behg the case, it hanld be IEIL to sed( specific invesA:nt tde decieicr tlrat, seeins $eEtiarabf. tere. lte Naticnal
AssociaLidl
of CoLLeqedtit Urivetrsity
Officers dvises: "*ry lftinis;tratian of erdorlstt ant sinilar firds requires Ehtenane of a regrister of elr grdr filds. [te tqistelr slror]d irr}ie su<*r infoomticn as (I) naes of qrtrElrts, the dbr (2) mnt ald de!.s of his f,anlly, *ith brief Uiogadtcaf (3) tdentificatio drt date of &utiqt, ({) dbsignatisrs of, of tfE q/Fe of fird, c,q restricticrs qr, use of tbe fird c lts earrirg, (5) idhntiftcatisr of soute (fuu, of sdr limitatios c qpn,Erir4t boqtd), (6) linitaticrrs cl Etrantor, i$resitrElrts, ad_17) referere to f@l aoeptare ald ot]Er acliqrs bry t}te goterniry b6ad.85 dbes rrt atlEpar to errertfy :.estrictiqrs lDssess reords as tlnro4tr as t]bse lrntestigtea be &tailedl qr
Farpsltiie
srgEested, PerftaPs becase gift ad reoordeal. tJre rest.ricticrs the src for rlr S:ea$rer pfad gift
furfs seiaf
fttn fderal
ta:s.
A3 tj|e lin B
eurrentfy atrrd, the!, tlo rot apear to present any subetanti.ve AE Beabral Erternal blerrE fs eligjlrle Aoab povldeg tl|at a tuF tar pro\rided UEt:
rc part of tttsl tEt earnbg irures to the benefit of any private shareJplbr c irdiwidral, rD slbstantial part of its activities is carrying cr gopgarda, or otlErrrise attgrptlng to influele leg:isl,Eti6l, dd titl does tEC parcicipate in' c irrtenre h (irEfrdirrg tne prblistdng c dlistribrting of a., statsrE rts), ag polttical cilFEigrr cr berhalf of anlt cadtdlate fc p.rblic of,fice.-' Ean;xhire| s otn chdter of f&al c srtat iJre q*airts prrisicrs barz&q any acticr rdridr rorld deprive it of the 6de. an ard
ta( elepLicrr,
reitber
rnr participaticr
orr ccryliarre
to rdst tn tlaseactnrsetts state la, 6. Standiry srsideratio to tjte *.ticns of draritabl to a qeciflc
eitlre!i.88
A bjf challrFs
as it relates specificatty
to ls irr
ble c1rnticr atirectcg are trt reg1usiUe frarit beneficiary c beaef:lciaries, ad stadirry to dralloge t$e perfonsre geneliaf. Ot]cr parties are
tmstees,
- of directc's -
subject to a "qrcial
is grcatir
to Eilpshile
Et t-be "s1=cial irrterest" test,, ad be grartd - f,adrlty, slldents, Stitl allcrd _ stadirlg ahffti strderrt lprpa, alutrli,
parefits aO arrs.90 tlEt trcet of tiese parties arc rd l.tirrity tJirstees ale t:dit3cralfy Errs algIs garrtd
starlfurg as a Etts
in erits drallnging tne a.ttcns of a bard's,ojdiry.gl have sctfures tndl aHrid staniling, ts*,*.92 -40-
to 'pled
elsrts
unfataEss,
urjust
enrictE
t c
a$ittr.rircss In
t}re sudent-urivetsity
retaticrstrip."93
held that iJl order to hae stanfiry rnEt plead f,acts to dkrsrstrr:ate tlnt stateat tllat tlle $derlfdrg e. re.latioslrip
td.ste.gl
dir*tor:s rlder
ms a ccrtratual
tne h:sjreEs
be teLdl fiabLe fion brEactr of dbty in tne mnaEeeclt of endofint finds crly niEre an &tEl loss Es srstained, Fa on tlle oder and shere it ms slsm tl|at tj|e beadr of gres rEgLigE r.
fII.
Cocfusidl b qEltde, it rcet seena fittjrg fr-qurtly articles to q$e frcrn tJc qrlusios Uh of trro of tln qldatf.crs l,a
jouEf
arlicles
of dtivesffi,,gs
brt ttc
to soci.ally
qrhdes fris qrcnt t]at ativetitrue is a pqer i.urresGrt dbcisicr qrsistnt tdth tjre drcatioal of tni\remiqr i$restrE rt filds ard,.as sudr, m1'-poperlyFrIge b adliard urder tie elcrcise of a directcre reaecrSl.e U.rstess jniign-rrt.f lltis nde qrltdee Edvelisity tsrstees can be acqlistreit ttrat tlte trrevailiry eiauciary stadad of cale abes rct pr$ibit political gror.rds if tle diWstiture ftEn ttlvestilg cr c rrml wittrdrt casiiZ arecorruic lcs to a-Ed\renity. . .97 -
Jtlstie srrtr errterlrises hrglas I q[rEnt tjlat "EE ddfcoFhy of qrr Li.ne to be lEld to a higfr stardard tlrar tiat of the nomls of the nad<e@Jace; tdrich tlalts a sirtgle{Ldeal, trl'opic detendltatjo to rE riilize poofits as t}e tnaaitjdtal be-alt {d td-all of, @Iuate fo tJe 6en,i seanrsespecially apgcpriate pollcy rilridr an begt se!'ve hb rrdrrelsity in ilanfopdrg 4r ifires@rt tlte udtrersity ad ttE @rdty role.98 in rd\idl it pttys sdt ar i.qlrtart
-4L-
i"4
-.]
emendix A -
of Orgarizatiqr
lpendix
B -
ttrtiftun mnrysrt
o{ Instittrti@al
Elnds Act
(IUIE: lgtrprdix A, a afry of tlre narysnire Coltege Articles of Ggrizaticr, ad lgrrrdix B, a oopy of tJre ttrifon I{anagaerrt of M E\ld est, bave been elclndd fuo thie rtfort becaus cryies of bottr ha\re been preuiosly distrih:td to Ure ffiers of the Task be.l
-42-
ApmentergtnEnts
legaf scbf.ar.s stD argtE aFfurst by inseifuticaf tn tle rsrt Fst imreEtors. the use otr ocial rcseardl
t.lE prepcraerae
of vario:s
*{ivities.
Cds report ltas ben geared tcrdad ecplicatirtg for the presnt trrrrposFor to refute
the pofuts of lan tte artls tD attEr*rt tras ben de 6,er!, ar$Ett twy
useil by otFcrsrts.
Eris is eeeaaffy
o;parc rt argrrErtts tlest on leqal pofuts tbat are rn't qticabte Ottege.99 It ruight be r:sefirl, lprpver,
La SdEl
pofescs
ard Richard A. BosrEr because rrariors rE$ers faEfiartty with it. ard prolific writer:s irl tIE fails
of fictriary
resgouiU.e
to tlE qrterLiqrs
tlrery abfine
inestirq'
to nEan: _
(Er:lchdfurg tlre securities of ertain dlpatdes frcrn an djreErrise attractine jrdgeif to be socially irrequts5Jrle, qsries pctlotlo fuvegtc's tne are bse cdPanies becalse dhelihrise Eattractine nral irEllditE tfie seurilies of ertail ard lardable nay. By iatt:act'ive' tiey are judid to be Hrarirg in a seially 'r:nattractiver qrventioal of irrvestirg, rndcfi is to e refer to the &jectirc mke uey...frr tlE i.uvffitt beneficiary. f02 It sesE, $bstifilLidr plitical 1l:actie, thn, tl|at fu of finasially qr mral 80 it reEsns. fanfi:il irynlent fris dd hsEr, fuivestsErts "seial irrvesLilg" sold reans the qres for
ald haner
.irc-
-7
acccp't tJc a!$rE Are s*.ticr aut.tss laurr Iql elFli.cate fur,--I fit
rts advarrcd hee. qrtainirlt tlp *eciaf ad tids -ctiqr hilidr it geoedes. algtrelts arc dirccted lnrever, at private trustes, ntitled. ard especially \tsrirrcrsier tj|e clefirdtiqt M is foltqred by a secLicr iJr *rich tlreoryi tlE
of tne bgat
pensiqrfud
with a sectiar
tJrelaea:re a nurber of points nEatehr]rich sesn ftisleadi "rgt, tJreryFEEpce tiat ove. dren aoe turns to tlc rtrEratlag, t$sts. . .:105 qrsLicr of higtnr
aduca+i q1 dom:nts,
rt?ridr for present ftey lnake rD attsrE t ltte law of frfgqr.l06 ;; to nate. rnkes clear, rporatnal trusts. ollege ft and tte
1llrposes are indistingldshable to sr+prt A ca=ftil Fo*er's discussicr tureverr stadards tJris assertiqr tadfng of Utat
lloeft by citirq
t slqFsts dtifferent
is tqdrlg
lttadard
irue6ting', ild
tjotJl lrivate
drywhere in its
tlre 1974 Stem dlecislqr d the ttnifotil in 1972 aril aalopted bft the lGssadrusetts
(alraftd
"sia1
fuvestiJg" grrtrDses,'
tlcrdtaritable
A \t rietl, of the ''a'rc* espoltsql in tle nae of social jJt\tesUirlg are t't wirin the gETDses of o11e9e ad l'rirrc!.Eity dprters-for e'n4rle, er$6itl9 tlis4f[orraf of selectal foreign gp\rer Ents, or $Ff,orting ertair labor llriqr cadrizing capaigs. tu rrd\rellBiq/ t$stees to sFend rniverEity firds o srctr
-44-
tfcir
be ultla
vireslo7
flitrcirry
{d
i.n breactr of
Itris reprt
nalcesrD attryt
to Justify
buse
tiery Erfd
be, in tlr
to trrrSIF the s@ erd ty e'gagdq in sociaf furvesting of tfre Eri'versityt s eldom=nt firrlils, tjrey nl"rl siply be attsqrLirq to rtc irdireclly what tjte], nay tpt clo directtlr.'f0 Ian$ein and Foss ale fuplyirg tEre that rp clistirrtisr o$rt to be rrade be{lreen airectfy dirtertirg dd tle ueilizatlgt of an erdc*mrt fird. rrttonErt of sial
\
ad political
acttvitis
ltris ranld sea to be nre dr eltFsidl fp artlnrs qite ro iltJuity Also, srdr a fomrlatlor
of rur.
ct 'ruFdlaritable
fu a "starrbrd. of ounity
tiDse Fecise ctgin, dbftnitio anf a1plicalility rgnajrcal ' lrcIer b UE ltBefit .rtls. GE thitd ar3uert, cn 'furo:s,i sryests tfat tJilstees w?o eoqageiJr "sial irnreslirg" nn tle risk of triggerirg f,aru of tlE dbu. fris dlrfeasdce (i.e., forfitrre) of tJle finds in
popoeiticn. as re!! rests l!:e cr the un-lzoven assuqrLict fuwestirry' is to be guilty of itiveneiJg er&mtt c4tses. of tne distircticr discussed erlier to t}|e tknce (atal their fimds
-45-
_._-_.- rj
JsEsl
a tnrBt instrrrEtt
ElEEatfcrrs
r @.trErat Gllally, tt
rotd (!gaitt,
rrl
QssE .trrgtmtts,
fan$el.n erds
qgluslsr, in lrrt:
of drarl.tabl"e tnrstsrl
Orr aElysis 6ds cr {r l8rrtain rde. EteG arc lFf dskg to the draritabfe tnr3te $ilD fatls to mcinize tlE vdtE of the drarityrs qdnsrt fid, h*, F are rct paepard to sa, th.t, tl|e t-r does, 9f^ rv-lrr tn,eating bfr cbaritable tru8tees. *' durld, abeotfitely ftdiil
-46-
T**, state bard of Eidres Ehrcatsiqr votd b divest dd refrain fto ilt tlp sFalties lle Aivestitilre tttidl otr cprattcrs r=aoll.uticr, **Jto qltJacbiar trry troirg'suustancfaf acdvity
or ritnder
th
eegr
is tl|e hardrs
rn carryiag ot ttds acticr, tne lr\resffi r*rager= are rsuestedr to &.t gpil i'-?,murr rnte''trv *ddl wirr noc jec'padize trn intFty oe trre erdorncnt, fida.r l'l Af,tr rpivhg ur lttcre.lz Genelalrs c[dnicr, U tne Gegd, lnrcs@rt 6rEit votd qr JtrE 21, l9z8 to refuse to caEy ort tne cEvesfurt inst;1Etiais. Ee Attmey did rd rfiild GerErarrs qinicr h.d aryud tiat tie staF Boant of Ei*ler Etrraticn srctr a decisicr
b tnlte qrdt i:n estrEnt decisicrs, ant tiat violate the O!arr .lndnt ij!uEs@.. stadads.
Er a case tlrat rtas etE to be tsrrn as.Bssociatedt sbfus of hgur, ee- al v. E!rt' et, al., sbrdelrts, .r4$grar d-.laa+'ry serreral othr cr lihqber
atigt
of tlle lhtverstt!,
the stralent g:ru4r, alcrg with a rnnber of jndivirhat i suit for (ald @Irt le\r{l
sbderrt gru4r ad a ratrer of otrer parttes *r.d +inst tJE ders of the OrregurImtsEtt srit, fitd
ndgElElt ressaryr
Oorcil
parties).
trn orplaint
at aE tJial
to fo..e-r.
As ttre case progresseil, fo:r ortstadirg 1-l 'kjsiilts bes tJle state bad fc tJE er&mrt tiat
filds
in tlle a&rinistratior,
-47 -
ad rtsraqsutt a erit?
of, hi$Er
edratiqr
erdomcnt
lin6""lltl
]rave stardirq
Is tlErc
any vafiauty
qltentiqr
by a state boaty is rsErstitrrtioal irterstat 4.) Ililtd cnretrce, the dilesffitt arrt/c *tio quaf
potecU,qr
qrstitute
a rdolaticr
of care requiled
of tlte furdts
to have stardirg,
b rnate irvesurErrt acisiqrs.[7 affi:cutirre issues are erpectea to be beard ctrrEnt calerdat !ear. to
GosE Elians
tsrEining befe
to tI U.S. Sr@
Slurld a ateeisi.cr be readrat an tJre divesEsrt 'trmdent irvegtc' tln its igar tnst leglity etdoGrt will nrle, Lt EDId be the fut c uritrcrsiqr ort
as it
to tlE
(bcisidt ctteria
I s use of Eetal
Ge plairtilfr
s attoomelz has stated t]b.t, trtE stardard of care rlat to tJ|e issues of lo1za1t1zto the goartivity. Sigrrificantly,
benefieiaries,
to firancial
of the dirrcsffi,
is in qstictr.
rrnr1d, ft*ver,
tle uriq=rss
qrlicability
-48-
to Eqahitcr8
sit5tlsr
fu ll.nitd
in trp reepets.
of of
ad it ts tne jrrterprertaticr
of tnrstees, ratber thm tJut of draritable Smd, tle stildad of care isar
orporati*r
is beirg djdicatd
-49-
IWTES litlrrrtea of tlte lrby 14, 1982 Joirrt lGeting, Imres:tsrErt S$ccrmdtte ad Ocnnrittee (CFI$, thgtees of llapehire 611ege, p. 2. dr 8r,lstrgrt reseosSUfity
4tUfm Uan ge|tEirt of Instituticnal nDda Act, (lnrreafter tl{IEA}, Ocrrrd.ssiqErs i Fefatcy !bte. 7A ttrifon Lffi erlEtatd, ItEster Eitiqr {05 (f978). A oryy of UE &tifoun Lats enrstatd terrt nry be fqrd at Ag4nndly B, infu.
825 rags. (9 Pi*.) ile, .61 ($30). Eanrard 6tte9e figurd in rtris srit as a rseirderon of the IEy tet@ltaq, trrlst. te sEit aid rct dlcern tne nanagsrEnt of ianrcstrcnt fids by Eanrad 6llege. 'A histdc'r acortt of the cbrrelotrrurt of the irnesffi tirties ard porcrs of prirrate trustees ftm tleir origins in Brglish 1a'r can be fonal in f.an$eit ard Eosner, lrbrtet *. Elltds ad T:nrst-Inres@rt L:lr-, Lt76 em. Bar Frolrdaticr nesearO it. l, 3-6 (1976). _ fOfan$eln ad Fsrer, 72,96 (1980). Seial fnrEstirg aDat the !a of Tnr*s, 79 Mictrigan L. En. fnder t}e nrergirry g, and 18? Ocrnent,g (1957).
llf&tcrt, Dtvestitlre ksolulians: Ilrirnrsier Dirctor Liability @rpol:ate Stadard, 15 U.S.f. L. br. 26L, 265 (1980/I98f). l2see Estat@rt !trd. at s. ?zt.
-50-
(Seddl
14'In aditjc.t to rEldrrg t-he trrrst PsoPerty proartirn thrq4.r lyoper fupestflE rts, a trust has a tirty to imrest 8o as to &tain tjte hidtest rehrrn gresible qrsistent with t}te saftl, of tne gircipaf. In order to assur high reblrr, qrrts tra\re requircd tnstees to stsider <liversiffirq fird irnleslrcnts .d have qlsicbred failure to df\renify trDre tltan tere tnistale h s:rcfnrgirg tlre t:r:stee fE :resultiJrg lcses. " tib&tdt, s|.Ga tde U at 266. lfttr Artfrer elaboratian anil refereres cr tlre stardard of care lequfued of prirrate ttrulrtees, gee tibrtdl, gs:a rcte LL at 265. l6sco,tt, frbridgarcntof tlrelanof 17l6rtcn, srnra rrte It, at 268. Thgts, secs. 198.1 (p.400),200 (p.401).
18fn 39 ladcr, 104 litisc. 372, L7J-N.Y.S. 981 (Sp. Ct. 1918), affrd rsn., 175 N.y.S. ycJ<, 9I6-(-sW. ct,. 19191. rtds is a 1918 decisicn uv tte *rrogate'il@lttTf-trsr affinptl by tle lSpelfarc Divisian, in t*dch the orrt r4held a trusteets cbcisidl to fuvest ir 3*t nirslt Liberty loan Bdds cr patriotic irr spitE of the erglicit arurds, instJrrticns of tfte tnrst instnnrnt, wtridt dtirected tjre t!.lstee to lnvest ard :einvest ctly irr 4t lailrcd Hs. ltrc tlistirgdslreal inst sdrolar:Ustin W. Soott ergEFats, (ard tne FEesrIt autlu @Eurs), lmever, that this decisicn flas an FlrEe'rt dle vtnse reascdng mr6t rdern orrts sqrld afnost oertaialy reject. Ihm oourts ha\re held that Fi\rat t:r'rstees (anal draritable tlustes and ctrarttable @rporatim direetcs) have a bload porrer (if rpt alrra]rs a ctrty) to avoial iUeglity qttravenLiqr poliqf, " arrl my be ercr:seat c tJe of the 'lubiLlc iaterest" c lrblic fror folloriry t$e htenticts of the tbrc wibr $cfi ddilids. lrave Sore ant}oritles argtied that this trnrer of t.he fiduciary, can be often tered tne "rrrle of illegaltty, " extenateil so tj|at a desisicr as to rfiat rrurldl or tflld rEt violate ule prblic futelrest tsrldt be \rithiJl trhe fiahEiaries' di8e:reticn, ard that tlre fidriary aFply tlat 6ild qr a tnrsteei s irfeeenaent dig@etidr to a fi[|drs tn{ragefEnt. 'Inves'tsrEnt ibcisidts based jrrres@rt assessrErt of the effEct, tnat qrtent wilt have cr the prbl,ic telt*ingl yit}r tJE tnrst Frge, if qrsistent revien seenEi to b belgrd tne pnria of jrdicial becase tJre tnstee tras a Eod porer to avoid' itleqatity. " tbrtcn, sqra rpte l[, at 267. see ale J. sirn c. F#rs, e J. allnerrfrr{ de ntrricaf inrFtor, 144-156
ff,;fiii#-H.]rle
Ztarr*.i" arrt hsner, sil4)ra rnte 10, at gg.
2lfff
22"Scdt jr:stifies tiis peiticn by reference to oorFrate ctraritable srtribrtims. 'wittrfui prc6nr limit-s. I lhe He !!a,tes tltat orporaticrs nay mke gifts to durities ratioale fc tJris prqositian is tlat by aiding scie{ry as a rdnle, the coryoa:atian firrtlers its mt fdg teB irterests, Siflilarly, a trustee argtrably shrr:fd be able to cial cbjectirrcs tlulurgtr his 6 tcr fuvesffis cr the tlreory tlrat t}is airls trrqote siety ard tnere{ stEngl*rens the fondtatiqr of t}re tnrse. S6tt, }uvr, notes t$at he Erld plee '1rc1-r liuits I dr tnrstee dise=ticn. " Rarrikoff ard C\lzan, srwa rDte 3, at 527-52823SeeSott,
tiattE'l tlat
us, for
iufldt rFt,
nhile 'it lEs bn held that e,[re a beqest fc the errecticn of a "be dnritable,' arint<ing fo.ntain, with a provisiar tlat tiere stnrld b a lifesize statlE of tle ttator c a stahE of his brse, the provisior ilial rEt prevelrt tl|e trlrst frcn beirg a dnritable tn:st.' _qr _
saitt tl|at
to feed slEl::srs
697-69gl .
37nres-r,
r'iability
of Grpoate
Ste til
offiellB
ear. 19731 .
_
4
39rd. ar u.
lQlEie,
ta rri,b[itcl,
se-a
rte Z, at,l(8.
L!, at 272.
g4Eia rpte
_ 1bt*
Ul8 f. Sm.
44See180 ILG.L.A. sec. 3; 1568 t{.c.L.A. sec. 13. rtA qrPlete ogy of Bapshirers.lrticles of Gganizalicr ie ilEldeal at rFendlx A, infra.
* 46tgoA ll.G.L.A. 47gqgq, srrria note 7. 48se" rpte 40 and @ te*E, snr)ria. _52_
50S"e1 .g.1 Knepper, Eupra aote 37, at sec. 1.02. 5101"oo, -9gg, Dote 5, at 564.
52C"*7 and Brlgbt, The Developlng Law of Endowoeut Frrnds: tthe Law and the Icre" Revlslted, 37 (1974). 53Opfofon of the Justlecs, 54tn[ra, !gg3 note 40.
SfttlcFA,
lgg
57t80e x.c.t.A. sec. 6. ttc flduciary staadard of cere requlred of llasgachusettg truEtcc8 la lom as balng coqarltlvely see scott, ggg note 16, at Strlngeot. *c. 227.5 (pp. 437-438). )dl80a H.G.L.A. gec. 8.
59ra.
60S"", ..g., lrtrttcd States v. l.douut VeraoD llortgagc Got7., IZE F. Supp. 629 (Lg54). -
63ra.8t lol3.
6fu.e, e.g., lfldstlatrtlc l{ational Super. 128, 405 A. 2d 866 (f979). Beo} v. FraaL G. Thoqsoa Fouodatloa, 170 X.J.
55scc, e.g., llalvelsity of lliasl y. ltllltatra, 1966); laach v. ceorte l{aahtagtoo Ualvereity, 65!dortoa, ggE lotd lt, at 281.
184 So. 2d ?01 (FIa. Disr. Ct. App. 370 A. 2d 1364 (D.D.C. 1976).
57O1eon, supra Eote 5, at 562. 68soe cooeutators epproach thle questloa by disttogulshlng betreeu "retu!Dproduciag" and 'rprograoatlc'r fuactl,oue of chaslteble corporatloo lDveatDnta, gtaadarde of care, that argulng that oaly the fotur Le goveraed by traditlonal the seD LDvestDtt cao aeFye both frmctl.oos, eod thst varlous portlooa of the law, taeludlng the Interaal Bevenue Code, reeognlze and reepect thfu dlstltrctloD. Th18 ls a slgnLflcaat pol,nt, but doeJ uot reall,y extend the t.charter pulposea'. ar$Eot beyood tbe pol,ats bctng tade 1a tbe presmt teat, ao lt has Dot beeD elaborated upoa bere. . See J. Sl,rn, C. Poecrs, aad J. Gruraeruann, -1E. uote 19, st l6(Fl5l; Olaoa, ggpgg oorc 5, at 564; I.R.C. .ec. 4944(e).. 69For a rcpreseatetlvc coateqorary Ivory ToEr: Soctal lespoaalbllltles 7ost.t.*ot of Colrnbla frustces Soutb Afrlca, Jrme 5, 1978. atateuent of tbese vlens, of the t{odern Uolverslty, Irvestoents see Bok, Beyond the 242-309 (f982). ln
oa Ualverslty -53-
1o Coqanles
,rsprlal v. Regeots of thc UDlv. of lliehlgan 1 43 lIlch. aff 'd, 390 Dllch. 84' 210 N.W. 2d 322 (1973). T2tbrtoa r gpg Dotc ll, et 277.
Suttb llfg.
co. v. Barlos,
77olgon, lgpg
oote 5, at 575.
781s nrTehlrc t s legal cormcll has erltten: tbcpendlog o! thc tl.tie erd clrcunstatrees of a gift..., lt sould aot be suprlslng to flod a court deeidlng th.t thc uac of dooatcd firode by the college ea e DsaDB of .aprcsltrg . polnt of vle9 lay outsLdc tbe rGasoneble erpectltloue aad, thereforc, ogteldc the probrblc btcat of the donor.rl Iputs l. Esoll, Jr., lale aod D,orr, to JohB ttetta, Vlce-Chalruan, EaDpshlre College loard of Trustees, liay 12, .1982, p.3. 79J. Sl*o, C. Powers, eod J. Gunnenaon, .9gg, aotc ll, Ja., note lt, .t 273. tfatt3, gE oote 78, at 3-4. aote 19, ac 155.
to Joh
sG 274. llalvcrelty, 387 S.Il. 2d 132 (lex. 3?5 n.E. scc. 4.t Ctv. App. 1965). 2i! L225, f978 Adv. Si. (3d ed. 1974).
E3Sc., c.8.,
Coffce v. llcc
86[1co L. torrey to IDvcstDDt Subcorittcc, Eaot'ehl,re College Board of Trustee., ''trlercrandrn lfeceseaty IEveitEDt Dcclsioog,tt Jatuaty 9, 1982.
ghould bc r.'rttoned..., bormdary betseea chrt thcre ls en lratable eharlty aod govcrmeot t! r.tterr of publlc polley. Several grovielons of the Intetnal ReveBue Code, for era4l:, reflect a decp gwerucotal coacern that tax caeqtt Lastltutlone rrlll abnrse thclr rclpt 3tatus (rfitch ls aoo.tLoes cbarecterlzcd as a publtc subaidy) by brlnttrg thelr poer lnd lafluence to bear ln tbc polltical' leglalatlvc' end dlploratlc flelda shtch goecrmcrrt guerds zcalouely r3 ltt or!. The acparetloo of Church .!d State, lnd derlv.tlvcly the Pfust ADadlot frccdona of Splccb od &redly, rttcb tn tut-a uoderllc tbc 3pclsl tar end other prl,vl,lcgca accorded ly orr ler to cbulcbea ed other charltable orgsll.zatloos ' repreacDt e dlfflcult rod dellcste cqrodsc to of co,qcttng clatDs to the rlth! of tbc que8ttoa 1s ttluatrstcd by the Internel lcveaue SoverD. Th. scasltlylty Godc, ghcre rc3t!lccl@8 rre pleced o! tbe rlgbt of cl3c8pt charl.table organt zatlonB OOItTII{T'EDON TEXT PAGE -qa-
t'It
legal
councll
has rrltten:
88 (comrNUD) to attcqt to partlclpatc to lafluence leglslatlonr to the po11tlcel procc.a, or Co hgve c.rtala dcelfugs ulth goveanEcntal offl,elalg. Ftog g very therefoie, soe queatlons car be ralged Fto-tIf iencral pollcy -@g$g, porer by a taa eleDpt charitable epproprlateocsa of thG uac of lsveetEnt ofgeolr. e DdluD of po11tic81 apeech.r' (Eryhasls d.ue.) 'ltio! Louls B. EeDll, Jr., to Joh6 Irtta, .ggE aote 78, at 2. could aec! to be bcttffiderstood Btatcent Tbls as advl.ce ol e phlloeophlcal que3tloa than aB ao erplabatloD polltlcd .od of thc present legal altuatlon. lte cese lar clearly LDdlcstcs thet even the Dst strlct flduciary relatl,oaahlp doec not requtrc the flduclertrs oote 5, at 56) to be t'seers" (see Oleoo, lgg aod thus these cooalderetloDa do aot coDatl,tutc a legal l4ed!.uut to Eeqshlre I s adoptlng of a roclally reapoulble LDvestrrnt pollcy. See a13o J. SIDD, C. Porers, and J. Guanenann, .ggg. Dote 19, at 166-167. Shor exaqlc ' oae reccnt case cltcd a 1895 declelou holdLog thet Deobere of the couualty are ooly l.lcldeotally beaeflted by the'cducatl.oo of goe oeubcrg of the publlc. llIller v. Alderholder, 288 ca. 65, 66. lE4 S.8. 2d 172, f74 (197I) (quottng Ifblte v. Ifeff, 52 ohlo Sr. 375, 40 n.E. 720 (1895)). SCooversatl,oa rlth louls E. Eeoil, Jr., -ggg. aote 4.
9lsce, c.g., Eolt v. College of oateopathic Phyelelaoe & Surgeoae, 6l Cal. 2d 750. 394 P. 2A 932, 40 C.1. lptr. 244 (1964). 92See, e.g.' Goffee v. Rice Uaiverslty, 387 S.W. 2d 132 (Tex. Clr. App. 1965). Thla dcclstoaa Lsnolvcd eD .tterpt by uulveralty trustces to bavc lgl prcas applted provl.eione of !h trust fustruEent Ln order to rlt[l.Date raclally dl.scrtuhatory under sblcb the acbool was cscated. nro opposlog groupe of aluo,l rcrc; hosever ' later elloned standbg to Llterireae ty a hlgher court. 403 S.tf. 2d 340 (Ter. f966). 93t{orton, gli1 notc Il, et 2?4. 24 Cal. App. 3d I' l0l Cal. Rpt!.
--
499 (L972>.
95s.. oote 3,3 -ggg,. 96Horton, ggpg Dote ll, 97o1son, lgpg er 263.
oote 5, 8t 545.
I 98fa. at 579. Justlce D,ouglas stateoent appeara at S.E.c. v. lledlcal Coo. for EuoauRLghts, 404 U.S. 403, 409-410, 30L. Ed. 2d 560, 566 (1972, (Douglaa, J.,
dlgsentl"Eg) 99ot" freqoentlt occurl,og exaryLe ls tbe rt usoy opponents of aocially reeponsible bv*tl"ng dsell on the rt.ndard of care required of flduclarlcs eho are subject to tbe 1974 federal pensloa reforo ler (Eqloyec RctlreEut Iucore Securlty Act of 1974, 29 U.S.C. rcc. 100f-138f (1976)). Baopeblre College'e Tnrteea, llke the dtrectors of laoy other collegeg and rmlversltlea, are not subj ect to E.R.I.S.A., asd cvco thoee kusteca rho do ran'ge peosioa firade uuder the Act are oot bouod to ltg rtrDdard of care ln oroagtag tbose portlols etrdowut firnda of thclr l,latltutlotrs nhlch are lot coEnectGd to a pcnsioa systcr. the psoposltloD that Furtheture, truatees subJect to thc E.B.I.S.A. staoderd of carc have Do grornda for Justlfytrg the e4loyoeot ooa-traditioEal acccated ' of irvest@t La Dot a uolveraally crlterla one. See, e.g., Bavlloff aod Curzao, ggg [ote 4, at 52E-536. -5 5-
10316. s3 77-95. See slao Lengbeln rad Poaner, aupra uote 9. On uodcrn portfollo of Legal lee BLaea, lrodcro Portfollo Theory srd Invettoent Lar: Refln.rpat theiry, sectlon of the Task Force report. Doctrtrc, 76 Colu$la L.J. 72L, eod the ftnaacial Ifhea the preaent euthor eaplalDed thc fllaBclel theotT underpinal.ng Laagbela aod legal couacll ' atated: rh doubt tbat Posuerfg aatLcle, Loule Baoil, Eaqshlrers ConversetloD rrlth Loulg E. EaDil, Jr.! a court routd hold to bc deDnatra.bly true.'l ggE aote 4. l041sog53lrt aad Poaaer, ggg note lo, 8t lo7-t12.
l05ra. at r07.
10659g gse33' gE 1o71.6. thclr Bote 2l , at eec. 348. l. pouers. Bote lO, at 108.
I09ra.
11016.13 111. 1113". go*1.lnt Sult for Dcclaratory Judgoeat, p. 8, AeeocLated Studeatr of the ttnlvcrBlty of Oregon y. Erst, Ifo. 78 7502 (Clr. Ct. Lane Co., fllcd tlov. 22' 1978, o (hereafter ASUOv. &nt). I l2Ot.goo AttorDet Geocral OPl,alon No. 7616 (l{ay 2, f978). Attoncy for Plctltlffs' ASUO
lllfelephoae slth t{lchael B. Goldatela, cowelaltlo! r' v. Euot, Bugeoe, OregoD, July 23, 1982. I l46o*1gt!i ll5see Sult for D,eelaratory Judgent,
aote llo.
rrstate DlvestDnt Jaoeg t{. Ceqbell, of Southern Afrlcan InvestEenta and the (rmpubltshed paper wrl.tteo under contrsct wlth the Eugene' Oregon Coostl,tutlonrr of theee clalos. chepter, Netl,onal Laryer i Gulld, 1982), for a thorough refutetlo! ll5see Otegou AttorDey ceneral for Partlal opLnlon, gE Dote 111, at 2O2E-2O31. Septeober 29, 1981, Asuc v. Buat' gg eupra Eote 112.
E. Colatsteln,
- 56-
BIEI.IGRAPSY (lbte: ArIy bocks {d artic]s are referenced hre. llE to tlre ccrstr:airrts, I tE\re rrt listd tJle merous fuucnts, statutes, cases, ad stardatd fegaf t:eaUses srsurtd in t}le pregaraLicr of this tEpor:t. tt!6e that bear rEst <li.rec+ly cr t.tre dkcrr$ed h the tel<t aJ refeEloed in tl|e rptes. ) Firrts Enes, Earvey E. "!6dlern hrtftlio SFory ard Drrestsrslt Lan: Refirremnt bcttrjre." Oolubia ISLBg4CC 76 (Jure, L9761, 72L-789. Bayne, Darrid.C. n$le n ic -Raticrate Elriew 34 (19 ), 575-514. of P:oper Subject.. " &rirrcrsitv of Iegal Iar
of Detroit Stadads.
Beylard, t+illlan A. nE|ctamrt l\:nals - ollisicr.of Brsirpss Lawt'er 28 Gtril 1963), 807-818. F
t, Derlelc. BE5gtd the I\rw.Jt IUr: Soqial lesguts5.bitities Carbrj.dge: Bar.ttad thi\rrsity PIesiS, L982.
Cary, Ifilrian L., ardl Gaig B. Fidrt. [le De\relqfurg Iore of Erdougrt Law dd tJE l.ore" Evis_l!4. lH., Yod( . Ihe Lat, e!4 ilg Iore of fficnnert l\lrds.
Aollece,a4
(3td ed.) nashirgtdr, D.C.: t{aticral ' s Officers, L974. Officers ard DitEctorB. (3nd eA.) cnt).
itcllr 8., ard Ridtad A. 9o6ner. Start<et.Rlrtalsard T:nrsit I restsErt 16r. "
Jcurnal (1926) , L-34.
-ffiE
79
I
Ia,grtt *hr Eeuis, ad E. Ilrri.dl bsnbln. @rmltate the Dlstitrrlioal Enrcstc: e EDrt to tfre
ard , l9?3.
'rDi\restiturc Fso}rtisrs: lbEtdr, eace lti:yienre. thi\rersitl, Dircctc Liability ItI9qI Corlnrate Standard." tlriverEitv of San EYancisco Lavr Rerier, llp_ErErgd.ry 15 (FaIl 1980^$inter 1981), 261-282. lirrdheim, Sert H. 'A Cmrent qr t}e Seial nesposibdlity of Life Insr.Il:arc Ccnparries as trrrestm. r \tilqrilia Iar bris, 61 (1972) , J-247-1264. Ol'gdl' lhlitba it. qftirtersity In\restrEnt-9 rrith a Scrrth Aff can @rrectiqr: gossible?" Divestiture XqfLIo* Folitics fL ,ftfinter 1979JI85S-C gaslery' Sert s. TrEFkofit orpo!:atiqrs - Icanntability of Dircctds Is I'lilabnt
hrth, lfilli:al C. 'Fersctal. Liabdjtity of Dnrstees of Elhratiqral Jounal of CoUeqe ard lliversiW Lar 1 (1923), g4-92.
-57 -
Instituticrs.
@r6[r'D
R*rikof:f, fUtafd B., {Id l.tlrlat R. Olzan. in Iruestncnt "Seia.l respotsdbility Cafiforria Iarr Evis 68 Othy 1980), 518-546. the Hndent flhn Rfle.'
anit
trre lgaf lplicaticns Eidtraar, Erald L. ilhranfrn: irl Oopanie bing BtsirEss iJr Solth Africa. " ,hrnal 164-173. 7 (1980/1981), Fport of the Cctunittee qr Clraritable lltusts.
ard Charitable Ooe"oltaddr Dinectors. i Fal @
(1957), 545-56{.
DaIIas L", ed. Slnrld Fensian Assets Be Safishry, PumFes?: An EStsI Folisv Ebrtrn 6, 1979) . Benefit fsearch Institute, 1980. Sott, Arstin l{alcersr. dd co., 1960. -Abrj.drsrt of ti}E law of ftusts.
Bostcri:
Little,
Bsnr
Silrrr, tdlr G., Clrarl vf. hErs, afll itcn P. GffEl1rrar. Itre Ethical lrrnestoE: ttriversities anrl oormrate seial Fs@rsibiliw. Rress, tlsr Hanen-iiTi[6@ rlegal Ispects of lrvestarnt ruspcrsibd.Iityn, Lnz. 12F169.) Gsp. Ch. 5, Spain, GLen. kactitidter "Scially 36 (fbll respcrsible Inrrcstnents: 1!)79), 97-L[3. An Inrstated Bibliogm5*ry. "
C,rild
-58-
rask
Responsibility
- 60-
guestions
responsible
investment certain
looking
ttre cost
of excluding pool
of comPtrnies frour the possible have been d,ifferent calculations. the cost cluded ft theories
of investments.
as to the best
accepted
of exclusion
performances
and Dorl-xcluded
has serious
shorteomings. perfor-
indication
of future into
This method also does not take risk eleurent in portfolio will
consideraThe in con-
as an important of
management.
to naintain
of return?r'
For a given returns which This because there are unpredictable unpredictability
there that
is
occur
to different or overall
in the narket,
rnarket
has been shoflr to be roughly 30* of an individual companyr s I risk. lfottring can be done fronr an investment management point of vies to mininize this aspect of risk.
-61-
Non-market risk is
(risk
that
is
specific
in the returns
of that
are af fected
by dif ferent
component of risk
diversification
later" Ittolern portfolio theory has been found invaluable Measuring theoretically the investor any the
in estimatinE increase
iJt risk, to the extent 2 Possible ' is the only reliable ment cost otlrer lio
social
criteria. provide
of modern portfodecisions
theory
in cases suclr as this, environment tion leads 3 astray. i Risk is rneasurable the
portfolio
an integral extent.
part
of the narket,
anrd is
to a certain
Thro studies
ed recently to try to determine the effect of exclusion and/or 4 targeting oa risk" One was conducted using companies operating 5 in South Africa as a basis for exclusion. The other, done by the council the State judgenents on Economic priorities of California) against (cgp) (rrnder commission by of companies with discriminatiorl r banks
them for
rnaking loans
to South Africa,
subsidiary
in South Africa.
A very basic
responsible
so r one would not be able to build from the remaining studies securities.
sound portfolio
of both of these
however,
rras' that
the proportion
of capitalization
of contpanies excluded, were substantial, (relative to the Standard and Poorrs due to the large
ttre excluded
of both Andrew Rudd and the CEP use equities in estimating risk. As the. less.
Litvakl
co-?uthor
criteria
on bonds is
wittr
individual
equities.
involvec less
a ttreoretical. investment
portfolios
of thought be.
of each should
t lilood (Eanpshire's
proportions examPle,
yet
Eot universally
accepted.
Conpany's
Iean more toualds 20t of behind forms the the portfolio this of nethod
80t for
cash equivalents
invested is
investments narket, at
stock
present
question ing
asset
rn:ix for
Haqrshire
one warrant-
further
is its
iqrortant for
to proper reducing
because of principle in
capacity
uncontroversial Briefly,
century. that
in different
industries the
dlifferent
specific
other.
Eolding
ri.sky available
indlivthus
choices risk
manager to reduce
weightddl
in certain
diverEification
of which is
infirortant. by
sector), is not
of excludj.ng
a particular
as intuition specifically
-64-
looks
situatLon.
Reaponsibility
Research Centerrs in
(IRnC) list as
South Africa
the index,
overhreightedt
generalr'r
and ntelephonei
'buginegg nany of tl
companies Applying
forced
to the
in terils phrase
of the
For exaqrle,
cuffently
holds the securities of three contrnnies 9 goods sector in tlre capital whose n rrket capital represent ottly :.10 .39t of the I'licroscan 1400, goods {t of the lticroscanrs capital aector, and 7.5t rere of Eampshire t s .incone all three for fr@ cot@on stocks. there is fron If no tlre
(as of April
to sell
.rny reason,
ttrat
suitable
subetitutione
could
be selected
t s capital criteria
the most
1400 market capital.ization) point wbich the never of viewr. there closely
From the theoretical incentive 'market, to design " although a portfolio in practice, would rnarket'
replicates funds
amount of
available
investor to the
i-n size
-65-
portfolioE of securities
e3pecially tlcy
linit
a high
excluEion
in any event.
under whiclr traditional first pool ing and forercst of inveatnentE on the size is
formatj.on
of a nanageably to clients.
of the
Standish,
of roughly
criteria.
. .whicb
of external practical
or internal exgrerience
regulation. to date
socl.ally
churches
of a regponsible approach.
than an exclusion/targeting
States
Trirst Socially
data which
accounts. accounts
With nine
these
Average. nost
explanations
of their
-66-
rather
than equitiesi
the of
been a marked prof it observation. l{ichigan roughly securities fomed well $10 nillion, in 1978. above its
further
and closer
state fully
average.
The securities
were sold
depreciated
to be made is income.
marked decline
investment
fund
in
under very
the Departurent of Defense I s 100 J.argest contractors, panies of their panies contracting gross wittr the Department of Defense if
sales
engaged in
liguor,
Fund also
has positive
criteria control
targeting policies
development.
respected returng
institutions
have divested
stocks
-6]'-
are fairly
recent. losses
Eampshire t s investment
Ayer
& l{ood
have e:lPressed' a deep conunitment to work closely implementing any new policy that is instituted.
us in
surrounding
the issue
They don I t want to see Harupshire losb and ,have pledged at which to telI us if ttrey
money on its
investments
the point
they would
be nncomforget a orr r n
from ttreir.. portf olios , not j ust L2 one of SA&Wrs main goaIs. Another area that
a f inancial
concerns
the
Possible
effect
donors data s
to the Collegre.
broad discussion,
because ttrere
rre many
funded largely
by enrollment alumni,
(tuition) friends
, and
contributions is difficult
exactly with It is
Hampshire, difficult
regPonsible
students,
is possible
-6_8-
constituencfT agree
various
reaaons matters
feel
alien.
financial
whi le others
disturbs or acculately
p',edicting
and.tlrere
s political
not
donatiqrs. be e:rpected
agrreeing,
could
tfhere effect
is
investnent
on tbe It could if
College's prove
the.corporate cor?orate
to be danaging
firndraising
effort
gowever,
of Eansphife
t s revenue, snall.
corporate
our south
was the
reason
schools
of thought announced.
investnent
policy
be publicly
-69*
one point
of vieo
College
thdnks,
investsent stlongly
notion
of naking Souttr
the
case of in
a slmbolic to clear
action
College tlre
the path
Hampshire
was fairly
divestment that
(there
was not
lelease)
want to announce the pollq/ secret. investment sought. to tbe & tlre decision profits, then tlre
to share
corporate it
donatidrs is pre-
sare shether
or post-tax
as followg. portfolio
responsible portfolio
rrculd
added risk.
virtually of
the effect
on future alea
donations, intuiIt
corporate
or othenrise. evidence
we have only
and anecdotal
on rhich to allorr
to pre-
the College
adopting
a socially
responaible
investment
pol.icy.
-7 0-
FOOTNOTES
1.
Standish,
July
L4, L982.
2.
of modern portfolio Critics techniques, other analytic world. Wtrile this probably mains that this is a fairly investment prudence bottr in A. Rudd, 'Divestment Journal of Portfolio
as most ttreory claim that it, cif .the seal is not refttective has sorre validity , tlre fact Eneans of evaluating standard financial and legal circles. How Risky?r"
3. 4.
ttrat and targeting operations Excluding are two investment should to hand in handr excluding those companies that rre 'offensive' and targeting investments towards oproductive" oless offensive' or companies or industries. A. Rudd, Spriog r L979 . A. Rudd, nsocial Responsibility and Portfolio tlanaq Cafifornia , Surnmer 1981. Conunrrnity Econonics I Inc. 7 Divest Prudent Approach For Pension A. Rudd, SpriDg r L979 . ilhe market is broken down into sectors into which aLl the various f it. industries Stanrdish, Ayer & Wood use the following sector list: Eealth Care Basic fndustries Goods Capital Technology Financial Services Consumer Durables Nondurables Consumer Transportation Energy Utilities From Perforrnanc r tr Africa: A
5. 6. 7. 8" f .
to the 10. The MicroscErn 1400 is an index of the market similar of Standard and Poor's (Sep) 500 (wittr market capitalizations but and 5773,712 nillion respectively) $1r039283.1 million broader - as it includes 1400 comprnies rather than just 500. We have chosen to use tttis broader index because a reasonable of reaponsnumber of ttre companies appeErring on the lists producing companies and of companies doing business in South Africa are not part of the SeP 500. We wanted a readily index which contained most of the corE)anies (some available a,re privately wned) to be excluded und,er present or proposed guidelines r so that the effect divestment of the exclusion could be fairly assessed. 11. A. Rudd, Suluner, 1981.
-7 L-
NOTES (cont. ) L2. Standish, 13. Letter Ayer & lfood, July 7, Lggz. 19g2.
from Brian
_72_
AppendLx A
lnvestments
concentrated iu
affected.
Rather, stable
overall
perLods
of changing
By excludtng produclng
U.S, conpanies
operating pool
Lnvesting? whlch
to bulld
ualntaln sectors
out,
overlapr
1400 was uged as the base appeared & Poorts 1n thls Lndex,
of coupanles.
lnvolved
lndex,
though
the Standard
which we
have luforuatlon. Letts present lLst. walk through It ls an example. Rockwell lnternatlonal Ls a company
elaselfled places lt
as a Mu1tl
IndustrT
Equipment
conpany whlch
Goods sector. wlthln the DficroscaD capl.talizations 1400 have been broken nere found for each. down into I{l,thin each
industrles,
and total
narket
-7 3-
sector,
the Lndustry
totals
totals
ln each of that
the each
ten sectors.
eoupany represents
own sector.
1400 capttallzatlon.
The laet
At the bottortr of the second page of data Eere, the percent weightings of
The go"'e laforoatlon page of the south Afrlca sulllvau Prlnciples. ltst
speclfic (f24).
to Roclxrell
This dl,stlqctlotr
at page 12.
here aa vlth
page 2 of the'weapona prod.ucere' compaaiea are totalled for the totals of all
eeparately coqauiee
sithln
each sector,
l"n South Afrlca. page ahora the co'bi'ed rbe percentageg totars of the two llsta, teklng the
overlap
luto
cotralderetlon.
of the coupaales
appearl.ug on
both llsts
sere aubtrscted
fron the ueapons totals. pohts r'oag the results wtlch should be
sector large.
represented yet,
by traclng
aector.
lng 3.072 of the total oBe colpaay. for lmreatlng, so' shlle thls
aootrg the seapona producere stauda for only sector would be inellglble the rest
ouly ueaas tso coryan1es, one bel.ng AT&T, leaving coq)ao,ies ea vtable itrvestDenta.
-7 4-
portfollo,
there
ls
a relatlvely tlne.
soall
rnay be held
et a slngle
Portfoll.os
norrnally
posslble least.
are stable
profltable. entlre
represeots
llicroecan
Out of roughly
the coupanies
the llicroscan,
to flnd
conpany (whether Ia the analysis, depends upon your the renal.ning Mlcroscan to flnd
you look
these
and thlnk
60Z of Baslc
642 of of
coupantes,
can be done.
'-E5-
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Wagi ng Peace at
Attoth.t
L.n"l
by Chuck Collins
'
One of the more laudable elenents of our proposal to divest from companies that produce nuclear lreapons is that it aproaches the roots of militarisn at a more fundanental level. The freeze campai.gn has brought the reality of nuclear war to the attentj-on of the najority of Anerican citizens. But lt is evident that the freeze movement as it stands attacks only a synpton of the disease. Several members of our comunity have been exploring, in detail, this question of tVhat are the roots of the arms race?tt Professor Al1an Krass taught a course by that name which exanined different theories; bureaucratic, strategic, econontc and ideological, ln an attempt to locate the doninant, driving force of the extermini.st technology. The genesis of the arnsi race becomes even more (the quest for compllcated when we see that strategic interests technological advantage and invulnerability) are actually shaped by economic needs, bureacratic structures and ideological assumptions. Richard Barnett in The Roots of hlar shows how the business creed and corporate interests shape the di.rection of Anerican foreign policy (and therefore neapons appropriati.ons). Seymour Melnan, author of The Permanent War Economy writes that the political decisions whj.ch support the war economy are ttrooted in the ecomomic interest base of part of the economy, but are also given political support from the rest of society that has been ideologically trained to regard the war economy as necessary for the well-belng of all. ft (Melman, p . 287) people working to end the arms race must transform Therefore the gearworks of the arns race as well as challenge the ideological active agencies conducting foreign policy. One could argue that, waging peace on this level is no different from the novement for SRI. As Alexander Cockburn rrrites in the Vil-lage Voice nTo reverse the momentum of arms spending in the United States requires, in the end, perhaps one alien to many a nelr social and political order mustering to the freeze movement today. A broad movement nust, self evidently renain broad, but the denands of consensus should not exti.ngui.sh political debate or seemingly uncomfortable proposistions. rr The whole issue of corporate ties to the rrms race is very touchy. It is one of the ideological assunptions of our socj.al order that our functions for the benefit economic system of hunan needs. But the reality of the nnarket is that it treats all goods and services sfunply va1ue. for investment and Ethical criteria on their dollar production are outside the realm of narket considerations. An excellent example of this is the Gross National Product, how we measure econonic health. The GNP measurement makes no distinction between soci.al utility and excess.
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It is quite easy to show that there are nany corporations which profit from operating in oppressive countries, the cold rdar and war ltself. Unfortunately wr as benificiaries choose not to think about give our taciL consent. it and A relevant question here ls whether those corporati-ons which benefit from the weapons build-up use their power to influence the decision-making process of the U.S. government. This questi-on has not been answered conclusively but at the very least their political beliefs, wtrich may be influenced by their profit-making, gi-ve ideological confiruation to the justificati,on for nuclear escalation. If there is ever a large scale divestment fron nuclear weapons producers the profitability for the renaining investors should be lowered by a large margin. Ttris would allow then to look at the lssue more cleanly. Divestiture does not end nuclear weapons production unilaterally as some opponents suggest. We do not advocate this nor believe that SRI could ever bring iL about. The symbolic statement alone is extrenely strong. To divest says rire do not believe in war and will' not take its benefits. One further value of divestment is that it spurs, by media coverage, the wide-spread movement for SRI. This is a big step fon*ard for the freeze novement, whether it succeeds or not is a big question " IrIe can say no to nuclear lrar but are we willing to pay the costs?
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Social
Iniurv
of l,reaponrv
__
by Bram tevin, Beth Marcus, Chuck Collins, and Barbara Mcqueen I.4arch 13, 1992
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To understand why and how our arsenal continues Lo expandr w must understand the nature of the.uilitary industrial is a "orpi"*...It trenendous polltical and econoni.c nachine, upon whlch thousands of bureaucrats and millions of workers are supported. Conversion is not rn idealistic solution to the arms race, realistic alternative for the hunan race. . Brandon Fine, "Conversion and the Arns Racer" Social I Exam, Spri.ng L979. but a
Science Division
What threatens our i.nteresSs-vfusf, causes us even mental unssss-is seen as outside ourselves, as the Other. We can ki11 thousands because we have first learned to call then ttthe enemy.tt l.lars cormence in our culture first of all, and we kill each other in euphenisns and abstractions long before ttre first nissiles have been larrnched. E.P. Thonpson, Letter to America
For the PurPose of these guidelines, SOCIAT II{JURY rri11 be interpreted to mean: the injurious inpact which the activities of a conPany are' found to have on consrrmers, eurployees, or other persons, or the environnent, particularly including- activities which violate or frustrate the enforcement of rules of donestlc or international law intended to protect individuals against deprivation of health, safetyr o! basic freedom.
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INTRODUCIION CII0IR, a subcommittee of the Finance Connittee, was created in response to the grow'ing concern of students over the college t s What energed investments in corporations operating in South Africa. from this vigorous debate was the articulation of a college investment policy that sought to avoid corporations that further sociaL injury. During the five years CH0IR has been j.n existence, the South Africa investnents have been the only ones that have been However, there has been sone considered as socially injurious. liuited di.scussi.on about withdrawing investment, from companies in other human rights violating countries, and companies that manufacture nuclear power plants and nuclear vreapons. In the last two years we have witnessed a Large nrrmber of Hanpshire students and faculty expressing concern about, and organizi.ng around the i.ssue of U.S. nili.tarism and lreapons production. In Aprl1 of 1981, the college community participated in a Freeze. The referendun on the U.S.-U.S.S.R. Nuclear Weapons students, faculty, and staff voted overwhelningly ln favor of the freeze , 934 to 2L. The Hanpshire Coalition for Peace through hosted a Disarnanent, a student group with broad based participation, national, inter-collegiate conference on the Nuclear WeaponsFreeze in the Fall of 1981. Over two hundred students, fron over 25 different colleges, came together to discuss the arns race and the role of the U.S. weapons industry. 0n sampus there are also groups which have been active around i.ssues of Central Anerica, regi"strati.on and the Draft. Several dozen students are engaged in academic projects rel-ated to U.S, srilitarisn and the U.S" weapons industry. portion of the student body and faculty A Large, well-inforned believe that the U.S. weapons industry, and primarilly the top 75 weapons producers, causes social injury donestj-cally and abroad. This report specifically addresses the injurious inpact the top 75 have upon the United States economy and citizens, the ways in which 1aw, the the top 75 have vioLated donestic pol-icies and international i-mpact lreapons production has on our environment, and the threat the top 75 have inposed on world peace. There are several reasons why we have chosen the top 75 weapons nanufacturers as the concern of this proposal. ' Most of the contracts awarded by the Departnent of Defense are concentrated in a handful of corporations. Out of 231000 companies recei.ving defense contracts, the top 100 conpanies obtain two-thirds of the dollar value of the awards granted by the Departnent of Defense. fn this proposal, we have singled out the top 75 corporations which recei.ve contracts solely for lreapons manufacture, rather than the broader issue of defense work per s. For example, this proposal does not target companies involved in the production of either oil or uniforns for the Pentagon. As membersof the Hanpshire community, rde feel we have a responsibllity to scrutinize what our own institution is doing to promote or retard fundamental hunan rights. Divestment of the top 75 weapons producers would represent a significant step towards creating -96-
a socially responsible investment portfolio. Such a step would gpsng to peace, progress, signal to others Hanpshire College t s c,emmi and social justice. MILITARY SPENDING AND fiIE ECONOMY Since lJorld I'Iar II, it has often been argued that nilitary spending stlnulates the A[erican economy by generating increased productlvlty and eoploynent. During I'/orld War fT this process did in fact hold true as the war econony helped Anerlca shake off the Great Depresslon. Over the Long tern, hovever, nilitary spending has had exactly the opposlte effect. Since 1'945, the nllitary has consrned the greatest portlon of capital and vital resoulces, while yieldlng no product useful for conauoptlon or further productlou. Decades of h'igh Eilitary spending have helped to create lnflation aud uuenplolment, have drained scarce resources, and have decreased our cotspetltive edge in the internatlonal narket. One does not have to look very far to see the deterioration of the autonobile lndustry, the steel iodustry, nachine too1s, radlo and televlsion natrufacturing, rallroad equipnent, precisioo optics, and naoy nore. Ihe military hae been reeponeible for dulling our coupetitive edge in the world narket by lnvestlng huge suos of capital for non-productive purpoaes. Our lndustrlal base has been drained because public speuding has been dlrected touards producing soclally and econouically useless products aod has not increased our capacity to leet huuan needs. As Iester Thurou points out, rnllItary spend:ing ls a forn of consunptiotr. It does not lncrease our ability to produce goode and servlces 1n tbe future.tt (#1) As the result, growth rate dropped to 2.lZ by the productlvity 1965 and to 1.82 by 1975. The UnLted States has had the loveet rate of productirity nation durlng the pest of ary hlestern fudustrial years. fifteen By L977, growth for every $100 spent on lacreasing productivlty, By contrast, to the Ellitary aector. $46 rras allotted West Gernany allotted sector, $18 out of every $100 to the Eilitary and Japan gave $3. It is not a coLncidence that both Japan and l{est (#21 growth rate has been above 52 annually. Gernany's productivlty Arother inevitable result of nllitary spending is inflatioa. firis is true for two reasona: 1. Payi:rg workers to bulld fleapons rrl11 increase donand for baeic goods and gervices but doee not siEultaneously increase the supply of basic goods and services. 2. The funaelling of billions of tax dollara irto a handfuL of large corporatloae has created veritabLe nonopolies which are no longer responsive to fluctuatl-one in the econony. Because these corporationa are so large, they can set pricea a.od through vertical nonopolization can prevent other companies fros entering the msrketplace. (#3) This Deans that durlng periods of receseion, these corPorations can reglst lowering prices to upgrade darnarld, and can even raise then to neet their proflt ojectives. Military spendlng, due to its capital-intensive nature, also generates nore unenploynent thao other areas of econonic speuding. A U.S. Departnent of labor study found that a billion dollars spent on -97 -
energy development, areas such as environmental control, alternative would yield on the average 201000 more education, and nass transit, jobs . (#+1 It is beconing clear that our increases in weapons expenditures are not increasi-ng our security or power in the world. They are, in As Richard Barnett writes: fact, havlng the opposite effect. trExcessive rrilitary spending now produces some of the same consequenses as nilitary defeat; that it gi.ves foreign governments greater control over the life of Lhe country.tr (#5) Excessive military spendi,ng creates a decrease in productivity. ft creates inflation. It creates unemploynent. The sum total of For these statements is ttrat it, undermines our econon-lc strength. all these reasons, w conclude that the current 1evel of American weapons expenditures is injurj-ous to our economy and the American people as a whole. MILITARY SPENDN'IG AND SOCIAL PROGRA},IS There is a lot of talk about security these days, but it is unclear what exactly is neant by that when the sacrifices made for The international securi.ty so obviously threaten domestic security. There resources of this country, although vast, are not limitless. must be a balance struCk betryeen spending for defense and noney spent on social services and hunan development. Although it is difficult to separate the role of corporations in matters of defense, the complicated relationstrip between them is more Tttis argument w:tll specifically addressed elsewhere in this report. be restricted rray defense spending in its present form, is to the socially injurious because or its negative effect on donestic spending. The priorlties are heavily skewed of the current Adninistration in in favor of defense spending. trtlhile cutbacks are being instituted alnost every area of social services, the United States is sending nilitary aid to repressive regimes and building redundant nuclear weapons, in the name of ttdefensett and security. Particularly affected by the cuts in social spending are women, children and the elderly, of aLl of us suffer the losses. Seynour Melman published an article i.n The New York Times (7 /26/82) ln which he discussed the ways that this countryfs vital services have suffered at the expense of the modern military budget. Included was a list of trade-offs that the Reagan Adninistration riras making 3 a trading of conservation for military. For exanple, the $34 billion that would be required for the I'fi nisslle, first cost, could pay for a ttcomprehensive 10 year enery-efficient effort to save 25 percent to 50 percent of United States oil imports. rr The $100 billion which w'i11 be ttseven percent of the nilitary outlays from fiscal 1981 to 1986" would rehabilitate the U.S. steel industry, to naking it the most efficient j.n the world" And the list goes on. Very sinply, because of the enormity of the defense budget, basic human needs are no longer being met by the government. While the President assures us that he has preserved essential services for the truly needy, more and more people are feeling the effects of Reaganomics and realizj-ng that they are paying the price of inflated -98-
defense spendi-ng. May 1981 sarr 100,000 people denonstrating in hlashington against U.S. uilitary aid to El Salvador. Traditionally conservative groups such as church councils and college adninistrators are joining more progressive groups in voicing their oppositi-on to current levels of defense spending. 0n February L6, L982 The New York Times reported on the annual neeting of the executlve council of the AFL-CIO, Despite the AIL-CIO! s long standlng support for a strong national defense, the rrThe Presidentts L982 State of the Union Message council asserted: and his Budget message add up to a total disregard for human needs and for the economic and social costs of high unenployment and recessioo. tf Lane Kirkland, president of the AFL-CIO, criticized the Reagan progran for proposing that, ftthose who have the least to give and who have gained the least from the fruits of our denocratic societytt should bear the brunt of the nation t s economic hardships. 0n February 18, L982 in The Tines, Albert Shanker, presi-dent of the Anerican Federation of Teachers ttwho refers Lo hinself as a t certified hawkt expressed concern about the amount,of money spent on money the military without proper investigation to see how nilitary should be spent and where waste natght be.tt Also on February 15, L982, The New York Tines carrj.ed rn article about the ways colleges and universiti.es will be struggling in the face of cuts equaling as much as $2.2 billion in Federal noney for student aid. These cuts in financial aid will prevent nany students from returni.ng to college, and schools will be even harder pressed to meet their rising costs. Ilampshire is only one of the colleges nationwide where cutbacks in increasing the nunber of rrnemployed persons, dnd virtually assuring ttrat educati.on wiLl becomea bastion of the wealthy. In addition, the overall standard of education in this country 1r:t11be lowered. It is a matter of fact that .there is noL enough noney to increase defense spendlng rclthout cutting spending for human needs and vj.tal services. In light of the tremendous power that defense power that individuals, corporations wield, and the linited including women, children, the elderly and the poor hold, it seems mandatory that we denonstrate that rre do not support the stockpiling of nuclear arns or aid governments which repress their people while people in this country are deprived of their basic human rights.
DOI'IESTICINFT.,UENCE ITIE TOP 75 OF The top 75 weapons manufacturers have engaged in a wide variety of activities to influence Congress. Their financi.al objectives are to get Congress to raise nilitary spending and to but the latest, most sophisti.cated weaponry. These activities include lobbying, supporting political action comnittees, and engaging in propaganda campaigns. The amount of noney these corporations spend on pursuing their own j.nterests far surpasses that of any public interest groups. A study of the top five defense contractors (Boeing, Lockheed, Rockwell International, I"lcDonnell Douglass, and General Dynanics ) -9 9-
shows that a total of $16.8 xnillion was spent by the companies to operate their offices in hlashington, D.C. during L977 78, and Lhat the companies! Political Action Connittees, the largest corporate PACs, averaged $811000 each per year in total disbursements during (#01 the same tine period. In reference to the influence of the large corporations doing business with the Pentagon, Adniral Rickover, in his farewell statement to the Congressional Joint Economlc Comittee said: 'rPolitical and economic power is increasingly being concentrated among a few large corporations and other officers-power they can aPply against society, Government, and individuals. Through their control of vast resources these large corporations have become, in effect, another branch of government. Ttrey often exercise the power of government, but rclthout the checks and balances inherent in our democratic system. tr (#11 Rickover goes on to document numerous contract violations and cost over-runs of the top defense contractors. Due to their size and donestic influence, these corporations are able to undermine democratic institutions and violate the basic laws of a narket economy "
E}IVIRONMEI{TAL EFFECTS Conpanies engaged in activities which cause harm to the environment are suspect of violating Hanpshire College t s investment guidelineS. The products of the top 75 weapons nanufacturers clearly are guilt,y of this. The use and production of weapons not only drains economic resources, it poses a serious threat to our environmental safety as well as our hunan and natural resources. fn order to Prove the environmental injury of the nanufacturing of weaponsr w have found it useful, .to divide different weapons systems into three catagories: nuclear, chemical-biological, and conventional. The atonic bonbing of Hiroshina and Nagasaki in L945 has made the destructive power of nuclear weapons knonn to the world. In the past thirty years the increase in numbers and sophistication of nuclear weaPons has increased the destructive power in the United States arsenal several nillion-fold. A full scale nuclear exchange between the United States and the Soviet Union would result in the obliteration of all major cities in the northern henisphere, and would ki1l the najority of the urban population. Most of the rural population would be ki11ed by blast and fire. Nuclear fallout resulting fron the nuclear blasts would seriously reduce the ozone layer, causing change i-n global climate. The use of chenical and biological weapons would also have serious environmental consequences. Chemj.cal weapons such as defoliants, Agent Orange, napalm, and other incendiary weapons were used by the United States to denobilize the guerrL11a forces in the Vietnam War. Their use resulted in long the ecological inbalance of Southeast Asia. Even though there are international agreements against the use of biological vreapons, the United Statesr BS well as nany other countri.es, is stockpiling chemical and biological weapons
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at unprecedented levelg. Biological neapons (1.e., 1etha1 l-lving organisns) are Their inpact would relatively uacontrollable and indiscrininate. extend beyond the battlefield to innocent third parties. There is no uay to control the spread of the biological organisrns to Livestock and crops through winds and water currents. We do not know what the potential iEpact chenical and biological weapons would have if the stockpiles of these weapons were actually used. Fina11y, one should not underestinate the environmental destruction caused by conventional warfare. The bonbing of Dresden in lrlorld War If kiLled as tuany civilians aa the bonbing of Eiroshr rn.. It required nillions of dollars to rebuild Europe I s industrial aud agr:icultural base after the destruction of World lrlar II. The hlar seriously depleted Europe I s foreats and, in sotle cases, caused severe soil erosioo. Not only does the use of the above-nentioned reapona cauae injury to the environnent, but the construction of these fleapotra Extractiag threatena our safety and squanders our natural re8ources. uraniuE fron the earth for the production of nuclear explosi.ves exposes niners to toxlc radiation. Nuclear Eaterials Eust be tratrsported fron extraction facilities to productiotr sites by rail and roadway which iocreases the possibility of sabotage and radiation leaks. During the 1950rs atrd 60's the testing of nucLear reapons areas of desert conta$iDated our ateoaphere and destroyed signiflcant ir Utah and Nevada. Ttre public anreness of strontiun 90 in nilk during the 1950rs brought about public resi.stance to the teeting of nuclear weapona wtr{ch forced the United States government to make an Even agreeEent rith the soviet union to ban above the ground tests. (knoun as the Partial Test Ban treaty), though thiE agreenetrt exists undergrormd tests continue to release radioactive lsotopes into the atnosphere. Finally, the nuclear waste generated by the production of nuclear ueapons nust be stored in isolation. As of yet no satiafactory technological solution for its dispoeal bas been developed. The devel-opnent of chenical and biological neapons pose the sane dangers as nuclear weapons. The stockpiling of these weaponst represents the constant threat that soEe day they $i11 be used. production, and storage of theee rreapons risk an Transportation, accidental release. Serious accidents of this kind have already occured. The 1950 release of a bacterial agent, Seratia, resulted in (#9) the deaths of tvelve innocent people. pover of rdeapons In the past century the potential destructive has increased to the point where lt is nor possible to destroy the rrorld. The obvious threats posed by the use of thege r{eapons and the serious environmental danage caused by accldente atrd testing leads us to believe that the productiotr and use of weapons today endangers us to the extent that there can be no question as to their socially injurious nature.
TT{ETTIREAT PEACE TO
It is little more than a truism to assert that any
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weapon--whether conventi.onal, chenical, biological, or nuclear--is inherently a threat to peace. Ilowever, in our tine it is one forn of hreaponry, the nuclear weapon, which clearly poses the most serious threat to peace, Erd which menaces a type of war that hunanity has never before experienced. Therefore hre r^ri11 generally confi.ne this section to the questi.on of nuclear weapons. Simi-lar arguments, it night be added, could be made for the three other forns of weaponry. j.nvented and first used ix L945. Nuclear weapons were first This does not mean, though that the development of increasingly accurate and powerful nuclear weapons has stopped. We are all aware that it has not. For the sake of brevity r w wlll only focus on one srrch innovation here: the MIRV" A MIRVed nisslle ls one ttrat contains several independently targetable warheads on it. Each rrarhead can strike a different target. What this means is that one missile has the capability to destroy nany of the other side?s missj-les. For exanple, one Trident subnari.ne can carry about 400 warheads, but it would onl-y take one warhead to destroy it. fn terms of the actual numbers, all 91000 U.S. warheads could be destroyed by about Lr20O successful Soviet shots, while all 61000 Soviet nissiles could be knocked out by about 1,500 well-ained Anerican warheads. (#tO) Therefore, the United States has about six times the number of warheads needed to destroy the Soviet deterrent, while the Soviet Union has about five times the necessary number. . Thi-s does not mean that there could be successful disarmi-ng first strike by either side. But what it does mean is that there is an advantage-an increasing advantage-between striking first and striking second. When the issues are as great aE national security and world peace, this situation certainly has ominous consequences. trMost governments when asked As Hernan Kahn describes the sltuation: to choose between war and peace are like1y to choose peace, because it looks safer. These same governments, if asked to choose between getting the first or ttre second sfrike wiLl very likely choose the \ first strike. They wiLl do so for the very same reason they chose \ peace i-n the fi.rst choice; it is safer... As soon as either side thinks that war is probable, it is under pressure to pre-enpt.. . The i,nstability is caused by f the reciprocal fear of surprise attackt, in which each side feels a pressure to strlke nainly because it feels the other side has exactly the same pressure.tt (#ff) We need only look as far as World War I for a historical exanpLe of rrthe logic of weaponrytr l-eading nnwilling nations to war due to the advantage of striking first. A.J.P. Taylor gives this account, unnervingly similar to the situation we face today: ttNowherewas there conscious deternination to provoke a vrar. Statesnen nj.scalculated. They used the i.nstruments of bluff and threat which had proved effective on previous occasions. This tine things went r,Jrong. The deterrent on wh'ich they had relied failed to deter; the statesmen became the prisoners of their own weapons. The great armi.es, accumulated to provide security and preserve the peace, carried the nations to war by their o!{n weight. tt (#tZ1 As a final noter we would like to mention that ttpeacetr does not anong nati,on-states. There is also the 9n1y refer to relationships ttpeacett that can only exist anong generations that can pi.cture a future several generations down the road. Clearly, nuclear weapons
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'
have destroyed thJ.s peace. Dr. Joha Mack conducted a study of Bosto! hlgh schooL students between 1978 - 80. Thege are his concluslons: ttthe questioonalres showed that these adolescents are deeply dleturbed by the threat of nuclear war, have doubts about the future aud about their own survj.val. Ttrere is also cynicisn, sadnees, bitterness and a senae of helplessness. They feel unprotected. Sone have doubts about planning fanri.15.eeor are unable to think ahead in any long-terB sense. tfe nay be seeing that grorring up in a world d@lnated by the threat of im:nent nuclear destruction is having an iupact on the structure of personality itse1f...It seens that these young people are growlng up rrithout the abllity to forn stable ideals or the sense of continuity upon whlch the developnent of stable persooall,ty Etaucture and the fortnatlo! of servlcable ideals depend. We oay find we are raising generatione of young people rithout a basis for naklng long-tem couoltsents, who are given over, of neceasity, to doctrlnes of iupulsiveless in thelr personal (#13) relationshipa or cholce of behavlors and activities...tt ?rinpact o! the structure of personality It iB thls itself, tt thig growth of cyniciso, apathy, porrerlessnegs-whlch is directly related poses ln aone to the steadily eecalating nuclear arDur race -that nays the greatest threat to the long-tern peace of the worLd itself. Beyond a doubt, it is socially inJurious to ralse a generatioB of young people rmder the shadon of nuclear nar. CONCLUSION This paper has attenpted to show that our current, levels of military spending are in fact decreasing our security in the world. Real national security comes from a stable economy with full enploynent provisions for substantive hunan needs. ReaL security rrill come from decreasing the exports of weapons and lowering the prospect of nuclear r{ar. Ttre present course of U.S. policy is gravely decreasing our national iecurity. Furthermore, those i.n porrer all too often seek military solutions problens. to political Vietnan, Afghani.stan, Guatemala, and EL Salvador are just, a few examples of the doctrine of force taking precedence over the principle of negotiation. Demilitarization of the world must start now, before the endenic occurences of global violence becone epidenic and irreversable. The people of the United 'governnent States are connitted to peaceful ideals, but the U.S. is also the leading proponent of arns sales to the Ttrird hrorld. The U.S. as a world leader should put an end to this dangerous and paradoxical policy by developing a new policy of deniLitarization of the Third World and by pressing for an international agreenent on Elrms traffic. With the U.S. Leading the way, other arms-exporting nati.ons would be hard-pressed not to follow suit. Such a policy hrill not be adopted, though, until the people of the United States speak up and te1l those in power that nilitarisn is no longer acceptable. The path to a more peaceful world is not an easy one. As President John F. Kennedy sai.d, rrMankind must put an end to the arms race or rrms will put an end to the human race. tt It is j:r this vein that this proposal is being made, in the hope that the Hanpshire College conmunity on contribute to the struggle for a safer, more -
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peaceful
world.
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FOOTNOTES 1 Lester New Yorl< Thuro'nr, t'How Reagan Can Wrecl< the , May L4 , 1981 . Means of Economyr"
Production,
"
3 - "The Inflationary Impact of Unemplo]rynent, " a study Waslrthe ,Joint Economic Committee of the U.S. Congress, for 1976. ington, D.c.: covernmerit Printing office, of the 4 - U.S. Department of Labor, "The Structure Economyr 1980-85r'r washington, D.c.: Government Printing 1975. 5 - Richard Sch.uster, 1981), Barnet, p.98. Real Security Trianqle (New York: (Nev York: Before U.S. Officer
'tstatement 7 - Admlral Hyman G. Rickover, Economic Committeer " ,January 28, 1982. I - Arthur H. westing, The State published by the united lliii@ the 9 - .Arthur Environment H. westinq, weapons of (London: i;y of the
Mass Destruction
t'The Evolution 10 - Allan S. Krass, of Military and Deterrence Strategyr'r SIPRI Yearbook ( Stockholm: International Peace Research Institute, 1981). 11 - Herman Katrn, On Tfrermonuclear
Tectmolog'y Stockholm
Princeton
university
pffi
War (Princeton:
Capri-
13 - Dr. .fohn Mack, "Psychosocial Effects of the Nuclear Arms Racer" Bulletin of the Atomic Scientists, April 1981, pp.19-20.
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To:
From :
The Faculty;
Chucl< Co]. l ins
Students
f or the
Board of for
Trustees Re-
Investment
1983
once again the motives It is important for us to clarify proposal that will and concerns reflected in the divestment be voted on Friday in the Finance Commj-ttee of the Board of Trustes. As President out in her memor . there are Simmons pointed address the contwo parts to this proposal. This memo will part of the proposal which urges the cerns over the first divestment of the CoJ.J.ege's holdings in the weapons producers of the top 100 defense contractors. policy The proposed investment is not meant to "imply policy that even a rational is of national self-defense socially injurious." Our paper atLempts to show how major weapons producers, within the context of our present foreign policy and nationaL objectives, to social injury contribute guidelines. as defined by our College t s investment We asserted this by showing the ways in which these major weapons producers violate international laws and treatis r undermine our country's democratic institutions, threaten world peace, cause environmental damage, and destabilize our economy. A second concern was that, 'rHampshire not become so strongly political identified wittr a particular view that free inquiry would be compromised." The Collelge is making a political statement by its economic support of the weapons industry" ft is myopic to consider divestment which might as an action compromise "free inquiry" while not considering tacit consent and collusion with major weapons producers a poJ.itical statement in itself. The third major concern over the proposed policyts implications f or the "healttr of the colJ-egerr is indeed ttre most difficult. There is a legitimate concern that the College may lose money in the process of selling its stoclcs even though the proposal urgies that the securities be sold,- . rrat such a rate and in such a manner as not to financially endanger the Colleg. rr It, is al.so possible that the corporations which we choose not to invest in may talce offense anC refuse to give donations to the College" This however, does not seem to have been the case with the South Africa divestment. Our present guidelines do not al.low investments in almost 4OO coriorations which operate in South Africa. The weapons proposal addresses itself to less than 70 corporations, 30 of which operate in South Africd r and hence are already excluded by our present guidelines " Will choosing not to invest in these 40 jeopardize more corporations substantively gift-giving? corporate Another financial concern is whether the College I s -106-
options wil]. be severely for investment limited. Our research and discussions vith members of U.S. Trust and other firms specializing in socially has shown that responsibte investing, the Collegers investment options will not be seriously limited by not being able to invest in less than fifty major weapons producers. Very fev major weapons producers r,tould be desirable prudence investments for the college for reasons of financial a1one. Because of the nature of major defense contracts, the stability of these major corporations tends to fluctuate. There are many other institutions, church groups and foundaguidelinesl tions which have much stricter ethical investment and yet remain financj-ally stable. whatever the ri.sks the College might experience should be measured against the health other forces which are endangering of Hampshire College. It is true that members of the College comrnunity have been doing important work to artraken the American public to the dangers of nuclear But as war and mj.litarism. many of us have found in this work, the arms race is not an phenomena rf,hich is totally aberration. It is not an abatract policy goals of the United removed from the foreign States' fron the lifestyle we have as Americans, and from the w-ays in r'rhich we treat in one another. The arms race is deepLy rooted our culture, our nation's viev towards the rest of the world, in our economy, and in our institutions. As individuals we need to speak out against the arms race. We also must pressure our institutions and demand that they do not collude vith the arms race, not profit from the manufacture of veapons, and not condone with silence the polj.cies of our goverrunent. At this moment in history it is very easy to speak out against the arms race. What is difficult is to divest oneselfr one's institutionrs and oners country of the privileges we derive from that which ve abhore. ft is one thing, year to endorse overas we did as a College commurlity last vhelmingly the U.S.-U.S.S.R. nuclear lreapons freeze. It is quite another statement, and one which has more lasting meaning, to make a choice not to profit fromr and condone, the arms race. What is rea].Ly threatenj.ng the health of Hampshire College? Is it a group of students and faculty vho are pressing the College to face the contradictions between its professed ideals practice? and its financial Or is it the threat of ni:clear coming from the possibility annihilation, a lJovernment which transfers money from student loans to the Pentagon, and a society which has confused its priorities with regards to education and milj-tarism? It is the view of this group that the moment has student come when we must clearly articulate what is really threatening the health of the College, and act to challenge that threat. We hope that you will support our efforts, understand our urgency, and join us at noon on Friday for a ra]-ly in front of the library and a march at 1:00 p.m. to Blair Hall. If you would like a copy tions, cal]- Chuck Collins of our report or have further or Matthew Goodman at x273. ques-
-LO7 -
usrYtBslrr
-{ahcret Antloch lostoo JreodeLs Carlctoo !olby _-Colnnbta Erryehlre lennrd -davcrfsrd losrd --utherto School of . lttioloEl: Chlceto taine bssechusetts, Uol,v of $
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-108-
Collcgc (rctovsrtcd
1o 1978)
1977 t Uotvcrrlty of (bcgao) liarrachusetts, Orcgoo State Schoolr ( Goqlcted 1978) Solth Collcgc l97E: 1982) lnhergt Collcge (cqlctcd Anttoch Collcge rrnp3[13" Collcge (gccood protest) Bourd Ual,vereiESr llrsnchueettg, Univcrrlty of (copleted) tcr Yorlr, Strtc Uolvergtty of, at (boote Ilar York Uolvcrrlty Studcnt Ber Asgoctetton 1979) Ohlo Stete Ualverstty (cqlrtdd otrlo UnLvcral,ty Vesgar 9Lsconsln, Ualvcrglty of 19793 Bostoo Untvcrrity lrandclg 'Cellfornle,Uatvcrrlty Uul,rrcrsl,ty of, et Berlclcy Collcge Cerletoa Colrdta Ualvcrstty R--Fchlre Collcgc (redlvcrted) l{lchigaa, Uolvurrtty of l{tchlgen Stete Ual,verrlty (cqlcted ln 1980) Tuftr UnLvcrrtty Irlc Ualvcrrlty
1980:
GrllfonlerUolvurrlty of at loe Aageler, Assocl,etlon of Strdcotg Colby Collcge Erstern ltl,ehlgeo Uol,vurtl,ty Butgcrs Univrrrlty Xcrleyen Gollcge tltlllans Gollegp Sru{ nerfl Uaioo fbeologlcrl
1976
0ctober 1977
Trustees adopt liampshire College Investment Policf. Includes creffi tT'iiloa Investnent Responsiblliff . Also a pledge not to nake olnvestxaents whlch support activities whose inpaet is eontrary to fundanental rnoral and ethlcal principles. tr Early deflnltlon of nsocial lnjuryf? try comlanies to be avolded ln the college portfollo. Also states that, eonslstent with these contld: eratlotrer the rprlmary Lnveetnent objectlve ls to optLnlze flnanclal return to the Colleg. ff Flnance Connlttee rneetlng wtth CHOIR votes to dlvest fron eertaln corporatlong dolng business .F|-. InEotlth Africa. Investnent policy adopted EEFE-tEFGIrege should nn6t puiehasb the seeurltlee af any conpany havlng operatlong in Soutb Afrlea. n CHOIR begins dj-gcusslon of college lnvestnents companles that produce weapons. in
Ivlarch
1979
CHOIR dtscusses and defeats a proposal to divest from top 100 Departnent of Defense contractors. CHOIR adopte a proposal to divest from top weopohsnaklng eonpanies after eonsiderable discusgion. Finance Cornnittee receives reconnendatlon from CH0IR to refuse investment in top weapons producers (aeflned at ttre top- 75 c6ntractors wlth the Department of Defense. ) Proposal is voted down. Finance Committee votes to erea.te a speclal task foree on investment pollcy. fhe ta.ek foree is dlrected to ldentlfy types of lnvestnent tbat the College should have as well a.a guldellnes
-110-
Chronology of fnvestment Pollcy on soclal injury issues, Full Board of [rustees confirns bottr Bosltions taken by the Finance Comrnitt. cole sclenee Bulldlng is occupled, then vacated by protesters. June 1982 IASK FORCE0N INVESII',IENIRESPONSIBIIIIY constituted. Student, faculty, and trustee menbers from CHOI.R and Investnent Cornnlttees . Vanessa Ganble ilenry Morgan John Watts Mary Ellen Kurtiss Schloss (other students rotate off j-ttees board. conm and graduate)
Cora Weiss
A11an Krass
Gordon
appointee.
On-campus nenbers of task foree rneet to deflne tasks. rntervlew candldates and seleet: Mlke current Deborah Knight as gunner regeaxehers anc student rnembers. June July August task tr'oree neets a dozen tlnes on canpus and on fleld trlpc for Lntervl,ews. Questtonaire rnade up and sent to all llanpshlre gracluatgs, current parents, staff, faculty, and students. consuliation wlth other institutlons and experts i.n the flelb.. Gathering of relevant d.oeirnents . written nateriars circulated among task foree neabrB. tr'ull texts preBared for four-Fart report on summer regearch.
--Introductlon and overview of Lssues. --legal eontext for trustee votes in fiduciary ro1e. --Posslble flnanclal inpact of dj.vestnent o --Frocess lgsues and returns from questlonaire.
--
0ctober 1 982
Full lask Force spends weekend together ln Anherst. Extended dtseussion; sone sligf,t revj.slons of text s . Prelirninary effort to define guidelines. lask Force also will call- attention to need. for Conflict of Interest rule for ilarnpshire trustees. Extensive aetivlty over following weeks leads to ful1 proposal on investoent guiaetlnes.
-111-
Task tr'orce agrees that it is not yet ready to subnit guiCellne proposals on vieaponsand
weapons-fiakefS. Unable to formulate overall alternate approach to npositiveft investment of CoLlege funds.
October IRUSIEES MXEIING FulI reports and guideline proBosals presented. Modlflcation in cHorR nandate also advanced. No guldelines on wea.pons-mskers o ffered at th is tfune. Trustee Executive connlttee adopts strlct policy on conflict of lnte:rest affecting all tiustees, Finance committee and full $]CIE mandate. board. adopt nodlfled
!'inance conmlttee aad full board adopt most proposed guldellnes. Several deferred for more background work. Afflrrative and negatlve guidellnes in force
ll*:iil{}'i#*i:},:,::: ";i:",;"
workplocs o --treatment of ninorities and wonen. --DVlronnental protectlon and conservatloo.
6n
November 0n-canpus task force menbers contlnue meetings wlth December partlcipatlon of lnterested students.
Progress on deflnlng posslble guldellnes on renaining toplcs. No task force eonsensus on text of guidellnes that address defense lndustries and w-apons pxoduct lon.
January 198'
January TRUSIEES MEEIINC Draft of proposed guldellnes dlstrlbuted. Alternate texts on several guideline .'toplcs. No aetion asked a.t this meeting; trustee s comments sought. O n - e a m p u sp r o - c e s s c o n t i n u e s t o r e f l n e p r o p o s e d texts. Off-eanpus task force mernbeisconsulied by mail and phone.
February
-tL2-
Chronology of Investment Pollcy I,lareh 198, i{areh IRUSIEES MEEIING Six addltlonal guidelines proposed: ---$sglear warheads and delivery systems. ---p3sllferation of weaporur against law and . treatles. ---Q[srnical and Blologi.ca1 Weapons producrs. ---lfsspons makers rrho engage ln lllegitinate behavior. ---Qs6panies eompllcit in severe hurnan rights vlolations, ---$g11era1 weapong-Gokors. Flnance Connlttee adopts Prollferation, tsi,ologleal Y Weapons Producets (revlsed deflnltl6n of Chemlcal Weapons in May), and llunan Rights Vlolators guldellnes. Nuclear and Genecal Weapons-l{akers proposals voted down. FuII Board of lructees debates Nuclear Weapons , exelusion. la"rk Force and Flnance Connittee both rpllt ' on:l'lt.': ' : '' . Strongest convlctloas expregsed on tbls lsgue, Anendment deletas reference to rdellvety systenc. i FulI Board Adoffts, Suclear: lddrheads guLdellne as additionil factor toFffililFt6n of eonpany fron Lnvestneat portfollo, Vote ls 9 ln favorl 6 agalnst, t abstentlong. lagk Force on Investnent Responslblllty ls terrnlnated witb thanke for gerviee of ltg nenbers. CHOfR resuxres lead role ln deallng wltlr lssues pertainlng to soclal recponslblllty ln college lnvegtnent pollcy. FuI1 revlsed text of llanpshLre College Inveatnent P - ollcy.
-113-
r.
Introduct
ion
The Trustees of Hampshire College recognj-ze their own responsibility and the concern of the College community for the moral and social implications of the management of the College's investments. They also recognLze that primary investment their finanobjective is to optimize cial return to the College. Hampshire College will not knowingly .make investments which support activities whose impact is contrary printo fundamental moral and ethical purpose of these guidelines ciples. The is to establish in addition criteria to economic return which the Trustees will when maklng investment consider decisions and when exercising their rights as shareholders. This statement also provides for procedures for forwardlng these concerns to the Finance Committee of the Board of Trustees and to the fu1l Board itself. fI. Procedures A. A subcomnittee of the Flnance Committee of the Board of Trustees will be established and will be called (CEOIR) the Committee on Investment Responsibility. The Comnittee 1. will:
B.
Make recommendations to the Flnance Committee regarding the maintenance and the modification of guidelines. social responsibllity Make recontmendat i-ons to the Finance garding the vot ing of shares " Cornmittee re-
2. 3.
Revlew the way in which the Flnance Committee is interpreting the guidelines and review the performance of the College's investment managers ln carrying out the investment guidelines. Keep the Hampshire t ivit ies. community informed of its ac-
4. 5.
Provide all relevant information in its possession to the Finance Committee and the College's investment managersr especially as concepts and findings that bear on social injury envolve.
c.
rn cases where the Finance Committee does not accept the recommendat ions of the Committee on Investment Responsibility, that committee w111 have the right to
-114-
fnvestment continued
Policy
Page 2 of 6
to tbe
full
Board of
The Connlttee wiII be composed of two people to represent the Board of Trustees, at least one of whon nuat be i trustee, two faculty members, two student members, an alnnnus/ a, aud the Treasuref r E officio. Tbe Tlustee. representatlves w111 b appolnted by tbe Executlve The laculty of the Board. Comlttee .reproselta.leDreseBtatlvea vi1I include tbe faculty tlve ou the Ft[ance Comlttee and ole nember of the f&culty elested at large by the feculty. The student represert&tl.vos stlI the studeot representalnclude tlve oa the Fhance Comittee and <ine studeat elected by the students The Preeident of the College at large. wlll seloct w111 servci aE th6 alumaus/a. A trustee cha,lrna! of the Comltte. The Comittee will have access to the lists of all boldlngs nenaged by tbe College, ard to all pertlneat detir conplled by, or on behslf of, the College' wlth respect to coEpelles has tn whlch an investnelt beeu uede. The Co@ittee E8y lEltlate ft also ttE ora actloDs. mlst respoad approprlately fron to vrltten requeets atry Dnrber ol the College co@rul'ty for act loo or laforma,tlon regardlug responsl.bllity. llyatEert In order to carry out lts fuweatlgatlo! . the College should sollait bforoation fron indlvlduals a,Ed gloupa ln a,ad out comunlty. Betore actio[, 1. 2. ' . 3. tbe Co@lttee tbe Comlttee ard aDalysls, ald advl.ce of the College for
E.
l.
G.
E.
Glve full consideratlon to tbe facts partles; ments advanced by all Include ln its fi[dings an opinlon ancial lnpllcatlona to the College atry recomended ect lon i
Include in lts findiags on social inJury n6t oaly lts own opitrion but also the oplnious of otbers witbin the College co@unlty.
I.
Tbe Comittee nust respond pronptly to requests for advice from the Investment Comlttee and the Finance Comittee regarding tbe interpretat ion of these ' guidelines for soclal responslbillty ln itrvestment
-115-
Hampshire II.
College
Investment continued
Policv
Page 3 of
Procedures: J. K.
on all
The Trustees wiLl inform the Commlttee in writing of the Trustee I s act i-on and a summary of the reasons for the aetion. The Committee may submit recommendations to the Trustees for amendments to the guidelines or the Trustees may on their own initiative conand after sultation with the Committee amend these guldeli.nes f rom t ime to t i,me . for_laggstment Responsibility
L.
III.
Guidelines
hese guidel ines , social in jury will be interpreted to mean: the injurious impact which the aetivities of a company are found to have on consumers r employees r or other persons, or the environment , part icularly activlt ies which including violate or frustrate the enforcement of rules of domstic or international law intended to protect individuals against deprivation of health, safety, or basic freedom. B. primary investment objective The Trustee's is to seek a prudent financial return in line wlth the College I s objectives._ This policy does not preclude the Trustees from determining, from time to time, that invest-
fnvestment gocial
Page 4 of
InJuty:
provide beneficial goods and services sucb as food, clothlng' bousing, health, educatlotr, transportatiou, atrd safe eEergy; pureue eoergetlc research and development progra^ns that hold promlse for new products of soclal benefit and for increased enployne[t prospects i Ealntaln fair labor practices lnc1udlng exemnansgg6aat policles ln such areas as F1ary afflrnatlve action and worker participatloni nalntelo a safe aad healthy sork eavllooEeut luc1udJ.ng. fuII disclosure to workers of potetrtlal work hazards; denonstrate and wonen; exenp lary treatneot of nlnorltles
b.
c. . d. e.
f lrDs that, proln relation to etrylrouDeutal pltb retectloE, are Enora to be innovetlve spect to policies, organlzatlotal stluctutea, and/or product development i l r,rnE tbet gl.ve evldeace of super lor pertoloalce wttb respect to wEst6 utlllzatlorl and pollutloo coBtrol sbould alEo be favored; are see! to stretgtben local and regloaal sell ae the aational ecoaonles; have a record educatio!. of sustaiued support for as
t. g. . 3. .
hlgber
AVOID luvestlng ln or holding equities of corporaE6iE whlch caise soclal iaJuryr- oore partlcuia,rly tbose corporatlons rhlch --a. b. c. have operatloEs in South Afrlce;
engage in the product lon or sale of coEponeDts a,nd technologies for uuclear warheads; engage in the production and/or export of gensitlve nuclear and nllitary techuologles whlcb contrlbute to tbe prollferation of weapous in violation of restrictions embodied 1a United States laws or govertrnental regulat ions or la arns linitation treaties to whlch the United States ls a party; directly loglcal contribute -117to the product ion of bioweapons or to researcb and
d.
Hampshire III. C.
College
Investment
Policy
Page 5 of 6
Socia1 Benefit
and Social
with
Iniury3
associated be low) ;
human operate engaged in serious in countries rights violati.ons to perpetuate, and function promote, and finance these conditionsr 4s identified'through case by CEOIR: a factual pursue aetively pract ices ; maintain basis of national unfair and degrading labor
f.
g.
practices on the which discrlminate sex, sexual preference , r:ace , color, or ethnic originr or handicap; harmful, ; irresponsible
h.
1.
manufacture and lor market products which in prodnormal use are unsafe or impure or sell ucts outside the United States which competent U. S, governmental authorities have prohibited from sale or distribution on the grounds that such products are harmful; have markedly inferior records occupational health and safety; with respect to
j.
k.
repeatedly refusg to cooperate with responsible requests from the public for information regarding their performance in relation to any of the above listed issues of concern.
D.
Exercise of Voting Right: 1. The Trustees of ownership stockholders will be used tees I votes:
L"
will normally exercise their rights by voting its shares at meetings of by proxy. The following guidelines in determining how to cast the Trus-
The Trustees will normally be influenced by a proposition which seeks to eliminate or reduce the social injury caused by a company's act ivit j-es, and will vote against a. proposit ion which seeks to prevent such el iminat i-on or reduction, where a finding had been made that the activities which are the subject of the proposition cause social injury; The Trustees will not vote their shares in favor of any resolution which advances a -118-
b,
Investment
Po1icy
Page 6 of
Exercise of Voting Right: posltion or a social or political question unrelated to the conduct of a company's business (or the disposition of its assets); c. The Trustees w111 vote for disclosure of a company's policies and pract i-ces in areas of publlc lnterest (to the extent that such disclosures do not cause a company competitive disadvantage); The Trustees will vote for election to corporate boards of directors prof qualified sons who w111 not only contribute to good and ethlcal" corporate management, but will also bring greater diversity of interest and coocern for the public interest. Dlvestment: A decisi.on to sell for other than financial reasons w111 be considered by the Trustees if in tbe opinion of the Comnitteee on fnvestment Responsibillty tbe exerclse of shareholders' rights by the College and other shareholders wlll not, withi,n a reasonable period of time, succeed in changing a. conpany's attltude toward a rcral or social problem.
d.
o.
Microbial or other biological agents, or toxins whatever their origin or method of production, of types and in quantities tbat have no justification for prophylact ic, protect ive or other peaceful purposs. Weaponsr equipment or means of delivery designed to use such agents or toxins for hostile purposes or in armed conf 1i.ct . taken froms of the "Convention on the Prohibition Development, Production and Stockpiling (Blological) of Bacteriological and Toxi.n l{eapons and on their Destruct ion"
(2)
Treaty ratlfled by U.S. governmenti Entered lnto force on March 26, 1973. -119-