For College Endowments, Ethical Stands Can Be Complicated

Jon Krause for The Chronicle

March 18, 2013

The central function of colleges and universities is to educate, primarily their own students but also, and especially at research institutions, society at large through the creation and dissemination of knowledge. This may strike some as obvious, although it is easy to forget while reading about the misplaced priorities of Division I sports programs or while listening to those who believe that education has no value beyond the purely vocational. Our higher-education industry has become so diversified in its activities­­—the more critical might say unfocused or misguided—that its core work can be surprisingly simple to overlook.

Among the many forces threatening to pull colleges and universities away from that core work, none may be more powerful, persistent, and challenging than the pressure to take positions on social and political questions, to go beyond education narrowly defined and act more directly as agents of social change. Generally this pressure comes in its strongest form from students, who may enlist support from faculty members.

Why students? It is tempting to note that college students are typically young adults who are more passionate about social change than older adults and who have more time and energy to devote to social and political causes. While generally true, that statement underestimates the extent to which students are thoughtful and to which colleges and universities are themselves responsible for the social activism within their communities.

In pushing for collective social or political action, students reach reasonable interpretations of things that they are told by the institutions they attend. Especially at residential colleges, they are told upon arrival that they are joining a community with a shared set of values and standards; that the work of education extends beyond the classroom into the lives they lead in all settings; that the boundaries between the campus and other local and global communities are permeable and should be crossed; and, maybe most important, in the words of Macalester College's rather typical "Statement of Purpose and Belief," that they have become part of a community that "models and promotes academic excellence and ethical behavior."

It takes no great leap of logic to conclude that colleges should regularly take collective action to address issues in the broader community that have clear ethical dimensions. This is not to say that such a conclusion is, in the end, correct, but merely to say that it is reasonable, and that attempts to casually dismiss such a conclusion as transparently wrong tend to oversimplify a complex question.

Since the mid-1980s, when about 200 colleges and universities took actions of some sort to divest their endowments of investments in South Africa, calls to use such investment decisions as a form of social action at educational institutions have become common. Today the most visible and widespread effort is probably that of, a group founded by the environmental activist and writer Bill McKibben, which is organizing students in an attempt to pressure colleges and universities to divest all investment holdings in fossil-fuel companies. This subject is important and complex enough to merit particular attention.

I would not rule out using investment decisions as a form of social or political activism, since it is certainly possible to imagine crimes so egregious as to deserve resistance and protest in all available arenas. But there is good reason to view such an approach with skepticism and caution.

One of the commonly used arguments against divestment, particularly at institutions with large endowments, is that it would be extremely difficult. Endowments typically have diversified portfolios, which include, in the equity portion, holdings in indexed funds, hedge funds, private equity groups, and venture-capital funds. The stocks held by all those funds are numerous, constantly shifting, and even for investors hard to determine.

Another argument is that eliminating from an endowment portfolio an entire industry, particularly one that accounts for about 16 percent of the market capitalization of the New York Stock Exchange, runs the risk of lowering returns and increasing volatility, both of which could have damaging effects on the ability of an endowment-dependent institution to manage its finances and carry out its mission.

But sometimes difficult and risky things are worth doing, and the argument that divestment would be hard and might mean not doing other things strikes me as important but ultimately insufficient. While divestment advocates are rarely eager to talk about those things they would sacrifice should divestment prove costly—programs? financial aid?—that might well be a discussion worth having, since at the very least one should be prepared for such a possibility. Ultimately, though, my caution about the appropriateness of divestment is rooted more deeply in other concerns.

In almost all cases, divestment is likely to be a wholly symbolic act, which is to say not that it is meaningless, but that it is unlikely, at least in the near term, to affect actual behavior or to be as powerful a tool as many of its supporters appear to believe. Fossil-fuel companies, as noted, account for a significant fraction of market capitalization. If college investments are similarly distributed, they would have put about $33-billion into fossil-fuel companies­—less than half of 1 percent of their capitalization. That much might be gained or lost in a single day of trading. One can also assume that the equities sold by colleges and universities would be purchased by someone else, so that the actual impact of divestment on the value of these companies would probably be nothing at all.

Still, symbolic acts can be powerful and important, so the argument about efficacy is not in itself disqualifying. More interesting, at least to me, are ethical questions that arise from the manner in which endowments are created and the purposes for which they are intended.

Typically, college endowments are the product of gifts that have been given to the institution and then invested for the purpose of supporting the educational mission. Some of those gifts are restricted to certain uses—endowing a scholarship or a professorship, for example—and some are given to be used at the discretion of the college.

While most donors understand that investment decisions are made by the institution to which the gift was given, most also probably assume that those decisions will have as their goal maximizing returns while limiting risk, so that the gift can have the beneficial effect for which it was intended. Is jeopardizing that goal for the purpose of social activism appropriate? While the answer is debatable, I rarely see the question addressed by advocates for divestment.

I am inclined to see the management of a college endowment not chiefly as an act of ownership but as an act of trust with past donors and with current and future generations of students. This leads me to be deeply hesitant to stray, for the purpose of social protest, from the explicit purposes for which the endowment has been created and for which it is expended.

If we cannot arrive at a simple, easily formulated rule that determines when colleges should and should not take positions on various issues, we can at least rely on what I take to be reasonable and principled common sense, as expressed with characteristic clarity by William Bowen in his 2011 book, Lessons Learned: Reflections of a University President:

"Neither individuals nor educational institutions should be compelled to take a position on every issue that others regard as highly consequential. To abstain is both a legitimate and appropriate action for a college or university when the issue is not central to the institution's educational mission. Universities need to retain control over their own agendas and to decide for themselves when it is, and when it is not, appropriate to take a position: Looked at in this way, debates over affirmative action and discrimination based on sexual orientation seem to me entirely different from debates over labor practices in the textile industry."

Bowen's central points are worth underscoring: Abstention is not complicity; institutions need to control their own decision-making processes; there are times when action may be deemed inappropriate and, much less often, times when it may be deemed appropriate; and the relationship of any issue to the institution's central mission—education—must be the critical factor in determining the appropriateness of action. None of this suggests that any particular decision is easy, or that there is no room for the exercise of judgment; rather, it suggests that judgment should be guided by a clearly understood set of principles.

Institutional activism poses two principal challenges to the educational mission of the college. Each time a college declares that there is a right answer to disputed questions, it runs the risk of limiting the freedom of debate and inquiry. This danger is real, although I must confess that in practice I have rarely seen the declaration of an institutional position lead to a curtailment of debate. If anything, given the nature of most academic communities, such declarations spark and intensify debate and so may not be as dangerous as some fear.

More troubling to me is the second challenge: the potential for certain forms of institutional activism to make personal activism less meaningful and too easy. By shifting responsibility from the individual to a centralized authority, a college runs the risk of undermining the educational goal, in the words of Macalester's "Statement of Purpose and Belief," of preparing students "to take responsibility for their personal, social, and intellectual choices."

That is especially true of such institutional actions as boycotts and the banning of a product on campus. Several years ago I was importuned by a group of students to ban Coca-Cola products from campus because of the company's alleged complicity in the deaths of union organizers in Colombia, a deeply serious charge but one that has never been substantiated by an independent investigation. Leaving aside the validity of the accusations, as well as the question of whether a shift from Coke to Pepsi represents an act of social responsibility, such a ban struck me as an unhelpful substitution of institutional for individual decision-making. It seemed proper instead to leave to each member of the community the choice of whether or not to patronize a particular company or purchase a particular product.

Much as I wish there were an easy way to distinguish between those issues that are and are not relevant to the educational mission of a college, I do not believe that an easy way exists. I am more inclined to think about issues as being on a continuum, with those at one extreme of clear and obvious relevance—for example, affirmative action and the importance of the Pell Grant program—and those at the other extreme forming a much larger group of matters that very clearly do not bear upon that mission. But there are issues between those extremes that require institutions, as Bowen puts it, to "decide for themselves." In those cases, no single rule can substitute for the thoughtful exercise of institutional judgment or fully satisfy those who believe that judgment to be wrong.

The job of college and university leaders is to recognize that every decision to speak on an issue, and every decision to remain silent, has meaning and has the potential to affect in some way the ability of the college to carry out its mission. We must do our best to choose wisely both those moments when we will resist pressures to take a position and those moments when we will not be silent.

Brian Rosenberg is president of Macalester College.