Topic: Professionals & Institutions

Harvard’s Money Managers

Sometimes the ethical priorities just aren’t clear. So it is with the annual controversy over the compensation Harvard University gives to their employees who manage it’s endowment. In 2003, the total paid to six investment gurus on staff were…take a deep breath now… $107.5 million. The top two, Maurice Samuels, who oversees foreign fixed-income securities, and David R. Mittelman, a US bond investor, split just under 70 million dollars. This, at an institution that dogs its alumni (like the author) for contributions four times a year, claiming that the future of excellence in education is at stake.

Many alumni feel that such astronomical payments (“More than baseball players!” exclaimed one outraged graduate) are per se excessive in a non-profit environment. How, they ask, can Harvard play hardball with the campus workers union, denying raises to janitors and cafeteria workers, when it is paying out other employees the kinds of fees that we associate with corporate looters?

Harvard has a simple answer for the critics: they’re worth it. Harvard’s investments delivered $700 million in gains above the market’s return to the $19.3 billion endowment, giving the Crimson the best return of all large endowments. Moreover, the investment managers’ incentive based bonuses require pay-backs if targets aren’t reached, and they have indeed paid the university back in the past…something the corporate executives do not do.

Isn’t Harvard ethically obligated to do what ever it takes to accumulate resources for education? Or is the means, paying incredible sums even if it is the going rate, so inherently inequitable for a non-profit that the end cannot justify it? Harvard says that using a traditional investment firm, or, as some alumni suggest, using retired investment managers or even business school students, will cost the University tens of millions of dollars, and the facts seem to support that conclusion. Meanwhile, in a move that may tamp down the protests, the College announced that it will no longer charge tuition to student’s whose families make less than $40,000 a year.

There is a legitimate argument to be made that it is unethical for any individual to seek and accept 30 million dollars for anything, that such an individual is preventing resources from being used to good ends while achieving only marginal personal benefits over a reduced, but still large fee. That is not Harvard’s ethical problem. It has important goals and needs money to achieve them. It looks bad, certainly, to pay such huge amounts, but it makes little sense to sacrifice critical funds and risk future shortfalls by stubbornly refusing to accept the realities of the financial world. After all, the six investment wizards permitted Harvard to beat Yale’s endowment return by 3.7%, and we all know how important it is to beat Yale.

If Harvard’s objecting alumni would pledge to make up any net shortfall that Harvard experienced by letting its managers earn $107 million elsewhere, then Ethics Scoreboard says Harvard should end the mega-bonuses. If not, Harvard is doing the right thing for its students by paying the going rate.

Related Links: Harvard endowment managers earn combined total of $107.5m

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