Financial News from All Over Harvard

A few news items of interest, only vaguely related to each other, but I'll draw them together under that rubric! First, Robert Rubin is leaving the Harvard Corporation after 12 years. Rubin is credited with having reassured skittish members of the presidential search committee about Summers' suitability to be Harvard president. As Richard Bradley tells the story in Harvard Rules,

Rubin called three members of the search committee who had particular doubts …. It was true, Rubin admitted, that Summers had once had what Rubin would call "a rough edges" issue. But he'd mellowed, Rubin insisted. This was a man who'd successfully negotiated with congressional leaders and foreign treasurers, who'd survived and prospered for a decade in a viciously partisan Washington environment. His temper existed more in legend than in reality. Rubin's seal of approval worked. "Rubin made us confident that we weren't getting a bull," one member of the committee later said. 

A year after Summers became president, lo and behold, Rubin was named to the board. He has been quite invisible–not that visibility is typical of Fellows of Harvard College. But when other Fellows (Robert Reischauer, for example, who is also stepping down) communicated and met with faculty during the Summers troubles, the one most responsible for his appointment was nowhere to be found. Similarly, when the Harvard endowment tanked in the great financial meltdown, the sometime chair of Citigroup had nothing to say. On December 12, 2009, Fred Abernathy and I vented our frustration in the Boston Globe.

IF AN ORDINARY corporation had the kind of fiscal year Harvard University just had, some of its directors would be gone. Long-term investments down $11 billion; another $1.8 billion lost by top management speculating with cash accounts; another half-billion gone in an untimely exit from a debt rate gambit. The institution left so illiquid that it was forced to sell assets and issue bonds at the worst possible time, just to pay the bills. A publicly held company would have experienced a shareholder rebellion - especially after the Globe reported that the chief investment officer had repeatedly warned the president about the risks he was taking with the institution's cash. …The Harvard Corporation is a dangerous anachronism. It failed its most basic fiduciary and moral responsibilities. Some of its members should resign. But the Corporation's problems are also structural. It is too small, too closed, and too secretive to be intensely self-critical, as any responsible board must be. Until the board can be restructured, the fellows should voluntarily share their power with the overseers. And Harvard should reveal the risks of its business plans, as would be required if it were a publicly held corporation. That exercise in transparency would surely serve Harvard well. 

Two days later, Jamie Houghton announced his resignation–an accident of timing about which I feel a bit badly, since of course it was of Rubin that Fred and I were mostly thinking. Almost at the same time as Houghton's resignation was announced, a structural review of the Corporation was announced. It ended a year later with a set of measures aimed at correcting some the things Fred and I had pointed out. There would be term limits. The board would be enlarged. Opinions differ about whether these changes are having the right effect. Some people I respect tell me that the main effect of enlarging the board has been to make responsibility more diffuse. But I can't help thinking that having more voices around the table must reduce the dominance of any one of them (as well as compensating for systematic absenteeism–which I gather has been a not unheard-of problem). And I also can't help thinking that the other recommendation Fred and I made would also serve Harvard well: that Harvard should disclose the risks of its business plans, exactly as a publicly held corporation has to do. After all, if it is going to collect $6.5 billion–and I hope it succeeds in doing that–why shouldn't its annual report disclose to donors, and to the public by whose benevolence those donations are untaxed, the ways in which it is runn