ACIR works to ensure responsible investment

by Tatiana Cooke | 11/30/09 11:00pm

As Dartmouth's 23 percent endowment loss may bring increased scrutiny to the financial strategy underpinning the College's investment portfolio, the ethics of Dartmouth's investments will continue to be weighed by an Advisory Committee on Investor Responsibility.

Dartmouth's currently has holdings in companies ranging from Wal-Mart to Lockheed Martin.

For each company of which Dartmouth is a shareholder, the ACIR makes recommendations on every "proxy resolution" that involves social issues, Allegra Lubrano, ACIR executive administrator, said in an interview with The Dartmouth. With proxy voting, the College, which does not attend shareholder meetings, casts its votes remotely.

"That's significant, and we're probably the only college in the country that does this right now," Lubrano said.

These proxy votes, which are cast each spring, allow the College to express its opinion on how a company should behave regarding issues ranging from animal welfare to labor laws in Northern Ireland. When controversial topics are discussed and an agreement cannot be reached, the ACIR will vote to abstain from the resolution.

The College's investment office is tasked with implementing the recommendations that the ACIR makes. The investment office has accepted every recommendation the committee has made since 2004, when then-College President James Wright changed the committee's structure, Lubrano and ACIR student representative Micaela Klein '10 said.

Aside from Klein, the ACIR includes three alumni of the undergraduate College, four alumni of the Tuck School of Business, three professors and four administrators. One person is an alumnus of both the undergraduate College and Tuck.

The ACIR will make recommendations on between 80 and 140 proxies annually, ACIR chair and government professor John Carey said. Many of the proxies are related, so the group deals with about 40 to 50 different issues each year, he said.

The College rarely changes its holdings because of ACIR recommendations, Lubrano said.

"We do have a policy right now that we are divested from companies that operate in certain sectors in Sudan, and that happened in 2005 as the result of a petition submitted to the ACIR by students and the community," Lubrano said.

The only other occasion when the College actually changed its holdings in response to student pressure took place in 1993, when the College divested bonds from a company called Hydro-Quebec. The company's proposed dam project would have flooded a large area of land occupied by Cree Indians. Dartmouth divested bonds worth $6.8 million after a group of students collected 2,300 signatures and met with the then-Council of Investor Responsibility, according to a previous article in The Dartmouth.

ACIR buys information about companies' behavior and potential human rights violations from the Conflict Risk Network, Lubrano said. The Conflict Risk Network is a third-party source that evaluates companies "materially involved in select countries afflicted by severe conflict," according to its web site.

Some form of the ACIR has been in place since 1969, when the Board of Trustees became concerned about College investments in companies that may have been involved with the apartheid regime in South Africa, Lubrano said. Dartmouth eventually divested from every company that supported the apartheid government, and a group of trustees and administrators began to take interest in the ethical investment of endowment funds, she said.

ACIR has included undergraduate students, graduate students, faculty, administrators and alumni representatives since the 2004 restructuring. Previously, no alumni representatives or students were on the committee, and most College administrators on the committee held high positions in the College.

"It's really a diverse representation from across the campus, which is very different from how it operated in the [1970s]," Lubrano said. "There was always someone watching what the College owned and occasionally voting in the proxy resolutions."

Klein, who was invited to become a student representative on the committee during her sophomore year, said she believes she has "an equal voice."

Klein said she has never disagreed with an ACIR decision since she has been on the committee.

Harvard University's Advisory Committee on Shareholder Responsibility plays a role similar to Dartmouth's ACIR. Harvard's committee is composed of four students, four faculty members and four alumni.

The decisions made by Harvard's committee, however, are also passed through Harvard's Corporation Committee on Shareholder Responsibility, which is composed of three members of the Harvard Corporation and is the ultimate decision-maker, according to Cheryl Thurman, the assistant secretary for the CCSR.

In 2008, the two committees agreed roughly 70 percent of the time, Thurman said. The other 30 percent of the time, the CCSR generally abstained from voting, either because the vote was split or because it disagreed with the advisory committee's recommendation. The CCSR voted against the advisory committee's recommendations three times that year, according to CCSR's annual report.

Yale University has an Advisory Committee on Investor Responsibility, composed of two students, two alumni, two faculty and two staff members, according to Yale's web site.

The Yale ACIR votes on proxy resolutions in part because the Corporation Committee on Investor Responsibility which is composed of fellows of the corporation does not meet often enough to determine each proxy vote and delegates the voting responsibility to Yale's ACIR, according to the chair of the Yale ACIR, Johathan Macey.

Macey estimated that, while the number of proxies varies, the Yale ACIR will vote on roughly 20 to 50 proxies per year. This past year, the Harvard CCSR voted on 19 proxy resolutions, Thurman said.

"In addition to voting proxies, there are issues of ethical investing that don't come up in the context of proxy, for example the question of how Yale should invest in companies that are involved in manufacturing tobacco products," Macey said.

William Jarvis, the managing director of Commonfund Institute, a nonprofit organization that works to improve investment management practices, said that institutional investors, like colleges and universities, usually do take "activist positions."

"Historically, companies have not really paid terribly much attention [to institutional investors' opinions] as a governance matter," Jarvis said.

Jarvis said that investors justify many of their decisions with the idea that "as long as the activities [of the companies] are legal, we shouldn't second guess that."

"Institutions that are not specifically religious in nature tend to have smaller programs on socially responsible investing or no program at all," Jarvis said, although he added that investors are currently moving towards greater involvement in corporate governance.