The Endowment Controversy: PCER and the Call for Responsible Investing

By Chris Goodnow ’14

“Is Princeton investing in child sex trafficking?” Thus asks one of many large, red posters belonging to the Princeton Coalition for Endowment Reform (PCER), a new student group on campus whose referendum passed with an overwhelming majority at the time of this article. Their mission is two-fold: increase student participation in investing decisions and implement more stringent oversight guidelines to ensure that the endowment is invested in a “socially responsible” manner. Certainly, these are noble goals; PCER ought to be commended at least for seizing an issue and forcefully advocating it to the student body. Reasoned advocacy and honest debate are always beneficial to the University community, even if they stir up strong dissent. Oftentimes, the most contentious issues are the most important, yet debates concerning those issues are the ones that we are most predisposed to avoid.

However, the question posed by PCER’s poster is not contentious or debatable at all. I can answer it very easily: of course not. The Princeton University Investment Company (PRINCO) is not investing endowment funds in child sex trafficking, just as PRINCO is not investing in genocide, terrorism, or the like. To allege such a preposterous claim in a cryptic and conspiratorial poster campaign is directly emblematic of the emotional and personal interests at stake in any discussion of how the endowment is to be invested. Furthermore, it is doubly troublesome that PCER would trivialize a deeply important issue like child sex trafficking. As fellow Tory writer Rafael Grillo notes, over 14,000 people are trafficked into the United States each year, many of whom are subject to sexual abuse right here in New Jersey. PCER’s poster campaign is a direct testament to a troubling phenomenon in any controversial debate: our feelings about the issues oftentimes cloud our reason. The purpose of this article is not to pick sides, but to fight this impulse and produce an argument despite the mudslinging and politicking that all too often accompany the somewhat amorphous concept of “socially responsible investing.”

Much of the contention surrounding this issue stems from an inability to agree on the central framework of the debate. As one man’s responsible investment may be another’s grave injustice, reaching the most basic consensus is oftentimes elusive. In an interview with the Tory, PCER President Yongmin Cho ’14 was very frank in this regard: “A responsible endowment is not a black and white issue. Our minimum demand is that the opinions of the community, in terms of how the endowment is spent, be included in the discourse. For these things to be left to purely financial experts, I feel that it is very anti-democratic. I feel that students are entitled to know where the money is being invested because we are ultimately those that benefit from the investment gains.” While “financial experts” are not by nature aloof to social concerns, Cho’s central premise is compelling. Issues of social responsibility are indeed difficult to define, regardless of how much information is available. In PCER’s view, they should not be resolved by a small constituency of PRINCO employees.

PRINCO, for its part, does not disagree. In fact, the investment company is absolutely opposed to any policy that would allow employees to impose their social views on the investment portfolio. Andrew Golden, the current President of PRINCO, articulated this very point to the Tory in an interview: “I cannot unilaterally put social overlays on the portfolio. That would be an abuse of power. When people donate to the University, they do not want us to further a social agenda beyond our educational mission.” Here, we find agreement between PCER and PRINCO: neither side desires a privileged oligarchy with the authority to steer the endowment towards its social goals. The endowment is the central cornerstone to long-term growth and stability for Princeton, not a tool for political proclamations.

PCER contends, however, that a call to neutrality amongst social concerns is not sufficient given the immense size of the endowment and the prestige a University investment conveys. When Princeton decides to invest in a particular fund or company, the University is implicitly branding the said investment with its stamp of approval. Simply continuing to reinvest in a particular fund, especially if it is directly or tangentially implicated in a possible social responsibility violation, is in and of itself a “social agenda.” Cho explained, “In the case of a morally ambiguous investment, we should err on the side of not investing. You’re not being neutral when you keep funding a certain vehicle. Not investing doesn’t send a message like investing does.” That social concerns should drive our investment strategy is at best a thorny issue. There is oftentimes little consensus as to whether or not a particular “injustice,” such as not allowing card-check in the unionization process, is really an injustice at all, let alone “morally ambiguous.” This is not to say, however, that social concerns should be thrown out entirely.

PRINCO, for its part, has an established framework to determine how to deal with “morally ambiguous” investment vehicles. “There’s some confusion on campus as to issues of social concern,” Golden argued. “The University has a very well articulated protocol for thinking about overlays of social issues, but I would differentiate those types of issues from other issues of compliance. If someone is concerned about an issue like apartheid or avoiding tobacco companies, that’s a social overlay issue. If someone is concerned about violations of law, that’s a compliance issue.” While social overlay issues are oftentimes implicated by state and federal law, and that interplay is a valuable and important issue to investigate, PRINCO obviously has no desire to do business with anyone engaged in illicit practices. As Golden put it, “We’re not in the business of extracting gains from illegal activity.” Social overlay concerns, by contrast, are to be addressed by the University, who through a “well articulated process” determines the necessary policy implications.

PCER is not so much displeased with this distinction, but the group is entirely unconvinced that social overlay concerns are addressed at all in investment decisions. In an April 17th column in the Daily Princetonian entitled “A Need for Dialogue,” Cho alleged, “There is no medium by which members of the Princeton community, students, faculty or alumni can voice their concerns or even engage in a conversation regarding the investments of the University’s endowment.” This statement is patently false.  There is an entire faculty committee devoted to addressing community concerns about possible social responsibility abuses called the Resources Committee.  The group has a well-articulated process as to how to file an appeal against any particular University expenditure. While PCER may be unhappy with the way this committee operates, for reasons to be articulated, to unashamedly claim it does not exist is just as silly as asking whether or not PRINCO invests in child sex trafficking.

The committee, to its fault, is known to virtually no one in the University community, but this is not to say that it is entirely defunct. According to its website, the Resources Committee was formed in 1970 as a forum to “consider questions of general policy concerning the procurement and management of the University’s financial resources . . . As the University’s investment management practices have evolved and the investment market has changed significantly, the Committee has undertaken review of specific investment issues upon request.” The page then has a link to the specific guidelines adopted by the Board of Trustees in 1997, explaining the three-pronged test that must be met in order for the committee to make a recommendation to the Trustees concerning a social overlay issue. In essence, the concern must generate “considerable and continuing campus interest,” directly implicate a University value, and be conducive to consensus building. Professor Deborah Prentice, the chair of the psychology department and the Resources Committee, explained the committee’s role in an interview with the Tory: “We are a conduit for the University community broadly defined to raise questions and concerns about the University’s resources.” The current appeals process, Prentice argues, is a strong and well-reasoned mechanism by which these many concerns can be organized and investigated.

PCER has routinely criticized the committee regardless, both in terms of conduct and philosophy. The Resources Committee, in its view, is an entirely passive organ that waits for others to do the work it should be doing on its own. PCER envisions an Advisory Committee on Investor Responsibility (ACIR) that actively combs through the investment portfolio in order to find potential abuses. According to PCER, this oversight construction is prevalent at many peer institutions such as Columbia, Williams, and Swarthmore. This committee, which would be comprised of students and faculty members, would regularly convene and examine the nature of the companies in which PRINCO invests. They would then make recommendations to the Board of Trustees, who would in turn work with PRINCO to investigate the implicated investment vehicles and determine a course of action. Cho recognized that the investment portfolio is a deeply complicated schema and has accordingly maintained that decisions from the ACIR would not be binding. The group does not advocate that the endowment be constantly reinvested with the latest social concern, but rather at the suggestion of a reasonable and actively involved committee that is representative of the community’s desires.

While PCER’s referendum does not speak to student support of this particular construction, because it never specified how the “investment oversight committee” would be formulated, both Professor Prentice and Mr. Golden were by and large opposed to the proposition laid out in the previous paragraph. Both articulated that another oversight committee was unnecessary because, as Professor Prentice remarked, “The problem is, it’s like creating another body to look at something that is already watched over. Other universities have more engaged advisory boards, but I’m not sure how much more of an impact they have. They do more work, but it would have little impact on the University’s resources.”

Mr. Golden agreed with Professor Prentice’s analysis, explaining the specific mechanisms by which the investment portfolio is already regulated. He disclosed that PRINCO currently reports to the entire Board of Trustees, a Board of Directors, and the Finance Trustee Board, releasing to each of these entities its entire investment portfolio for review. Golden stressed that these three oversight committees play an integral and sufficient role to ensure that the endowment is invested responsibly. “The reason they’re called trustees is because society has entrusted them to make these decisions,” Golden stated. PCER, however, is not so keen to trust the current oversight apparatus, given what it considers to be a recent of example of the very social responsibility abuses it seeks to root out.

At a meeting of the Resources Committee last February, Mr. Golden announced to the University community that PRINCO had decided to stop reinvesting in HEI Hotels and Resorts, a hotel management company that had been implicated in possible violations of numerous labor laws. Initially, Princeton’s investment was not revealed until the corporation used the University’s implied support as promotional material. Subsequently, “HEI Workers Rising,” the union that was attempting to organize HEI employees against the corporation, called on Princeton and other Ivy League institutions to sever ties with the hotel conglomerate. PCER views this decision and the preceding developments in two lights. Firstly, the endowment does indirectly fund corporations that break labor laws, and therefore PRINCO’s portfolio merits a heightened level of scrutiny. Secondly, we would have never known about the abuse if HEI had never advertised Princeton’s involvement, thereby warranting an active review process instead of a passive net for complaints. While PRINCO may be supremely competent in financial concerns, PCER contends that they evidently require increased oversight and regulation.

Mr. Golden, however, maintained that the issue of HEI could not be broken down so simply. The supposed abuses at hotels owned by HEI were never adequately confirmed, as the corporation supposedly reached many settlement agreements in order to avoid excess costs from continued litigation. Additionally, Golden stressed that these labor issues are deeply complex and cannot be subject to absolutist proclamations. “If you are going to look at HEI,” he remarked, “it would seem to make sense to look at the pattern of accusations and judgments as opposed to others operating in the industry. We wouldn’t want a system where one supposed violation means that we have to stop doing business.” Beyond these concerns, however, Golden revealed that the decision to stop reinvesting in HEI was actually not driven by the social overlay issue at all. He maintained, “We were not going to invest with them, but it was on the basis of our standard consideration. It was not a judgment that they were out of compliance with regulations to an unusual degree.” When pressed further as to why specifically PRINCO decided to stop reinvesting, Golden responded that he could not provide the exact reasons. “Telling people why we make our decision would have a chilling effect on those who want to do business with us,” he said. “We don’t want to broadly announce that a particular firm is not good enough for Princeton. It’s just like if the admissions office released why they turned people away. We very often choose not to invest with partners because of the balance of our portfolio.”

Given the complexity both in these specific incidents and in general endowment investing, Golden also challenged PCER’s call for an active oversight committee on more general grounds. While arguing that “students are unlikely to understand a detailed report of the endowment without context,” he was also unconvinced as to the premise for their calls for increased transparency and active oversight. “The point is, if you don’t want us investing in a company, then you don’t want us to make the investment in the first place,” he explained. “And by the way, if you independently identify which companies you’re concerned about, then we as a University can have a dialogue about that company. Otherwise, you’re telling me you’re not concerned about an issue unless you see a laundry list of companies.” In the end, Golden contends that student advocacy should not be sparked by what could very well be an innocuous investment on the portfolio, but rather genuine and separate interest in a specific issue. Princeton’s possible investment should not make a social concern any more alluring.

PCER, as a student organization, has developed a genuine interest in how the endowment is invested, and given the complexity and lack of knowledge about the current oversight system, I cannot blame them for being curious. Posters and Prince columns aside, the nature of our endowment’s investment scheme is a fundamental question of the utmost importance to our University. We must always keep in mind that our discussion today will not affect us at all, but rather generations of Princetonians to follow. Rash decisions and invasive oversight schemes will only jeopardize the stability and success that has characterized our endowment for so long, while complete apathy and ignorance will leave us insulated even from the Orange Bubble we call home. All too often students complain and do not act. While you may disagree with PCER entirely, idle grumbling yields no results. Without PCER, we would not even bother to have this conversation.

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