U. investment policy raises some eyebrows

Although the University may stress corporate ethics in the classroom, many critics assert that the phrase "social responsibility" is missing from Penn's investment policy. Penn created the Trustee Proxy Subcommittee in 1996 to address concerns about socially sound investments, but the committee has yet to recommend restricting investments on humanitarian grounds. You just can't "run a portfolio" by basing investment decision on moral and political ideologies, according to University Trustees Investment Board Chairperson John Neff. But some students and faculty members question the investment ethics of a University holding stocks in companies that manufacture tobacco or have equity ties to repressive military regimes. The University currently invests $3.2 billion in equities, bonds and real estate, according to Managing Director of Investments Landis Zimmerman. Penn's $3 billion endowment comprises about 94 percent of the total figure, with the A-3 support staff pension fund filling in the remainder, he added. According to the Web site of the Free Burma Coalition -- a student group that has criticized Penn's investment policy -- the University invests in nearly 200 companies on the Fortune 500 or Global 500. Penn administrators confirmed that the list is a representative sample of the University's holdings. As of June 30, the total market value of investments in these companies represented about one-fourth, or $818 million, of the University's total investment portfolio. Penn currently holds stock in 200 to 300 U.S. companies and more than 1,000 international corporations, Associate Treasurer of Investments Lucy Momjian noted. One such company is Philip Morris Cos., the nation's leading cigarette maker. The corporation ships 230 billion cigarettes every year, including Marlboro, Virginia Slims and Parliaments. At a market value of roughly $2.7 million, the University's investments in the company represent about .08 percent of its total investment base. Penn also invests in RJR Nabisco Inc., the parent company of R.J. Reynolds. As of last June, the total market value of the University's investments in the company was around $8.8 million, about .27 percent of Penn's total investment base. The corporation trails only Philip Morris in tobacco production, and manufactures such popular cigarette brands as Camel, Winston and Salem. Although its sales are split evenly between tobacco and foodstuffs, profits reaped from last year's approximately $17 billion sales total are largely attributed to tobacco purchases, according to RJR Nabisco's Web site. Prior to 1995, when Penn handed over management of its portfolio to about eight outside managers -- including City of London Investment Management Co. and Sanford Bernstein & Co. -- no investments were made in tobacco companies, according to Neff, who singlehandedly managed the University's entire investment portfolio until 1995. "I never invested in tobacco," he said. "[Manufacturers] were getting away with killing people." But Penn is not the only school holding onto its tobacco stock. Just last week, amid much controversy, the Yale Corporation, a 16-member board which controls that university's investments, voted not to divest nearly $17 million in tobacco holdings. Although Penn's managers must comply with the University's investment guidelines and overall social policy, they generally have free reign, according to Neff, who still manages $50 million of the University's portfolio. "If you cut down the number of potential investments, it's like playing a sport with one hand tied behind your back," he added. Penn's official social policy on investments categorizes the University as a "particularly fragile institution which could be harmed irrevocably by efforts to make it an advocate for partisan views," according to Zimmerman. It further states that the "exercise of free inquiry and expression by proponents of differing passions" would be jeopardized if the University chose to take an institutional position on social issues, he said. Indeed, in managing a portfolio, "you try to make as much money as possible," Neff said. And University Vice President for Finance Kathy Engebretson stressed that there are more "appropriate" vehicles by which socially-aware individuals can get their message across. Instead of questioning or protesting Penn's investment strategy, for example, students can write to their respective congressmen, she said. But according to Sociology Professor Jerry Jacobs, Penn should capitalize on its role model status rather than fret about making waves. "The University should be responsible investors and help lead the way," he said. Jacobs conceded that "[officials] can't sit there and make moral judgments about every country in the world and every product on the market." But Free Burma Coalition President Peter Chowla, a Wharton and Engineering senior, said he believes that officials can and should -- given the proper impetus. "The University should scrutinize all investments using a set of socially responsible criteria," he said. Chowla, one of the campus' most-outspoken social activists, has been battling the upper echelon of the University for months in an effort to rid Penn of investments in companies with equity ties to the Southeast Asian country now called Myanmar. According to Chowla, Hyundai, the Korean conglomerate known in America for its cars, along with Unocal and Atlantic Richfield -- both natural-gas companies-- provide funds to help build up a Burmese military junta that condones forced labor and ethnic cleansing. The military generals have prevented a democratically elected government from taking office, spurring democratic leader Aung San Suu Kyi to urge foreign investors to immediately divest in the country. As of June, the market value for the University's investments in these companies hovered around $7.8 million, or 0.25 percent of Penn's total investment base. Last month, the Trustees Proxy Subcommittee voted not to support a shareholder resolution that called on Unocal to withdraw its investments in Myanmar. Unocal is currently building a natural-gas pipeline through the country. As outlined in the University's investment strategy, Penn's No. 1 investment priority is to maximize investment returns "consistent with appropriate levels of risk." Exceptions are granted only in situations of the "greatest social concern," that deal with "the most fundamental human rights," Executive Vice President John Fry said in a statement issued in February. By contrast, the University of Wisconsin at Madison adopted a "socially responsible" investment policy last month that cites "substantial social injury" and discriminatory corporate policies as important divestment considerations. In 1996, Wisconsin sold off its shares in Texaco, in part, because of the company's involvement in a natural gas project in Myanmar, according to university spokesperson Peter Fox. Several other institutions, including the University of Minnesota and Harvard and Stanford universities have recently opted to divest or have refused to invest in companies tied to Myanmar. Penn, in fact, deviated from its professed fiduciary goal in 1987 -- the year that it sold off about $30 million worth of holdings in companies that refused to withdraw from South Africa. At the time, the Trustee Committee on University Responsibility called on companies to cease their operations in the country as a result of the firmly-entrenched legal structure of apartheid. Penn selected to reinvest in January 1994, one year after Nelson Mandela asked the international community to lift all economic sanctions against the country. For Chowla, the University's decision to take a stance regarding South Africa constitutes an undeniable precedent. Nobel Peace Prize winner Archbishop Desmond Tutu has described Myanmar as "the South Africa of the '90s," according to Chowla. "[The decision regarding South Africa] was not a precedent; that was a disaster," Neff retorted, adding that it was an imprudent move from a business perspective. "There's lots of countries in this world run by despots," he added. And Trustees Proxy Subcommittee Chairperson Nathalie Koether contended that there is no parallel between the situation currently plaguing Myanmar and that which existed in South Africa in the 1980s.

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