Jeff Millman: The responsible way to make money

Many people decry the corporatization of our University. Several members of the faculty have expressed concern, privately, that Penn's administration has become overly consumed by its business developments. But the reality is that Penn will forever function more like a corporation, less like a school and even less like a charity.

Understanding this inevitability, we should be primarily concerned that Penn is the best corporation it can be.

Fortunately, making the most money possible is also socially responsible. When Penn makes money, it's reinvested toward good things. Penn spends its money on Philadelphia jobs, on funding public schools and on providing a high quality education to thousands, charging many of them tuition well below cost.

That's why Penn's endowment is so important, and it's why the mismanagement of our endowment during the "technology bubble" of the mid to late 1990s was so disappointing.

Penn officials to this day claim that their decision to stay away from lucrative private equities was correct. They claim that it was part of a consistent policy of public equity conservatism that rated in the top 25 percent by the National Association of College and University Business Officers from 1988-1998 and has reaped tremendous rewards in these lean market conditions. In a February interview, Acting Executive Director of Budget and Management Analysis Bonnie Gibson said that this consistent policy has "recouped our losses from the earlier years."

Well, that might technically have been true, if Gibson was only speaking to the performance of Penn's holdings in an endowment dominated by public equities and bonds, which still outperformed some benchmarks, such as the Wilshire 5000. But Landis Zimmerman, the chief investment officer hired by frustrated Board of Trustees in 1998, asks, "Did we miss an opportunity?"

He answers, "Absolutely." That opportunity was venture capital, and it drove 40-50 percent annual growth in the endowments of many of our peer universities. During this time when our peers were getting rich, Penn's endowment flat-lined -- and sometimes declined -- at a time when donations to the University were increasing.

But there was no public outcry about the endowment's pathetic performance then, although it cost incalculable opportunity for social improvement through campus and community investment. No, it seems people only care about the endowment in the context of the politically-hijacked Israel/Palestine and the war in Iraq debates.

Currently, the University holds no endowment assets in its own name and uses about 55 portfolio managers and several subsidiaries to shield its investments from public disclosure. So while many people clamored for divestment from companies that supply the Israeli Defense Force, nobody knew whether or not Penn was invested in them.

And among the anti-war community, there was moral indignation that through its shares in military contractors, Penn would be profiting from the recent war in Iraq. Yet again, nobody knows the extent of Penn's investment in these companies.

Zimmerman explained that "our investments are sensitive. Certain disclosures could cost us money or investment opportunities." And now that Penn is trying to invest 10 percent of its endowment in still-lucrative and super-secretive venture capital, with some top-notch firms that have made room for Penn by dismissing old clients, perhaps it's for the best that we're kept in the dark. That is, of course, if Penn is making all kinds of money to promote social responsibility.

That entails a few things. First, Penn should place a greater emphasis on ethics in its teachings. None of Penn's undergraduate schools require a course in ethics, although many throughout the world work under Penn graduates in leadership positions.

Wednesday served as a fresh reminder that Penn has often failed to instill the proper social values in its students. Credit Suisse First Boston superstar investment banker and Wharton graduate Frank Quattrone was arrested for having "unlawfully, willfully and knowingly, corruptly influenced, obstructed and impeded" an investigation of his potentially illegal involvement in research conflicts and questionable IPO practices.

Second, instead of divesting from questionable companies, Penn should amass shares in these companies and use its influence as a shareholder to change them from within. Penn has been dismal in this regard: since 1998, Penn has never voted by way of proxy ballot on the many issues brought to the attention of shareholders in any of its companies. The Trustees' Subcommittee on Social Responsibility must take its mandate and Penn's shareholder influence seriously.

Third, Penn should make good on its greatest force for corporate justice, which is not its investment portfolio, but its purchasing decisions. Penn should apply its tremendous client leverage against those sneaker and apparel companies that violate the human right of their sweatshop laborers.

If we doggedly remind Penn to follow its social instincts, maybe our alma mater could literally be our "nourishing mother."

Jeff Millman is a senior Philosophy, Politics, and Economics major from Los Angeles, Calif.

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