The Wall Between Mission and Endowment

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What I want to talk about today is the whole question of the students petitioning universities to divest themselves of various stocks having to do with global warming, and specifically in the field of hydrocarbons. This movement has gained momentum and in many ways is heartening to see. Ultimately, I think it will fail — and I think it will win.
Divestment will fail but the students will succeed
I don’t think divestment will happen on a large scale and – as I’m sure many of you know – I’m not a big supporter of divestment because the stock is then bought by people who don’t care and won’t act as responsible owners. I do think this movement will succeed in the long term. It is clear that this generation of students is serious about a future without dependence on hydrocarbons. They are studying the science and the policy to make that happen and they are raising the consciousness of younger and older Americans. It won’t happen overnight but, after meeting some of the students working on these issues, I believe change will come.
Why do I think divestment will fail? There are several underlying issues that will impact the campaigns at most universities. The first is that university administrators act as if there is a wall of separation between the endowment and the mission-driven part of the institution. You have on the one hand mission and on the other hand you have money. It is a compete conceit that these two issues can or should be separated. This is not church and state, though institutions act as if it were. Mission is supported by money, no doubt about it. But – and this is where things break down – the pursuit of support money is rarely impacted by the mission. Why is it that the people who educate the next generation of leaders don’t follow their own institution’s ethical ideals when raising funds? Isn’t this an ethical breakdown — hypocrisy? How can ethics, governance or social justice be taught at an institution that ignores these issues when investing money? How can an institution expect to solve big world problems if it’s invested in companies that contribute to those problems? 
There is no justification for the position that mission is separate from endowments. These institutions are simply doing something that’s wrong. Can we simply espouse a point of view but then act counter to that view simply to make money. There’s no question but that there is a unitary nature between the mission and the endowment, and so the wall concept is just plainly wrong. 
The second issue that will undermine divestment is that undergraduates are at the college only four years, and after a student is up to speed on the issues they perhaps have two or three years of active involvement before they graduate. So, the university simply has to wait the students out. University administrations move at a glacial pace and can usually get by with occasionally responding to or meeting with students agitators before that group moves on and a new crop of students take over. So the university plays a waiting game while the main active stakeholders are racing the clock. 
And the wall between mission and endowment remains.
The wall between students and the university
So you have the university saying mission and endowment are separate and you have students are saying divest, divest, divest. In the end, they’re may not be speaking the same language but they’re talking about the same thing. Both are saying “I don’t want to address the underlying problem.”
-To the students I say, divestment may seem like an answer because then you’re no longer involved in a problem. But that doesn’t mean the problem doesn’t exist; it just isn’t solved by divestment.  Use your voices to stress ownership responsibility and put the burden for endowment securities on the administration. The values and philosophy they are teaching you should inform their investing policy. And, I hope you continue the fight to move beyond hydrocarbons. You’re 100% right to work for a better future and we need you to keep doing it. But a better future doesn’t come from walking away from problems. It comes from solving them.
-To the university I say, separating mission and endowment is unethical. You are either an organization that works for good or you are not. Ethics and governance cannot stop at the classroom door. The underlying values of an institution have to inform its investing and ownership policy. Face up to your responsibility, take advantage of the expertise in the academic side of your institution, develop learning on the subject of institutional responsibility for endowment assets, invite public criticism, invite student involvement. Be leaders in this – your example could change the world.

For the Public Good? Nonprofits & Political Donations

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What is a charity? In general, we think of it as an organization that does something to further the public good, doesn’t make a profit and is tax-exempt. We feel good about giving to them because they help people or do something good for society. But charities and nonprofits are a murky world these days. Big charities handle millions of dollars and the highest paid director of a charity makes over $2 million dollars. That’s a far cry from the local food bank, little league team or crisis hotline, and not what most of us picture when we think of a charity. And while they may accept donations and be tax-exempt, not all non-profits are charities. Under the IRS code, there 28 designations for tax-exempt status including charitable, educational and recreational so there is a wide-range of groups that fall under nonprofit or tax-exempt status. 
Money = speech
What makes non-profit groups so much more difficult to judge these days is that they may play a role in politics. How can a charity, a hospital or even a church be political? We know, for example, that hospitals and nursing homes (both individual hospitals and trade groups) have spent nearly $23 million on lobbying so far this year. The Supreme Court, in the Citizens United decision, placed an absolute premium on freedom of political expression –monetized it. However they’re categorized, these groups recognize their need for a voice in Washington — and voices cost money.
Promoting the common good?
The recent brouhaha about the IRS unfairly scrutinizing conservative groups applying for tax-exempt status illustrates just how sticky – and political – nonprofit and charitable status has become. That status is important because it allows organizations to take donations and it also allows them to craft an image that they are working for the public good. In particular, social welfare groups as designated by the IRS in the 501(c)3 rules and , are confusing because they may not look or act like charities and they can appear very political in nature. This designation provides “for the exemption from federal income taxation of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” The IRS admits that there is no definition of a social welfare group but offers the lofty idea that these groups embody, "the ideas of citizens of a community cooperating to promote the common good and general welfare of the community."  
Isn’t this a problem? That nebulous and idealistic description is supposed to offer guidance on who gets tax exempt status? Even corporate p.r. departments could spin that – I mean, aren’t grocery company employees a community of people contributing to the public good? Vague, complicated definitions make tax status determinations difficult and in the end you wonder if applications are ever refused. The problem isn’t what tax exempt organizations can do or not do, but the broad classification of these “social welfare” groups makes it easy for organizations to play politics with charity status. And they do. 
Who is funding nonprofit political spending?
Then there are the (501(c)6) organizations which includes business leagues and chambers of commerce. The U.S. Chamber of Commerce is a tax-exempt organization and according to their website, they advance the interests of business “ through its nationally-recognized team of lobbyists and policy experts. Together, they help craft pro-business legislation and block excessive taxes and regulations.” Their Wikipedia page calls them a “lobbying group representing the interests of many businesses and trade associations.” The Chamber has spent a billion dollars on lobbying since 1998, more than any other organization whether corporate or nonprofit. Since they don’t have to disclose their donors we don’t know who they are representing when they wine and dine in Washington but a look at their spending gives you an idea.
I guess that it’s to be expected that charities and nonprofits would have lobbyists and give to political campaigns in today’s politicized world. If you’re trying to affect change then you need to have influence with lawmakers. Clearly, savvy charities and nonprofits know that. 
The solution is clear and transparent…
Here’s my question though: if we give these groups a break on taxes to support their mission to serve the public good, why don’t we get a full account of their donors and how they spend money on politics? Isn’t a transparent political system also for the public good? And, if no one is breaking rules or doing bad why should it be a secret?
Let’s call for transparency in political spending across the spectrum – profit or nonprofit.
Let political spending be out in the open and then we, as citizens, donors and consumers, can make the choices we feel are best.""
As for the tax code, there may be some help on the horizon. Public Citizen is trying to bring some intelligibility to the issue of political spending through a new initiative called Bright-Lines. They are proposing new guidelines that clearly define political activity so that nonprofit organizations can engage in our political process without gaming the system, without fear of audits and in a way that is clear to all stakeholders. Something has to be done and this is a start – our tax code may need lots of work but clarity and transparency are an excellent place to start.

Not Fade Away: We Must Revive Fiduciary Duty

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A few years ago we recorded this post about fiduciary duty.  I still had the misguided hope that President Obama would address corporate capture, conflict of interest and fiduciary duty.  While it's clear that these issues are not on his agenda, they are still very much essential for corporate governance and shareholder activists.  Shareholders — big and small – must define what they want from their corporations and push for it.  I've just posted about this today over at CSRwire:

Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty. – See more at:
Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty. – See more at: when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty.

Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty.

More to come on this issue in the coming weeks.  Stay tuned…


Let’s Take Constitution Day Seriously

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September 17 is Constitution Day in America; an ideal time to reflect on the challenges our Constitution faces today. 
Two hundred and twenty six years ago, delegates to the Constitutional Convention in Philadelphia signed the proposed Constitution and left Independence Hall. Outside, a passerby asked a delegate, Ben Franklin, what kind of government had emerged. The 81 year-old Franklin replied, “a republic, if you can keep it.”
Will we be able to keep it? In our time, the answer to that question largely depends on addressing the problem of our government’s capture by the largest corporations and the extraordinarily wealthy who participate in our corrupt and dangerous pay-to-play political system.
With the infamous Citizens United decision, a narrow but determined ideological majority on the Court challenges the foundation of the American Republic: According to the Court, the political equality of every citizen is not a legitimate interest to be served by campaign finance laws.
Now here comes another challenge in the Court’s new term, McCutcheon v. Federal Election Commission. The McCutcheon case seeks to dismantle the $123,000 limit on total contributions to federal candidates. Who has a spare $123,000 a year to buy fidelity from politicians? Not too many.
Between 2010 and 2012, a small group of people poured more than $18 billion into state and federal elections. How small a group? According to a report issued by Demos and the US Public Interest Research Group, just “47 individuals, donating $1 million or more, were responsible for more than half the individual contributions to Super PACs — and only 6 percent came from donations under $10,000.”
And what about corporations? The global oil giant Chevron openly dropped $2.5 million into the Speaker of the House of Representatives’ PAC, with only yawns from a jaded political class incapable of seeing scandal at the end of their noses. Chevron even spent $1.3 million in a city council election in Richmond, CA, a community of 100,000 people where Chevron runs a dirty and dangerous refinery. 
The US Chamber of Commerce, doing the bidding of global corporations, spent more than $35 million—the source of which is secret– in the 2012 election, and has now passed the $1 billion mark in lobbying spending since 1998. 

 While wages, opportunities and any real voice in government for most Americans shrink, Wall Street gets taxpayer bail-outs, special low tax rates, and obstruction of significant reform. Fossil fuel corporations get billions in tax subsidies, military protection around the globe, and escape accountability for climate catastrophe. Congress passes what many call the “Monsanto Protection Act” to exempt decisions about genetically modified crops from judicial review, and the United States remains one of the only democracies on the planet that fails to label GMO food. The firearms industry gets a free pass from any responsibility for the 30,000 Americans who die every year from guns.
This is how republics fail. But there’s more to the story.
The “corporate capture of the courts,” as Senator Elizabeth Warren puts it, goes beyond the issue of money in politics. The same “corporate speech rights” fabricated by the Court in Citizens United now are used with regularity to strike down laws deemed unfriendly to corporate profits.
 Our courts are creating astounding new corporate Constitutional rights. The pharmaceutical industry has a right to traffic in private prescription information, driving up health care costs. Utility corporations have a right to promote energy consumption in defiance of conservation policies. Cigarette corporations have a right to eliminate warning labels. Verizon and the telecommunications industry even claim a Constitutional right to secretly turn over customer data and information to the government.
If Americans are determined to keep our republic, we have a lot of work to do. September 17 is a day for commemoration but it also is a day for honest appraisal and recommitment to Constitutional principle.
Three essential steps are necessary: we need to join and support the broad-based, non-partisan movement for a Constitutional amendment to correct the Supreme Court’s disastrous mistake in Citizens United, and to enable sweeping campaign finance and lobbying reform. We need expanded advocacy in the courts to roll back corporate-dominated jurisprudence. And we need a new era of public responsibility and accountability from the largest corporations and those who own shares in them.  
A republic is never guaranteed. These steps, though, will take us far toward a new century of self-government by a free and equal people.
 Robert. A.G. Monks is the author of Citizens Disunited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream, a corporate governance adviser and shareholder activist. He serves on the legal advisory committee of Free Speech For People.
Jeff Clements is the co-founder and president of Free Speech For People and the author of Corporations Are Not People: Why They Have More Rights Than You Do and What You Can Do About It.

Robert A. G. Monks, Corporate Governance Activist, Wins Frankel Fiduciary Prize

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Sunday, July 21, 2013
Robert A. G. Monks, Corporate Governance Activist,
Wins Frankel Fiduciary Prize
“A life in the arena, fighting to make the market a fairer
and safer place for the American shareholder.”
Washington DC – July 21, 2013 – The Institute for the Fiduciary Standard today announced that Robert A. G. Monks is the first winner of the Frankel Fiduciary Prize.
“Bob Monks has been an outspoken advocate and prolific author on corporate governance, transparency and democracy. At the heart of much of his work has been restoring management accountability to shareholders, the ultimate owners,” noted Knut A Rostad, president of the Institute for the Fiduciary Standard.      
Robert A. G. Monks was appointed a founding trustee of the Federal Employee Retirement System by President Reagan, and also served in the Department of Labor, as Administrator of the Office of Pension and Welfare Benefit programs. He also was a founder of Institutional Shareholder Services, and co-founded The Corporate Library (now Governance Metrics International.) Monks found the Hermes Lens Fund, and has served as a director of twelve publicly traded companies.
Monks has authored or co-authored eight books, published more than a hundred papers, and, with Nell Minow, published five editions of CORPORATE GOVERNANCE. He was the recipient of the Award for Outstanding Financial Executive from the Financial Management Association in 2007. The New York Times profiled Monks earlier this month.
The Frankel Fiduciary Prize has been established to acknowledge individuals who have made significant contributions to the preservation and advancement of fiduciary principles in public life. The prize is named for Professor Tamar Frankel, the Michaels Faculty Research Scholar at the Boston University School of Law.
The Frankel Fiduciary Prize Selection Committee members are:
Brooksley E. Born, Retired Partner, Arnold & Porter LLP
John C. Coffee Jr., Committee Chairman, Adolf A. Berle Professor of Law, Columbia Law School
Deborah A. DeMott, David F. Cavers Professor of Law, Duke Law
Andrew K. Golden, President, Princeton University Investment Company
Knut A. Rostad, President, Institute for the Fiduciary Standard
John C. Coffee, Committee Chairman, noted: “"Bob Monks is the perfect choice to inaugurate what we hope will be a long tradition of recognizing those persons who over a career have worked to protect and safeguard the position of the investor. While also a prolific writer and theorist of corporate governance, he has lived a life in the arena, fighting battle after battle to make the market a fairer and safer place for the American shareholder. Whether or not it realizes it, the proactive hedge fund of today is following in his pioneering footsteps.”
The Institute will hold a forum in Washington in the fall where Monks will receive the prize. 
For more information, contact Knut A Rostad at 703-821-6616 x 429, or 301-509-6468 (cell).     
The Institute for the Fiduciary Standard it is a non-profit formed in Virginia to benefit investors and society by advancing fiduciary principles through research, education and advocacy. For more information: