Yale calls itself an ethical investor—should you?

I believe that Yale should be a socially responsible investor. You call me idealistic? Not so fast.

Let me provide an overview of the sophisticated economic reasoning that led me to this conclusion. First, I realized that money rules the world. I suspect that I need not belabor this point. In many ways, big business has superceded religion and government as the dominant societal force. Contemporary icons—the ones that really mean something to us—are not crosses and flags, but logos and currency. At a party recently, I witnessed the following scene: drunk boy and girl decide to exchange phone numbers. Both fumble fruitlessly for a scrap of paper. Boy takes a dollar bill, rips it in half, scribbles his digits on one severed fragment and hers on the other. I literally gasped. When did tearing a piece of paper worth less than a cup of coffee acquire such irreverent, even blasphemous overtones?

That was one symbolic manifestation of the power of money. After coming to this disenchanting realization, I decided to spend my money strategically. For starters, I began patronizing small, independent businesses rather than corporate chains because, among other reasons, I wanted to preserve the uniqueness of my community. Though I felt that I had taken a stand, the consequences, in realistic terms, were non-existent. I realized that financially speaking, unless you're [insert favorite multi-billionaire here], individuals don't make a bit of difference.

So this is how I came to my idealistic conclusion—through good, old-fashioned cynicism.

Yale's relationship with the aforementioned money is, in one sense, quite simple: the University is loaded with it. You all know about Yale's big, fat endowment, but you may not know that the school actually calls itself an ethical investor.

Way back in the early '70s, Yale adopted a policy proposed by Yale Law School Professor John Simon in his 1972 book, The Ethical Investor. The guidelines of this policy compel a university with investments in a "socially injurious" company to support shareholder actions to reform the company's harmful practices. If such reform is not feasible, the university should divest. If, after a certain number of years the company has refused to reform, the university should sell its holdings and tell the company why. Yale supposedly follows these guidelines. It even established the Advisory Committee on Investment Responsibility for reviewing the ethical practices of the relevant companies and making recommendations to the Yale Corporation.

But there's one big loophole in the policy: there are no criteria delineating what constitutes ethical or unethical business practices. So perhaps Yale doesn't consider environmental concerns and animal rights (violated respectively by Monsanto and American Home Products, two companies Yale invests in) unethical. Since the whole process is highly secretive, we have little hope of knowing whether Yale would invest in a company to which it was ethically opposed.

However, Yale happens to have generously provided us with just such information in one recent case: Yale is a major investor in Philip Morris. The University resisted student pressure to divest from the company during the 1997-98 school year. In that same year, Yale forced all the businesses operating on its property to stop selling tobacco products. Whatever you think of this issue (I know some of the student indignance was directed not at Yale's refusal to divest, but at its attempt to diminish cigarette sales), it reeks of hypocrisy. Even if its ethical standards are low or at least different than mine, Yale has offered evidence that it doesn't even follow its own.

Many universities have taken the lead on this issue and made impressive progress. In the most highly publicized case, Cornell sponsored a shareholders' resolution demanding Home Depot discontinue its use of rainforest wood. The resolution failed, but it attracted so much publicity that Home Depot ultimately changed its destructive practices because of consumer and investor pressure.

Everything related to investments at Yale is so secretive that committee members are probably required to leave the room whenever their "secret society" is mentioned. A certain degree of secrecy makes financial sense. But if one is really a socially responsible investor, which Yale claims to be, you have to allow certain things to be made public. As Cornell showed, when you've got a lot of cash and a lot of cachet, resolutions can be effective even if they don't pass—but only, of course, if people know about them.

When I first decided that Yale should be a socially responsible investor, I thought I was being idealistic. Little did I know that Yale already shared my ideals. It just doesn't live up to them.

Rebecca Tuhus-Dubrow, a junior in Berkeley, is a member of Student Alliance to Reform Corporations.

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