Editor's note: This is part two in a three-part series about the IU Foundation's investments in companies linked to the genocide in Darfur.\nWith the ongoing debate about IU’s investments in companies linked to the genocide in Sudan unlikely to end any time soon, those involved realize it’s the results-driven structure of the IU Foundation that largely fuels the controversy in the \nfirst place. \nLittle social responsibility oversight on investment managers by the IU Foundation allows the investors to invest in these government-blacklisted corporations. High-priced investors face pressure to perform or risk losing their jobs, Foundation and University officials have said.\nWhile the Foundation places limitations on how much money managers can invest in any one company, they have no social responsibility construct for investors to follow. Oversight on the social responsibility track record of various corporations is virtually nonexistent. But Foundation leaders said it’s the corporation’s duty not to allow social causes to distract from their central mission to financially support the University.
A Tough trade-off
IU’s policy is different from those of a growing number of universities nationwide, including the University of Illinois. Officials there monitor the standing of companies in which they invest to better gauge both the social impact of investments and how those investments reflect the institution.\nIU Foundation President Curt Simic admits it’s a tough trade-off for managers – invest University dollars in what the government describes as socially-questionable companies, or risk having portfolios that don’t perform to expected standards.\nThe IU Foundation has taken heat from Sudan divestment advocates for $6 million invested in companies linked to funding the genocide in Darfur.\nThe investments in question, while comprising nothing more than a fraction of the total $1.6 billion endowment fund, represent a corporate side of academia. It’s this practice, activists say, that at least partially perpetuates the killing; corporations conduct business around the world and eager-to-get-rich stockholders applaud only the climbing share prices.\n“We have a fiduciary responsibility to this University,” Simic said. “If we lose 2 percent a year, multiplied by 10 years, that’s a huge bite in what the institution can do.” \nIU needs the Foundation, administrators at most every level agree.\nThe IU Foundation attempts to minimize its role in University politics, but with some current trustees and IU President Michael McRobbie all serving on the corporation’s board of directors, decisions made at the Foundation often also reflect IU leaders’ opinions. \nIU trustee Sue Talbot said she’s confident in Simic and the Foundation, but said issues facing “mankind” need to be considered carefully. Fellow trustee Tom Reilly said University divestment issues aren’t new, but it is important for the University to remember what he described as IU’s responsibility to the world.\n“People say we have a mission,” Reilly said. “We have a very important mission. Our role is to improve the world by churning out great kids, great education and great research.”\nBy taking political or social stands – and potentially losing on investment returns – IU risks significantly hindering the types of research the institution can perform, he said.\nUniversity Treasurer MaryFrances McCourt declined to comment on the issues, though she has been involved in divestment discussions.\nDepending on the type of donation made to the Foundation, money is divvied up for mangers to invest. Besides requiring portfolio diversity, these managers are given some freedom on how to \nbolster returns.\nUniversities dish out large sums of money to lure top investors. These jobs are similar to the ones many could land on Wall Street. Exact salaries for the IU Foundation’s investors are withheld, but a 2005 report by the Chartered Financial Analyst Institute of the entire industry showed veteran investors’ salaries are on the rise and experienced managers routinely earn more than \n$200,000 annually.\nHarvard University – though typically regarded as in an endowment league of its own – reportedly paid top-performing managers a combined total of about $80 million annually.\nFor these types of investors, the bar for performance standards is set high. Last year, IU ranked in the top 2 percent of universities nationally in outside donations, and returns on those investments consistently beat out target amounts.
State plans for divestment don’t reach IU
At Big Ten rival institution University of Illinois, officials took a more active approach to the issue of divestment.\nIllinois’ trustees appointed an accountant last year to investigate what the financial impact of divestment would mean for the University. Like IU, the University thought divestment would have minimal financial impact at Illinois. In May 2007, trustees directed investment managers to end holdings in questionable corporations.\nToday, officials there employ Institutional Shareholder Services, an independent organization that maintains a list of problematic companies, to monitor investments and ensure the institution doesn’t do business with companies said to be linked to the genocide.\nIndiana’s government also adopted a policy of divestment with built-in oversight. In May 2007, Gov. Mitch Daniels signed a bill divesting state pension plans from companies linked to the genocide. \nThe executive managers for both pension plans in questions – the Public Employees’ Retirement Fund and the Teachers’ Retirement Fund – are required to give yearly updates on the process of divestment, said state Sen. Dennis Kruse, R-Auburn, chairman of Indiana’s Pensions and Labor Committee. In turn, those executive managers consult with outside organizations to monitor divestment issues, Kruse said.\nThe Sudan Divestment Task Force, a national organization that monitors investments in the Sudanese government, is one of these consultants, as are several other organizations that compile lists of companies linked to Sudan.\nIndiana’s approach to divestment has not yet trickled down to the University level, where returns on private investments comprise an important chunk of research and scholarship funding.\nSince 1997, returns on IU’s investments have skyrocketed to nearly 22 percent. This is a 12 percent increase in returns during the past decade – only good news in the eyes of Foundation officials, donating alumni and the thousands of students the Foundation assists each year.\nSimic’s responsibility lies with donors who support IU each year. His responsibility is to make their generosity grow.\nThere has never been an instance of a donor complaining about the social responsibility policy of University investors, Simic said, so there’s little incentive for the Foundation to change. Why rock the boat when the current system works?\nBut for many University faculty members, social responsibility trumps the bottom line. Those faculty members have largely sided with IU professor Steve Weitzman on the issue. Weitzman is also the faculty adviser for STAND, the student group dedicated to ending violence in Darfur. In February, the Bloomington Faculty Council passed two non-binding resolutions recommending both the University and the Foundation end all ties to the genocide. Those resolutions await decisions by the IU trustees.\nThe Foundation’s firm stance and trustee support indicate, however, those resolutions could soon run into a wall of opposition.
Staff writer Paul Coover contributed to this story.
