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Edited by Doug Tool ey

TABLE OF CONTENTS Preface The Power of Socially Doug TooJ-eY . Some. Philosophical Gordon Kurtiss Legal Issues Report Current Michael . Financial Debbie Issues Knight RePort Another Level with Doug TooleY Production of Weaponry ResponsibLe Investing Page 1 2 4 16 60 91 94



Waging Peace at Ctruc]< Collins . Social

- Bram Levin, Tom Stoner,


and the

Beth Marcus, ctruck collinsr and Barbara McQueen

Matt Goodman, 106


ResDonse to Memo from Preaident Ciuck Coll-ins

Adele Sinmons

APPENDICES A. B. C. Sunnary of College and University T'he Af,rica Fund chronology of the Hanpehire college with Regard to social Issues Hampehire CoJ-lege Investment Policy Divestment rnvestment Actions Policy 1O8 110 114

school in In L976, Hampshire College became the first Af rica. Ttris to divest the country f rom companies in South idear that of using opened the door for us to a mueh larger of those of the to reflect instead our ettrics investments capitalistic ideology. In the seven years since thenr w have been exploring ( SRI ) . fn the potential Responsible Investment of Soeially school to pass a comOctober of L982, we became the first pretrensive a and in March of 1983' we included SRI policy investments in companies manufacturing clause barring future nuclear warheads. Although we have led the way, it has not been easy. have challenged us again Our Board of Trustees and President and again to show the feasibility and the appropriateness of SRI. Instead of becoming angryr w responded to these manner. What in a responsible challenges and intelligent lies in your hands is the result of this. publitoward this Some twenty people have contributed cation directly. the real challerge-But in front of us lies Can we make it worlc?



'Doug April,

Toolgy 1983


The issue of Socially Responsible Investment, (SRI) h"_"-gai.ned much momentum the last few years, now lllor than ever. YeL few are in aware of what the fu1l i-npact of SRI nay be. Before we go on to the specific issues surrounding colleges and universities let us look to the future and try to understand what, we are reaching for. the economic beast. Not SRI i,s leadi-ng us to a $ray of controlling through socialism nor through goverment regulation, but by transforming the system as it exists. Through considering more than the profit notive a SRI system becomes an evolutionary step forward. A society with cooperati.ve banks, conmunity economic planning' responsible pension funds, college and university endowments, church funds, insurance compani-esand individual investors would have the best of both the strength of the free narket and the beauty of the socialist vision. This nay all seem hard to believe, the clains presented here are very large. So 1et us Look into this in more detail. First how does SRI allow the capitalistic to work when it weakens it, t s prirne profit? notivation, A person or institution might fight for an inefficient or poorly concei-ved goverment progran sinply because of their good intentions. But they will not be so lackadaisacal when it comes to i.nvesting their noney. SRI does not subtract anything from the i,dea of tf,e profit notive, it sinply adds to it the idea of naking those investments responsible. This does lead to a more complicated decision making process and bad decisioins utll be nade. As today those that can handle the chalLenge rrill be the ones to create our society. To put it rhetorically we are giving the invisible hand a heart to go trith its brain. How can SRI have any sweeping beneficial effects when at its core li.es the greed of capitalism. Ihis is a valid criticism. For how can it change the distribution of power in this country? It is obvious that it, can do nothing di.rectly. But what SRI does is attack the disease of which oppresion is only a synpton. Self interest is a fact of human exlstence, as is our capaci.ty to give. The disease is merely the over enphasizing of one half. SRI can help the inequalities in our system in two further hrays. 0ne, it could change the organizational structure of a company so that nanagement riras controlled by the workers and/ or developed from the ranks. Because of the the increased conplexity of the decisj.on making process the size of the managementclass will also gror,r. SRI also lays the groundwork for a decentralized porder structure. Hopefully SRI can acconplish one further thing, the killing of apathy i-n this country. People care about what happens to their money, a tangible thing as opposed to the abstract nature of our politicalness. The actual structure of a society with socially responsible investors is far, very far from conceptualization or reaLizati.on. What I have attenpted to do in this paper is paint an unformed goal for us to work towards. The remainder of this report addresses the the problens that face us today ln making SRI viable in our colleges and unlversi.ties. -3-

soME PHILOSOPHICAL QUESTTONS by Member of rask Kurtiss Gordon Force on rnvest,ment October 1982



A. INTRODUCTION AND GENER.AL ISSIJES What is the cortext of this study of socially responaibLe lDveatment policy? At llanpshlre Col1ege, the present queation is not whether to inltlate a socially responsible investrnent policy, siuce the College already has a policy statitrg that Hanpehire wLlL not invest in conpaniee whicb cause social injury. The curreot policy is the result of a good faith effort by atudetrts, faculty, adtrinistration, atrd trustees to grapple rith a serles of vexing iaaues. So far, the only applicatio! of the social injury clauee has been to the ridely cotrdenoed plactice of apartheid, or govertuentally lnstltutiolalized racLsn. Over the past trro years, studentE and faculty have raised the isaue of whether this one exclusion adequately representa the Eanpshire co@unity r s grave social concerns - ln particular, policy can fail to address uhether the llvestoent the iseue of uar and peace. Ttris Task Force vas created by the Flnance Comittee of the Board of Trustees rrto exanlne, in consultation slth other renbers of the llanpEhlre conEunity, procedures ald criterla that nould place greater enphasis oa socially responsJ.ble Lnvestneut. rr (ninutes, ltay 1982 rcetfug) Itlhy have a socially responsible investnent policy? Partlcularly io the U.S., noney hae great syu.bolic value (in practlcal addition to its intlllsic value). fire eocJ.ety pays people and insuitutions attention to what do with theLr noney, aud read lnto decLgione involvlng Eoney a great deal about the character aad values of the declsion nakers. Given this eynbolic i.nportance, we believe that if the College it lE going to pay attention to social vaLues j.n any of its pollcle8, ie entirely coDaistent aad proper for the sane values to be reflected in its investEent po11cy. In fact, to have contraating soci.al values eobodied 1n policles governing different aspects of the CoLLege would indicate a kind of lnstltutlonal echlzophrenia. For exanple, one night argue, tf the College is an equql opportunity eoployer, wouldnft it be hypocritical to invest the College's fuads in a fLrn wtdch is kuonn not to be? However if the irctitutlon uorks to change the corporatlo! it is involved 1n the issue of schizophrenia beconeg bLurry. Certsainly the anouat of poEitive chaoge that could be affected is much greater. But to do this requires a Large body of cooperating institutions and indlvtduals to pass shareholder resulotions.


The myth of the neutral institution Every decision has a noral implication, even the decision not to decide or not to take a stand. Many would argue that not to take a stand is to give tacit or even active consent to the status quo (our weapons stocks support the industry even though they are cal1ed for in portfolio theory). At the very least, such a decision inplies that the issue is not i-rnportant enough to nerit serious consideration or a serious conmitnent. One argument raj.sed against the taking of institutional stands on social issues is that neutrality is a necessary precondition for the academic freedom and diversity of the faculty and for Jhe freedon of the institution from governmental control. Both of these factors are essential for the intellectual endeavors of faculty and students But, these intel-lectual alike. endeavors cannot be carried out in a vacuun. trThe pursui.t, of truth is usually held to requj-re a certai.n detachnent from i nrmediate political- and social probLems; yet if institutions are not deeply i.nvolved w-ith the life of the regi.on and the nation, they vJ:ill faiL to produce the well-trained tal-ent both need. tr ( Fletcher , L97 p . 864) 4r

A sense of priorities Irlhile there are nany important issues at any tine, one cannot involve oneself effectively in all of then - one has to choose. The priorities change as world conditions change. In the 1960rs, there was more attention to local issues; in the 1980ts the balance of urgency has swung more toward national and world issues. Anong the ftLocaltt issues of the 1960ts one can include racisn and environmentalism. These issues, wh:ile having national scope, are of such a character that the indirridual concrete acti.ons of 1ocal conmunities provide the core of ttre soLution to the problen. For exanple, cleaning up the Connecticut River requires that, individual towns and industrial plants process the wastes which they discharge into the river. Federal laws and tax regulations can provide strong incentives, but in the end the local institution has to take action. SiniJ.arly, providing equal access to higher education requires that individual colleges and universities enploy nondisciiminsf,sry admissions practices, whether or not there are federal laws mandating that they do so. While it would certai.nly be consistent to have a socially responsible investment policy touch upon these i.ssues the investnent policy is probably not the nost effective institutional response. An exception to thls would be the conmunity development movementwhich is in need of capital. The partlcular issue of the 1980ts which instigated this task force and its study is that of the danger of nuclear war. This is a quali.tatively different problen from those described above, in that the actions of individual institutions and 1ocal conmunities are not


concrete st,eps tor,rard the solution of the problen. Rather, they are prinarily exhortations from membersof a national cornnunlty to action on the part of national institutions representing in one vray or another the interests of the comnunity at large. The, nostly inplicit, recognition of this difference has definitely nuted or restricted stances by educational institutions on the issue of world peace nature. However, world except for those of a rhetorical peace and the avoidance of nuclear war have certainly been high priorities for Eranyyears. The growing arareness of these priorities is i-nportant, and should be seen by all of us in education as an opportunity to put into practice the values we have held all along. Why at a llberal arts college, and why with student involvement,? It is a najor gaal of liberal arts education to develop in (2) students (1) engagenent and leadership in the comunity, inquiring ninds capable of analyzing and evaluating statements or arguments in all areas, rnd (3) noral and ethical values for their lives. t?If we would teach our students to care about inportant social problems and think about then ri.gorously, then clearly our institutions of learning must set a high example in the conduct of . their own affairs. In addition to respondi.ng to its students, a university nust examine its social responsibilities if it wishes to acquire an adeguate understanding of its proper roLe and purpose in present-day societ,y. fr (Bok, L982, p. 10) Ithat 18 the Eoat inportant goal of a socially responsible investneot policy at Eanpehlre? - so that the college Is it to achieve a ttcleanrt portfolio profite onJ.y fron activiti.ea nhiclr ne do not consider norally offensive? Is Lt to nold corporate behavior? 0r is it to cal-l the (nation, world) to atteotion of the College aad the broader co@ulity great and general urgency? To what extent do these goals issues of call for differeot strategiea? It is necesaary to consider not only the intrinsic inportance of these goals, but also the likeLlhood that we ui11 be able to . acconpLish then. Fron thls standpoint, the order nould be, first to call attention to the lssue, second to achieve a rrcleastr portfolio, and third to affect corporate behavior. In order to nake a atatement it lE Eufficieat to design a policy which nakes clear the vaLues whlch underlie It. Ttris, it nould appear, nas the splrit of the student initiative of last spring. Ilowever ae we organize this priority llst should be open for change. Ue should then be able to affect corporate behavior. To achieve a rrcleanrt portfollo is a far more conplex business which lnvolves deflnlng what we nean by rtc1e6trtr, decldlng uhele to draw the inevitable lines and nake the inevitable conpronises, and how nuch effort and cost we can afford to achieve deciding


ttcleanlinessft. Here we get into tradeoffs and comparison of narginal Under these circumstances, the attenpt to costs and benefits. develop a college-wide consensus could well be extrenely tine consuming. As far as nolding corporate behavior j-s concerned, we are faced with an alnost, hopeless task. If Hanpshire acts alone, the i.mpact of our divestment or our jnpact in proxy votes or letter r,rriting is j-nherently negligible. 0n1y when our example is followed by many colleges and universities can and maybe soneday by TIM/CREF some impact on corporate behavior be hoped for. Philosophical and practical differences of divestment vs. ttresponsible shareholderrt activities Several earlier writers (e. g. trThe Ethical fnvestortr and Derek Bok) .have argued that the effect on corporate behavior is much greater if the institution holds on to the stock and applies pressure through shareholder resolutions even'if the resolutions receive only a sna1l fraction of the votes. cast at annual shareholder meetings. (Any resolution which gets even 3Z of the shares in favor is taken extrenely seriously by nanagement.) This approach may not be as emotionally satisfyiog, and is certainly nore time-consuming and costly to inplenent, than is divestment. Also, because the earlier arguments were made fron the point of view of universities with huge endonments (Yale, Ilarvard), the percepti.on of ttre relative effect of shareholder acti.on over the synbolic value of divestment nay be quite different than would be the case for a smaller school. fn fact, Hampshirets current policy provides both for divestment and for voting the college I s proxies on stock which it owns. On all issues w:lth social inplications the appearing on the proxy ballots, membersof two trustee subcomittees rre polled: CH0IR (wlr:ich includes student and faculty representati.ves) and Investments (which does not,). If the votes of the two subconnittees agree, the collegers shares are voted in accord with the approved posi.tion. If they disagree, the colLege abstains. Since this procedure was put into effect, the two conmittees have often disagreed, with the result that Hanpshire has abstained from voting on a number of shareholder resolutions addressing questions of great social import. Given the effect of the current policy, a proponent of divestment night be tenpted to concede the point that voting proxles makes a stronger statenent than does divestment and then go on to argue that the choi-ce seems to be not between making a stronger or a weaker statement, but between making the weaker statement or none at (And argue further that not making a statement is equivalent to all. supporting the actions of corporate nanagement.) lfhat about controversial issues? To some people, the mere fact of taking a stand is more important than the content of the stand or the substance of the i-ssue. Does the taking of a stand inply a closing off of debate on


the issue? Does it mean the establishment, of a college-w'ide orthodoxy? Certainly it should mean that the issue is one of surpassing i-mportance to the school and society. First of all, we must distinguish between the issue of the basi.c justificati.on and general forn of the policy on the one hand and, on the other, the particular social issues addressed by the policy. Certainly, no one wants to contenplate an ongoi.ng, perpetual debate particularly one of the scale of the present exercise on the The basic outline or structure of the Collegets investment policy. purpose of having that de.bate now is to come to a decision wh:lch nost people, and then to have that be our policy until satisfies there are again conpelling reasons to change it. So in this sense, it should close debate. With regard to the implenentation of the policy and the specific issues addressed, the situation is just the opposite. Ttre virtue of education is that decisions rre continually challenged. The soclal issues are too inportant to be considered once and then put out of nind. For that reason, the pollcy cannot be static: it must contain provisions and procedures by which the decisions made are regularly reviewed and renewed. It is crucial to .realize that the adoption of such a policy would NOT i-npose a political uniforuj.ty on the canpus. It wouLd not affect the hiring and firing of faculty, ttre adni-sslons or evaluation standards for students, or the abiLity of the nenbers of the conmunity to express their political beLiefs in any way they choose. In no way could such a policy be interpreted as an infringement of anyoners academic freedom. The College cannot avoid having some poLicy on investments. The Finance Conmitteets establishment of this Task Force in response to the student initiatives has opened the question of that policy to discussion by the full conmunity, so that it will be a policy which can be subscribed to openly and consciously by the largest possible segnent of the conmunity. Ttre fact that some people rrill disagree w:lth it is inevitable, but no different in principle fron the demonstrated fact that most people in the connunity (at the very least, in the on-campus comnunity) disagree with the present policy. Ultinately this issue must be decided, if not by unanlmous consent then by negotiation and conpromise to create the largest practical consensus. Most inportantly, or appear to the policy must not be have been - i-nposed from above by arbitrary fiat. How would a revi-sed' investment policy affect gifts already rnade to the College? In the absence of specific instructions to the contrary in the gift instrument, all funds owned by the College are subject to the Collegef s i.nvestment, policy. This flexibility is i-mportant to the health of the insti.tution, and its legal basis is docunented in the legal chapter. However, there are both ethical and practical difficulties raised between an institution and its benefactors, if


were to undergo a radical change in policy or the institution purpose. This dilemma does not arise for changes which alter specific policies whl1e continuing to express the basic character of the College, since it is a fact of life that for an educational i-nstitution to remain both viable and true to its founding purposes, it has to evolve in response to the changing needs and conditions of the connunity around it. B. STRUqTRAL AND FOR},IAT ISSTIES Can purely positive guidelines be adopted? The aspiration to draft and adopt investment guidelines in rather than negative language surfaced often during the affirnative course of this study. fnstead of a black-list or a set of clauses, could not a school develop guideli.nes that said exclusionary only where its money SH0UID be invested? Beyond the most general, and therefore not very helpful, affirmative verbal formulas, this quest for purely positive guidelines cannot succeed. The effect of having a limited nrrmberof specific affirmative guidelines is much nore restri.ctive than the effect of a limi.ted number of exclusions. Hence the result of purely affirnative language is nuch more likely to be inprudent from the standpoj.nt of managing the College t s investments for their primary purpose. It is certainly appropriate to state some positive goals for a schoolrs investment policy, but any guidelines that nay be developed wilL alnost certainly contain exclusionary language as welL. Avoidance of certain forms of investment cannot be maintaj.ned unless those forms are specifically mentioned. Why can t t Hanpshire put all its nqney into trgoodtt investments that raise no controversies? This question raises another forn of the aspiration to find a simple and affirnative route out of the dilenmas facing investment policynakers for the College. We have come to label it the ttblue-skytr proposal. Surely there are enough conpanies that do socially beneficial things build houses, heal people, grow food, and so on - that the ColJ-ege can invest in these directions and slnple bypass the tornenting questions about weaponsnakers, polluters, and other arguably socially injurious firns. 0f course, the reali.ties of investment decision naking are not so sinple: it would be extrenely difficult to find a large, publicly traded company that doesnt t have both good and bad aspects to its corporate trcharactertf . A somewhat more feasible version of the ttblue-skyrl approach would have a stated fraction (perhaps 2/3) of the endowment be committed to investment categories and firms of demonstrable soci.al benefit. Yet trying to assign one or another company to the rrblue-skyrf group poses constant riddles as described the the follorring paragraph.

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The effort to fornulate a socially responsible j.nvestment policy requires a distinction groups of pernitted and impernissible between holdings. Careful definition must be given to the boundary condltions or threshhold that distinguish al1owab1e from disapproved investnents. l4aking these dj.stinctons will be especially difficult i.n the complex, interlocking patterns of modern business organization.. How can the balance be struck between comslendable and deplorable behaviors among the many rlnits of a large conglomerate? Any proposed guidelines must address this question of structuring the threshold criteria. A guideline focusing on weapons producers night say, for example, that conpanies ulth more than 2OZ (\OZ-3OZ) would be excluded. Setting such structured thresholds seems arbitrary, but they probably will have to be incorporated in the text of any proposed guidelines.

Should a school put some funds into holdings?


or non-traditional

A few nenbers of the conmunity recommendedthat Hanpshire put all Such its money into sol,ar energy'trould' of local co-ops or food production. narroring of the endovment violate rrprudent investorrr requirements for diversity and reasonable assurrnce of overall rates More suggestions were urade that the College put a of return. fracti,on of its endowment into a separate fund for speci-al purposes, with very explicit usrrally higher risk projects or activities low income housing). Ttre most intended social benefits(e.g., lnclusive of these proposals recomrmended that Hanpshi.re start its own mutual fund. 0thers urged that a portion (perhaps LOZ) of the endowment be set aside for venture capital projects (as Boston pioposals for a University does ) . A few alunns nba dlmiled revolving fund to support entrepreneurial ventures by Hanpshire graduates. or special Seteral who suggested creation of a high-risk venture portion of the endonnent also said that it should use only earnarked funds raised explixitly for such purposes. The broad ques'tion to be faced in developing an investment policy ls whether any portion should be applied and adrninistered separately from the rest to whatever special projects or unusual investment circumstances may be sancti.oned. While this general appproach does appeal to us in principle, it has a serious practicaldrawback. Ttreoverhead involved in managing Lhis special fund would undoubtably large enough that, for an endowmentof lirnited size the effective rate of return fron these j.nvestments would be severely compromised. However in a larger services nany of school or rrith an organization to provide finacial these things rvould become possible. How public should the investment policy be?

There are different school of though about how a new investment policy shouldbe publicly announced. Representing one point of vietr was an alumnus who responded to our questi-onaire, ttThe quieter we go


we can be. this policy, the more restrictive about fornulating Hanpshire College thinksr w Since no one really cares what little can probably have cleaner hands and cleaner investnents by keeping these gui.delines internal. tf (James L982) Yet this strongly conflicts vrith the notion of making a political In that statement as the Colllege did in the case of South Africa. case, by taking a symbolic action in rn area of growlng concern, the Despite the college helped to clear the path forother institutj.ons. fact that, Hanpshire was quite reticent over its South african divestnent (there was not even a press release), it is likely that most members ofthe conmunity would want to announce the policy publicly rather than keeping it secret. of alienating The major danger of going public is the possibility the outside comnnity by appearing to assume a rfholier than thourt It would seen appropriate, therefore , to nake some nodest attitude. public statement, but shy away from strldency. It would also seem appropriate to nake this report, and any other results of the research of the Task Force, available toother collegesand universities trying to developtheir own policies on socially responsible investment. rights of ownership and responsible shareholder actions resources and because of the Because of the College t s linited ninuscule fraction of any companyts stock the Collegets holdings can ever encompass, the Task Force is convinced that as long as we work alone responsible sharehoLder actions cannot represent an acceptable substitute for dlvestment in addressing the sociaL issues of major concern to the Colllege. Howeverr w recognize that ethical, noral, or social issues wiLl be raisedby some of the questions and proposals The on shareholder ballots for the stocks in Hanpshire t s portfolio. trustees have the right and resporlsibility to vote their shares in favor of any proposal which would enhance (or against one wh:ich would t dlninish) a company s ability to conduct its business in accord w.ith the principles enbodied in the College I s investment guidelines. This posistion does not represent a change fron the current investment policy. However, the procedure by which the voting decisi.on is reached needs to be improved. Two major aspects of the procedure need to be address. FirsL, we should create an opportunity for members of the commmunitywho have done research on the specific issues to inforn the deci-sion-:making body of the results of their research. Perhaps this should be funded by the school. Second (as noted above), the decision-making process has to benade less subject to deadlock. C. IMPLEI-{EI{TATION MONITORING AND
How much of the college t s energy should be devoted to inplenenting its investment policy? Whatever investment, policy ma be devised must not only specify the boundaries and conditions It nust also of approved investment.


identify the exact means by which the policy is to be inplemented and its operation monitored. The i-mportant point is that the overhead-ttre cost in tine, energy, and money-of long-tern inplementatoi,on must not be so high as to put serious drain on the hunan and financial resources of the College. we nay expect that Hanpshire w'i11 continue to have a professional portfolio nanager who acts under the immediate guidance of the Investment Subcommmitteeof the Trustees, and i.n conformity with whatever formal guidelines for i.nvestment the Board of Trustees nay adopt. The current stipulati.on regarding investments in companies which do buslness in S. Africa of which cause tf socialinjurytt are monitored by the CHOIRsubcomnittee of the finance committee. If more far-reaching and detailed lnvestment guidelines are adopted, is CHOIRas now constitutedan adequate mechanisn to monoitor confornity to the policy guidelines? Whatever staffr comrnmitteer or volunteer work might be done to check on various firns and their conduct, the total infornation required to inplenent a detailed set of guidelines could be immense. Computer-based resources available to a professional portfolio manager would be essential. Fu1l utilizati.on of agenies such as the IRRC, the interfaith Center for Corporate Responsibility and a national organi.zation of colleges would also be indispensible. Defining the exact procedures for irnpLementation and moni.toring of a socially resPonsible investment policy whithin acceptable overhead costs renains one of the most challenging features of the endeavor to fornulate such a poLicy. How can lde insure schools priorities that the investment poLicy continues

to reflect


Two major threads are intertrined in ttris issue. One is the goal that the investment policy not be. a piece neal response to the isiue of socially responsible investnent-a document requi.ring conplete overhaul each tine a new social issue is identified. Ttre other is an answer to the charge that divestnent, rs a tactic, is a once-and for-all response to social issues which require constant attention. For both of these reasons, the inplenenntation ofn the policy needs regular review. The Finance Comnittee should be required to subnit an annual Seport on the success of the pollcy to the Board of Trustees, so that the Trustees reaffirn the Collegets inplenentati.on of the policy. An additional concern is that the social issues addressed by the policy continue to be ones of importance not only to Trustees anA membersof the on-campus conmunity, but also to the less accesible segments of the communtity(alurnns, parents). For this reason, periodic surveys of the enti.re constj.tuency of the College should be undertaken, perhaps every 3-5 years, and the results incorporated into the reports of the Finance Conmittee.


BIBLIOGRAPTTT Bo]<, Derek University Fletchrr Britannica C. L982 , Bevond the Press ) . Ivorv Tower ( Cambridge : Harvard

Basil A. L974, "Higher Education'f Encvclopaedia (rs ed.)r Macropaedj-a' vol.Bl pp.ffi ( 71F ) L982 , letter to Prof . James Matlack R. dated

.Tames Brian r 'l July . Patterson, Makinq of

Franklinr.and Longsworth, Charles a Col]-ecre ( Cambridge: MIT press ) .

L966r The Lg72,

Simon, John G., Powers, Charles W., and Gunnemannr Jon p. press). (Wew Haven: Yale University The Ethical Investor


I,EGAT TSSUES REPORI by Itllehael Current Member of Task Force on Investment Responslbllity October 1982

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Sumnary of legal

Issues Report

Because ny report on the iegal lssues lnvolved in emphaslzLng soeibl responsiblllty ln the Collegets lnvestrnent polley conslsts of approxlmately 40 pages of technl.cal arguments and documentatlon, I have been asked to prepare a sumnary of lts contents. ft should be stressed that the report ltself was distl11ed from several thousand pages of source materlal, and is of the mlnlnum length I felt was adequate to address fu11y the complex lssues under consideratj.on. fhus, Irustees having specific questlons about any of the polnts presented here are eacouraged to revlew the approprlate seetions of the fulI report. I have followed the sectlon headlngs used ln the reportr and have referenced the approprlate page numbers. f. INIRODUCTION(Pp. 1-2)

lbls seetlon frames the speciflc questlons to be consld.ered, ln_ the rdportr and dlseusses the srpeclfic nature of HampshLre College as a legal entlty. llanpshlre ls organlzed as air eleemosynary (charltable) educatlonal corpoiatlon under the laws of tlre state of Massachusetts, and lts lrustees (teehnl,ca1ly, the nnembers of the governlng boardr or ndtreetorsil) are restrl.cted Ln the exerclse of . thelr lnveetnent powers by the statutes under whlch the College rr,as organlzedr-by the prov_lslons of the Collegets eharter, and by the prevalllng Hstandard of caren for the nanagenent of tnvestrnenttegal. funds. [he sectlon establLgheg that the report ls an attenpt to Justlfy _tbe oursuit of social responslbllity goals as an g! 4g piudgnt manasement of ttre Collee-e'i endoiliiletT #re?ct

require a substantl.al saerlflce of the two tradltlonal goals - preservatl,on of the endownent of lnstltutl,onal investlng corpus and naLntenance of an adequate rate or return at an acceptable leve1 of risk.
rI. IJEGAI SIANDARDS OF CARS - ENDOWPIENI (Pp FUND PIANAGERS . 2-21) A. Background (p. 2) B. Conmon Ilaw Roots of Cbaritable Corporatlon Standards 1. 2. 5.

TtE-e s nEffit@frrS-sAAAEFTEIET-T6E1tf

(pp. t-4) rPrudent

fhe InvestornRule (p. 4) Prj.vate f rust Standards (fp. 4-6 ) Charltable Trust Standards-(pp. 5-g)


Surnmary of trega1 Issues Report Fage 2 4, Buslness Corporaii.on Standards (pp. t-9)

corporation as a separate Iega1 Because the charltable various aspects of recent origln, entity is of relatlvely corporation 1aw have been derlved fron th,e comnon charitable and _business corportrusts, ctraritable law of prJ.vate trusts, [hese sections trace tbe evolutlon of investnent atlong.Itstandards of caren through ttrese related areas of the law. ln the cases of They polnt out that the 1aw Ls nost strlngent exlst solely for the prlvate and charitable trusts, which or a or indlvlduals individual economic support of a speciflc are genetally purpos. Suetr trugtees speclfte charltable requlred to conslder- only econonle faetors in the naklng of lnvegtnent deelslons, and are subjeet to e stri,ct standard otr the other BusLness corporation directorsr of l-labillty. to nake bandr possess a much nore I1beral anount of discretlon based on a vari.ety decigions for the beneflt of tb,e corporation for lnvestxsent practlces and nay only be heLd llable of factors, on the order of gross negllgen,eeo C. G:lrarltable Corporatl,ons (Pp. 9- 11 ) -aCorporation Charititte 1 . Hanpshlre 0o11ege as 2. Ihe- trBuslness Slandard of Ca.ret Argun-ent (Fp, 5. lhe n0harter Purposesr Argument (Pp. 15-17) (F. 1 I ) 11 -15)

Ihese seetlons survey tbe devel,opnent of charltable eorporation law over the past .decade, focuslng on key court declslons and new statutg. Because of the need to address the arnblgultles in tb,e connon law, and to make the applleable there is no!{ a trend to apBly a standard of 1aw nore uniforn, care to charltable sinLlar to the one corporation dlrectors Ibls trend applted to the directors of business corporatlons. Institutlonal appears to-be upheld ln the Unlforrn Managenent of Funds Act ( t gOA-MGI/,A.) corporatLons wbleh applles to charitable tn the etate of Massaehusettg. fhe seetions also discuss in sone detail the broad, to act ln tbe directors dlseretlon of college and unlverslty furtherance of the ingtltutlon.lg charter purposes, and the Various afflrmative duty to preserve the climate for education. suggestlons are nade as to how these Iega1 doctrlnes could be used to juetify responslble investtbe enactment of soclally nent polici.es. I would encourage Trustees having concerns about the appropriateness of such polteies for educatlonal institutionito- especlally study t[is seetlon (pp . 15-17) . The flrst of these sectlons reportts prlnclpal concluslons :
- 18-

eoncludes by spelllng

out the

Sunmary of legal Page 5

Issues Report

trDo the d.irectors of a charitable corporation organl zed, to provide blgh.er edueation - speelflcally, do the lrustees of llampshire College - have the 1ega1 authorlty to adopt a soclaLly responslble lnvestnent policy whlch would requlre dl,vestnent of those corpoxate seeurlty lssues currently ln the College t s portfollo wbich are deened socially lrreeBoD.and. would l-iuit slble, further investlng to ttroee securityr lssuee whlch neet the Collegets standards of-soclal rsponBased on the two argulnents which (are) advan6ed siblHty. in thls sectlon, the present authorts ansuer would be lgg, subJect to two eaveats: 1. Any pollcy whieh threatened the seeurity of the endownent corpus would alnost certalnly be illegal and wouid thus expostTFlrustees to the potentiil of tia6itlty. 2. Under most cureunstances, lt would seen unllkely that the Irugteee could be sure of their ablllty to Justify a poll.cy whlch bad the potential of causing a severe negatlve lnpact on the faetors of ftrisk and return. n (Both in lega1 and 1n fLnanclal terms, tbLs questlon restg baglcally on the ablltty of the lnvestnent nanagers to nal.ntain a gufflclently divergtfled-portfollo whlle carrylng out the terms of the (Fp. 1O-11) pollcy'.)t 4. Glfts (Pp . 17-19)

fhis sectlon exanLnes the questlon of the legality of utlll.zlng soclal erlterla in .the nanagenent of lnvestment funds whieh cone to the Col3.ege as glfts. It coneludes tb,at ttlt is unllkely that nsoclal Lnvestlngt actlons by charitable eorporatlon -dlrectors could result elther ln llabiltty or in def6asaaee (1.e. forflture) of funds ln favor of a dolor (or his or her helrs or sucessors), exceptlng where such actlvlty j.s expressly prohiblted by the- glft lnstiument . r (P. 19) rlhe fact that one ox more portions of an institutLonts endowment funds are Bo encunbered need not prevent utilizing soeial cri.terla witb the -reit of the fund r so long as the encunbered portion(s) are naintalned ln a separate lnvestment Presently, Hanpshlre College I s endownent does not aBpear Bool. io eontaln any gifts that are restrlcted in this nannerr so it would not seetn to be a problenr. tr (?p. 18-19) lhe secti6n also makes mlnor suggestlons about irnprovements in the College t s record-keeping practlees in regard to endownent glfts. 5, Ineome [ax Exemptlon (Pp . 1g-2O)

lhis seetlon exanines the posslble effects of eocially responslble i.nvesting actlona on the College t s status as exenpt frorn state and f ederal lncome taxe s . It concludes that
- 19-

Summary of !egaL Issues Report Page 4 n (t)tte type of poltcy belng contenplated at Ilampshlre would nej,ther an attenpt to lnfLuence leglslation constitute nor participati.on ln canapalgno for public off ic r and would thus not jeopardLze our conpllanee wlth thb (Federal Internal Revenue) Code. No bars to such a pollcy appear to exlst ln ivlassachusetts state 1aw, eLthr. n (P. 20) Ihe report also eontains a brlef Conelusion (P. 21), and Appendlx A ls 4 copy of the Eanpshlre logl appendicles. (nctriiterr), CollegA-Artlcles of Oiganization and, lppendix B is a copy of the Unlforn Management of InstitutionaLFunds Aet. Appendix C examlnes and critiques jor legal some of the rna arguments advanced against soclally responsible lnvesting schemes. Append.tx D discusses a case on South Afrlcan divestat the PeTt_ A.SIUI0. I. Hunt - currently being litlgated trial court level in the state of Oregon. fn addition, the text ls ful1y annotated and contalns a complete bl.bliography of seeondaryr rnateria.ls eonsulted.



'-._ ', - , --:-/:. _-)





At tl|e l,gy 1{, 1982 joirt cn lrrres'tsrE rt Espcnsibility notian tEs oassgl cr'lring

GeUrg (@I$

of tne Imrcs@,


ard tlF OEmittee a

of tne Earpshire Oollege Board of T:iustes, of a llask tlre "in cdrerltatlctr dd critria iwesErcnts.'I tJEir dratp

fior the creatiqr

@t lrr\reststEnt, Espdrsibifity. witjr the rErbers of the of ttre OolleEe $ as to ft" rr=nt"* of the Tasl<

!|e lbsk lbrce Es dtalged with exaninirq, Ealp6hile Ocnunity, plae the irwesffi

preeAues resesrsiUe

a greatr sg:trasis cr socially

nouce reogdzd the legaf isss ijtttestsctrt policy.

tltat aE aspect, of'fulfillirg irvolrreil in qhasizing seial

lrculd be to strdy carefully in tie 6llege's in as


Sn prpoee of tlis a [Erler as pasille-

::porE is to er.ilfiine tboe legal issrs

clear ard tltcq$r


INIMETTCN Oollege Board of Ttuste of an eleaosynary are, techrrically, (dnritable) ffier:s educatioal of the

!rbers of tle faqshire go\terning banl' (c


corporattcr organizd lrder tjre povlsicrs of Chryter 180 of the Massachtstts t stabrtes. fhelt ale 'ltustees' by cE]nur usage - ad bf virU:e of tie wlnraticr's dtosen legal nae, sense. "tie A msr "The Ttustees of HatE)ehire @llege" fegaf @.iln is tfEt - ratlrer than in a strict orlnraticr legal a:re kgaf frrd

tJle afi:rectors of a dnritable ilterest.n fc


of its

assets ia the pblic responsibility

tre T:rrstees* are tle fwds.

rnilage!:B rith the prer

a fieriary

tle Oollege's erdomrnt tlre 6llege's charter

Gl"y f,"fa fhey tlE

of invesffi, i'r tlp

as a tEa|s of frtfrering ocrcise of tleir


ale restrictd

funesurEnt F|lis

by the statutes

rrder *dctt

6119e ms organizeil, eiAriary stad.d

by tlE pouisicns

of tbe Oolleger s d nter,

atat by t$e Fre\raiUrtg to

of care.'

(IIt tne case of gifEs,

t-tE Ttustees ttEy be $bject

- Ilt GG"tes" 6ltqe.

uhelr capitalizecl,

refers tlu:aglurt .r1

to the Tlust.ees of nanPstrire

furtlE!. lestricCia|8 are $$ject

pLad l,y tne dbE liability

ra to their iJrvestsrE qr use. ) rt

Ihe fhlsteeg

to potential

danld tt be lEld ttrat tJreryercrcised tneir irnEs@rt,

porers i.rr ar inplsper c irqlrrdnt Flr. It is thb Potntial riabiuty titigartian jr$resGrt I|nrste Ucr$rt pliclz, agirut of tl|e lrustses t}at rsrld be tne kgal fu tne irclusiqr of sciat Erbjec{ of any i3 its

tlE 6fle6


Eo it is cn tJp issue of Itrjstee 1rebility

- and, d\rercely,

dliscrcLicr - tlrat Uris Gport sill

focus.3 The issue of nho ucnld have sta*irg of tleir fidhriary ahlt!, vriu be tDuld

to iniliate qlsidetEd

acticr aqairst the f:rlstees for violatiqr later ln this neport.

It shdrld be notal here, lnever,

that liability

be in'oked crly irr a case ritre is an *dgaic

ctmrstrabLe alattge had been iJrcrrreat - "tiattilitlt

if tlre[e is rD haJrnddre. "4 its ercistene trrat t.he Ttustees r*ridt $crdd in\reetiry -

ft ftas been.t]te assuttFLidr of tlre ltaslc lEoe thna$rcut orLl rot be enpectd to edorse 4y sei,ally ssifie

regpcrsiUe fur,estrEnt &tivity pals of institutisral

require sl$Etafiaf peserrtnttot

of, the llF traditjoal rpug ard mirtenare types of saaffy

of tne erdoucrt that ertain rqtrir&rg

of an dequate Jrate of Eatr'r. in estsEtt aclivitiee can be

(Tb ctmtstrate prsrea wit}srt


tJp sacrtfi.e E[Et. t

of tltese goals is the prr;nse of the finarpial

secticn otr tne fasl( fue re tqrard justi&tng

AEt being the case, this 5ryer wilf be cierrteil of rsptr.adtitianal goals as an aspec,t otr t}e guderrt to justify tlle sacrifice

the Frsuit

ttEnaqgurt of tlte 611ege's erdore:t of financiat stabifity to qrtsd fc

fimds than to atterpting

tJre sake of seial stadads

causes.S C,. irrterrlisr

here is prLnarily

"t&at. fidria:ry trust

of care stpuld be tterprettea

to gl\re tcolteEe fc uriversity rith

ardl uiltelisitlt erdomnt fil|ls

tbe ficegaq to atet elcp i,rwestrgrt gddefips

shictt enable tne uriversj.tyt s irrrresffiIt rrahe iJl gocirty.'6

policies to be otsistent

its lnsritarian rI IEI,





AaO<g3ord. of an rdcrGrt trt tlte pa*iGrfar @rpcatnm fi:nrl rurager - sudt as tlE lta|E)shi-le 6l1ge legal "stardard lb detenire of re" 4plicable Irustees -

llE liabifit!, ts goverrd dprltable elied pssiSle tjrat midlt

to Uassadilsetts be


$hat starlatad (s) of cale shold ard rfiat

b tfre narEq@rt irte!"oretatidrs arise abilt

of Ue lnestsert of, that stadard

frDds irl queeticr, are is to dl$r hresting

the rarge of

rDst of tl|e leea.l qrrtia|s thforbnately, c to nnke tlra govel:rdrq draritable are mde. it

a rcially



is rpt as easy ars ce night tdsh to mke tJGe detennilatiqrs, cbfinitirtely. @pcaticns A revis sturld, of tle evolueio of tne kgal lsr stadards


help us to udelrstard

eEh dleteruirtatjcrs


Ccmsr Iar bs

of Clraritable

@Epo8ate Starlards. rsr legal enlity, of a fs decisicns fairly virtedl ir te!ils re statr*es ilt of tlte tte

ste cfiariitable

@rpcatlar lan.

ts a relatirely tmil the adryticn tlacnt @Iuatiar, oI*,

historiy of herican fraaing dorsr of a f*r


that dress

thenselrps by rrnridt of ca::e Stat lalrs Elmds

Tec' ficalty

to the charitable

UEEe ms rp cler

legaf stadad standads cn tlrifo|m

gpuelrdDg boards anlcl eryectea of tlm. stateal in t}eir ect (U.&r.F.A-l:

be glrided an grdr iss.Es as tlte fidrEiary @rfereee of @issidEls lEragurt

As tlc etiqat 1972 kefatory

lbte to ttp tldfmn

otr Institrrticral

fc the nanagem$ of tbe ard respdrsibilitl' Sbdies of tlE legal a*fstty gta@ of tie 1il ir lrDst fr.srds of ar irstituLian lra\re pointd l{) the urertain jurisaicaios. vi:tally tD statutoq7 Lar regarttfug tqstees or governing E ere is boards of efeercsynary institrtiots, alat tJle case La is sSnrse.' tds befurg t}e case, draritable ard drErailictory @r;uaticrr Ld ra to a large e!.tnt dblri\real (often frtn each of the t-hree dher La, areas of lan trilst ibcisicns itt

in q1e*

trays) partly &tl, Lar. rEtters ans of ls

ritere a sinilaE La, ad

ttDe of ficbiary orpcaticlt

elcists - prirrate tnrst Scne of tie orsiderably, rsrt

cfiaritable ard qrrt




to abse dlc clariff Ib ..reqr-+erf

ad tJty will !r ale qerned

be e*aninedt later

this rFort.

tJc qEsti6rs ctraritable

with he[, luE\ter,

reqldrs an uderstardijlg


standards lrave erplved frql

tlree dhr l. [|e

are.s of tne la. 'hdent ujc fit:stci Jrdicial tufe. statgrnt of a fidniaqr stardard of care irr .briadr opiniqr, writterl

the fist La cm _ -

irr the case of Eanrard Aolege v. &rlr.

Itds lEsEadrusetts

in 1831, Btates: AII tl|at can be reEried of a tnrste to inrrst, is, that he Etrall qdrt .lrineelf faithfirtty ard *relse a sowrd aliscreticn. tb is to &genrc tsr Gr of pudene, discretian anal hteufgrE rErage t}|eir ffr affait8, r!'t ir :legatd to EEcrrlatidr, ht in legartt to tne penarant dispositicr of tbeir fr:nds, carsndeliing tne^pqrbabfe iJrE, as uell as tjte g$able Eafety of ttE c4ttal to be inveatd.E Srdr Lcquage @ c 'lrrdent to be *rffr * inneatc') nrle. ae tle lrrdent rur' (nore reertJy, 'trlrrderrt [=rscr" fc aII

S= targrage of tlre 183I case set t]re FttJrn the realnE of charitable in t.he U.U.I.F.A. fonrrlaticr,

_ *


foillcnedl - \rariatios @IDnatidrs,

dr t]e lul are applied h ad t}e sctio "gn&rt ard fifty cr llabillty investc"


and charitable ibal

beus a gpoct

of slrilfarity

to t'he Giginal cn hldrrd

egpec*affy rdren cre spatrat the !ro.

tJlat raarly 2. ltivat

years of lqaf histtry

Thrst Stardads. trusts, reearlz ltrver, that trhe ipaUert lrivate irrvestor" nrle

It is in tne !alrrl of pinate ms fit-t fuirrJ:Gd,


dd it

is ths

to e*aire


irr Ecre ahtail.9

Are fiatniariea -

rcferteat to irr t.lp Enrad

Aolleqe v. trcrv case $ere tbe tnrseees a dtirect beneficiai of a spcific (tfie testa'tor's beneficiary (or

of a gitrate tdfe) anil t


ttentary irstituticral

tnrst rfiich provtaea fc rgeilderrrn.

ltrp existere
gilst. flat

is tJte test of a lrilate

the !,ais6r dt'tre otr a lri\rate

is to ;zovide for tJre edmic Frimry factc


of a specific fudivj.afuat or intiviahals

is tie 'Ihe

rrderly:Lry tJe starrlard of care to tdtidr its trrstees are heldl. fidriary relaticrship is his respcrsibility

- esserr tnst

of tle tnrstee's

to dteal trith the

propeEtyrfor tlre beaefit of' tJE tnrst beneficiary. "10 " (r)t= birsteer s dlrty of tg tlle nd

care nDs to ad ts nfqod

rrcdern usage "pnrdknt irnrestc' is eqfloyred

- -E@-in t;1e case of grdaeicrs, l:re tfxu$rort

[n decisicts fiEt,



of carc regtifued of tJre pivate anil restriciive of the t$st $lch staltad.


in nEking imrescnt is bondt tlrrst

i5 tl|e trt'et, etrfugent

ltre tnstee

to tlE dictates

of tl ceatc

as tJrey are erpressed fu tje fidelity ercept uder

instrrrE uusual

rt, to r*ridr tj:e orrts ccJcrrt nes. seord, to the t:r:st

terd to Equi:.e stric* tjle tnstee


is eoq=cted, as irdicated *rird, t}e trustee

above, to act is Sliged to

witn elctrsc act. ijr arEd tipse



rritn *ardards

dbri\real frcrn t}e lntent


nrle. "13


stardards !qtrirc in tie

that irnlesErent. decisicrs interest of :rr

be nade fur tlte pwpose of preseruing ard of In otlter rmrds, as tne

the tJust @Irrs prordairy strict

presene ard frar:re berEfiqiaries to the tlllst p4ou".14

arr dqgrate

raate of returrr retatirn Fr rsuit of essnic

att eralusive


is gercrally


"standard of caren fc Ary aE G tEF (ard easicnlly

ttre nranagsefit of pritrate t:rlst of tl|e beneficiaries of a private

fur\reslrcrrt firds.Is tnst has staniilg at quity

at la]

to bring suit against l*re t:ustees fc a beadr of tlust. stardirg

to nforce the tnst, fc tfte legal tne atrect.

or to enjofu G &taiJr $ardian



of a. beneficiaqr nftd

rdp is ircagacitatea, insE rcfit.

resides solely wtti


ir the trlrst

.Otber persrs A sEict as a result

rho Ey Srritlentally standtard of liability of heac$ of tnst, is lere

benef:it 6!@ tJF tsrst Qlied

are rpt atlord fc


to Srirrate trustees * i4orra*.I7

Lcses sustalrrd


EEl|e arre a fgv excepLicrs r lrever. case In rc LsrlcnlS of q*rasis, @rFoltatjctts ad tlre secalled 'nrle

l\p of the rcst of illegality. 4l)lieat

ftrequer*fy citedl ale t}te "19* witt \raryilrg degs

tnese ercpaicos by a n$er

are rptedt ilf

to tf,re !alm of dtari..Dde l*ver, feels ocupelJd ctriorsly to juseify subsndiary

of antlpritiee.

llle present auurtr, Wlile hh

to take a qrsavatlrn harn re decisict ar!'tErtsi * $ee arErcnts valiiity, to r"f.-t

sitarEe sr drese poittts. raitber

aryuurts sttrgth

eess to m to be of sufficiefit aclivities sitJurt

frcn traatitlcnal

rwe rllelling

are exanrined in rore detail at rrctes 18 t 19, i-nfrq. -25-


Oe furtner ereptjor reogritfcrr tltren Astir

stsrld be qsiaterd. tltan a &firrite sctidr

tlt}rcrplr it is argnrably rrcEe a Firrt of lar, widle rptie rns talen

of an erel$ng M lf. Stt

artlored a rp

of his autlsitatire invest-ilg. ...20

sle latr of thrsts, Er tJris secti.6l,

irr wfridr he "auu.nd first ryearing

his etdfinE rt of wial

in a It78 ${I,lgErt,

S@tt writes ilr part:

lu:stes in ibcidirg uiEtber to irlr est in, c to rtain, tie securities of a orpontict rnay1tt;lerly srsider the soctal perfmrwe of the orpcaticr. Ery rry abclirb b irrt t lr, G to !taful, the seqriLi of ctrnraticns stoee acLivitieE G srrc of t]rrnare qrtr:arl, to frldasrtal ard generafly acoeptd ethical prfncipfes. 8rey my qraidler Eudl nttrs as trnl}rticr, rae diserj.uinaticr, fair qllofrst ad qrsrrer respcrsibility. llt an iJseasit eattert inetituLicnal fi&rciaries, r*rether charitable, sJdt as fqlldaticts, d edralioral ad otlFr draritable inseitrrtiors, or ruFcharitSle, slrdr as tnrat oqanies ad ircurae cttlEnies, have beooF ayare of tnis prdfa as to tlE dDi.e otr iruesEsrts, a[d ha\E @ to realize tbat tfElr ]rane a qern in the social behavtc of the orporaticrs ir rrhose secrrities t}ery irwt. Of orrse tJrey tny ELI betie\re that' a orporatian elfrich has a Froper- sense of social cbligatict is nore Ukely to be sressflrl in tlre ldtg nn than ttD6e r*ddl ar bent qr *taintq gofits. tne mdnn aEnt of, hlt evEr if ttris Fre rDt. so, the irweat*, ttnrgh a tnl8tee of firds fc others, is entitleil to cqlsidbr tlE rclf,are of tlp cuDtty, ad 5gn:afur fton anoriJrg tlre use of tJp fi.rrits irr a mnrEr detrircntal to sieltlr. -* SEtt's tEtise is regufarfy citedl blr tln ccrrts as gg artlsitatine of this statsEnt sq)re 6r Sre

truat Lan, so the aignificre presnt arrt}tr, agested fc

3. -

stpuld rDt be r.rderratd,

the s@ carreat to Sottrg dbclaratiqr as Es tJc Irr re Isdcn ad 'riule of ileg.Lity" poirts rrtd abone.2l
eust trust Stardards. is a trust established for ctraritable FrrIDes r:ather than A


sculd ryly


A dnritable fc the eqsnic

st{)port 6g 3 cEcific

nanedl inctividlual or grsip of irrlivichrals. to ccrstihrte ctraritable

_ wide variety

of acLivities

ha\re been held by t$e qrts

alt}rcirgtl nactfy *Ere tlE lire befr,een dnriEble . FEpo6s, Ir:Epose lies is rpt alra]rs s!, to Aetelmire.23 fe dnritable t:ust, ad the stadad to tlE Fi\rate tnsts Ejc if of care teqnircd 'Ganerally, tJ|Ist

ard rsrdraritabLe

of its


ale to is

a large enctent identical


a draritabl.e


_ anbje.t' to tl|e l.as of pivite ud*idd.'2{ lErre are tF


La is inccrnplete or ard ir bth of t}rese tlte

tu\rer, differerres, -26-



bears @e differere


to tle draritable

rpou.atirrr. bth FrB Srirrate ard draritable rccsaq, for carryirry of sEh

AF fiFt trilste

is in tlE area of tnEt allqrd brod aiec-eLio will

pEtrDse. to elclcise

are gemrally

cut of tlusE trEl$es, aiscEetiarary tIlrstees

arrt the outs

rDt lrttrfeEe $ith fE l'atitlde

t.he erclcke

po,crs rcpt

in cases of ahse.2s

alLcneat charitabl t$st dtrt!, b

is re*bat

btoader, lwvetr, assets padrtirle, rill alroet

because iJr ditiqr dEritable tnstees

to tne lri\'ate

to mke tlte tnst trEnaEetheir

have the respcrsibilfiQ tie tnEt FEposes.

assets irt a rnyt tlEt tlusts, tiis

beet. effectrnte

El tI

case of ctraritable ottrer trh.tr edE

afuays requires tbe qrsidleratio

of f,actor:s try the orts tJEn a static trrrst

dc goartiviry.

SEEe is tlu8 :irt ohral a reogniticr trust IrElDs is an anolvilg lather

tbat tlE best, tea|g of fir.lfillirrg stoegt. Sfrbstantial &viatims

fi:Ertr the rqllicit $fEe

tenrs of a draritable

hane been allcnd tlre spectfic tere of tb tlllst

ttre tnrstee3 have aUegeal a dtrty to depart frtr! to ntilize furlvative te*rfqrs to accotPlish lre fG

h o& e$q)le v. fury

tlE tnrst, trrrtpse. @r\ratescert Glpled

A fEirEqr Childrsl

of this is tl case hnlen-.Man 61teqe.26 ls eae

U. t.l,8tdr qrnElrts:

(Tlle ltissri S4E@ 6Et...itttd tiat 6rts of eqlrit!, will rct futerfece ldtlr tlle fdr ant rsscnabl.e exercise of suctr discc'etio unless tjte errelcise of disretian aflrurts to $rch a substantial aeparture fifii the prinary Frpose of the cttarity as b aunt to penrcrsiqr of tte trrst prrtrnse.27

Gte sedrt


befrreen lrivate

ad dsiif:ble

tnrsts r1at

to t}te natrre A. tJlrst

of tle beneficiaries, riU

ard tftrs to t.lte issues of stadirtg anatenforoaent.

rrt be r*held as draritabl larF d irdefirdte

rnless tlre Ferscls rilD ar to benefit frrcm it are of class that t}re omrnity iE irrteresteat in its

a srfficiently enfoarmrt.2S


benefit of the ciuritable

tzrst dri the dtrtsyof the tnstee beneficlary."29 ft -r"t"

nn to tJre generaf g$lic have rylied t-lE strict

:atlrer tJran to an identifiable private tnrst stardard ef rirhirlty

ftr IGs dtE to jryrcper

trr,restsgtt".30 lds fus rDt Edr tbat. all tfp ptereial to kiJtg arit. beneficiarles of a draritable tnrst

rsrld tE te staniry

ltr 1rrsrqrt cfiaritable trrstees ftil


beirg eCtjec'ts

to \rE c.tLos bercficiari.es,'-Ggadzd IrttEEry citizeng rf,

sd ureaslble



a Jarge ard Bhiftirgr

clasa of potendaf ks S,e

tJE AttGney

GerElral of the stat urder rfio8e La||3 the tt|lgt of draritable prcdirys trqst".32

is usuaUy tfF party cftarged with enfqcesrt GetElal uy of the state. initiate scalled EErenE patrjae

cn befialf of the .not peEnitted.33 to receive a

crauenges by other Felrsqts are gerecatly can derrnsEate is rrt rcrely


a benefieiary

that he or slE "is entitledl the berefit


rrder tlre tnrst are entitledr lartt, fu

dridl '3il

to lnricfi rr=rbers of the ptblic EE Attorney General is sLiIL to stanttiJrg a16 s

in greraf a msary enforwrt

e+.',ai ng ttq, be gl11td. in rrpst instances.3s ant draritable dtif

b tle acticr ctrarit&le will tnrsts

the lads lelatirq


a:re afirpst identical, of ttte latter whidl

tlEse qEstiqts folfors. 4.

be treateal in rue

in the iltscusEiqr

B.rsiress erporati,ar

Stardads. secLio of thiE !port tlrat, foltcrrs t.ill be t.hat tl|e

ore of tbe aqurEnts mdeur t:erd of dtaritable care rill

in tlp

is to 44rly the h:si-rss @pdatidt eivity. tlEre i!



of care to mny aspects

Se ranificatios tfts crly

of the hreiness standard of ttre basics are resiteil lcre.

be erahd

sore detail,

Briefly, (,r ciaritabLe

tlp gjmry tnrst


befr,reen a b:sirEss orpcati,cn

@rpo!:-dtiqr ant a Fi\rate pEirnEry respcrsibility activities to its

is {:hat a hrsirEss ftrn


is to po<bre ad rcrtrrn a lEofit slrattirldets, c a dpritable ratler

the oqnraticrI irre

s _ b:eiress

than to prodhe As !ffidr

for a specific


or beneficiaries



ft tre ry !e@ects, tlre stardards for a hrsirrss c:rpmtidl cli.rectc eito tfe tquirsEcs of tnrstees: a direc@ lras a dbty to qrilre.t tlre affai:rs of the @rporaticn rith tfie ut@st gDoatfaitfi ant fidbfitlr to the inteEests of tjre @Fffibe-ad rith &n care, skill, ad diligene i.tr the rndertakirqs of rEEgeErC.re ltte @lrlt of dlieseticr afb,gl b8irss lrevrer: spcatisr <li-r**cs tnds to be crsidterabLy

gEeatett tl|an trtrat alLold


Itrder t{E our J-an, orrts ale afupoed to dve ttirectcs a rridb latibde in the EDagGrt of tb erpa| icrr s aff,ai.rs, as lcg as they resoaUfy erercise an jrdgwtG. jdgsEnt lust,_rnbiasd Dds is often referreil to as tJE bsiress nrle. "37 -28-

Ic@Edingly, a srsidenble C.



direc+ors rgy b hefd liabl"e crty tlust, liability standads.

for groes legligere,


ftcm strict

Cfrarit bl.e epratims. As t8 noted irr the introdnrLicn to this leIDEt, orporati,*r. grrpshire 611e9e is organizetl rn can bEn to a in generaf. lEre fields

trder Massach:setE la specific olsiabratior

as a charitable of Eaqrsldre,

At tfris trrint, oorporatidls

and of ctraritable

foregodng disgressicn

into the stadards

of care htdch ha\re Aevefoeea in lelatecl clraritable

seerccl necessary becar:se "the 1E!, ltoverniry bmrr*t of tlust areilirg to s@ la, G @rpcafe

is rc't ItErely a sri generis,

1*r, or qttnc.E

l"ar, hJt is instead "38

!.tent cn all

tlrr=e of tie older disciplires.

lAe \rast lEjGity c$aJiitable re.latively statd

of bodlies qganizeal for draritable ltre poolifentior

Er.r4Dses in the U.S. aE lwver, !pct a pheruerur an endcnslt of of

of tjris entit''1/ is,

recent ci.gin.

As lat as 1969, a EbEd Eldrdatiat fu tjc ruber


that " tJe great ard rapi,tl irsease @rpoltaticns lras talen tlp -39 }a

ard agglegate rcaltll andl the corts

charitable are still ad, slely,


ard ccngrtntors opiJdcn,

groping ftn a olutiqr. k6f rbctrirn

By tnat tire,



hd be$n to rc\re iJr the directians fEre

sr ritrich t}e rEiJr of tlE grobla State tac dinectors:

a4ntrE tts of tjris tpoft

arc based.

rEs a gnrf,ing rleoglitior of CoilrissiaE!.s

tlrat by I9?2 hd lat tle fticnal to attsrqrt to 6dify a rs


dt tlrifors

Etardard of care for charitable


effect updr r|Erbers Fear of r i rhiLity of a. . . tJrrste tB]r ts\re a tlebilitaling ci$zens. of a govecri.q board, v*o .ir often trrcdQensated pUic-spArtea _Gley grnaing a Erique . . . iastitutisr.{o are tnnagere of rurgofit @rlDlatids, Itp elgEtts Uissing is, fustrusrt i.dentifies.tlc tfc orpooaticr fi-rst, of tl|e tJ|Jst, are absent in tlle case of tbe draritabLe -tlirrtenticr t}re tss to Gate a t$str'r*ridr rlder plae htrictr tjle trust is a dlarter tiat, Eesd, stee @rpon-atiqt.

ftsn ttte tnlst ad

ard sts fdtlr

is to be a&nilistereal

beneficiaries. is cgrizd. beneficiary

ur its

gEdrte.t by the state in hfiicfi tle draritable @rpdatjct is its

It foutrs c

lad<s a qvecticrnf

beneficiaries. -29-

Insrad, tjre @rlDratio

(r.!t bQetci.4r, rlrhility usnffy

ln a sense trhat rilt

be etabcateal

cr shetly, ratler


to entroEe

rests with tJ|e state attoErey gerEral, bEfit alaE the trrrst $rt ercists.

t-han rdth an indiviatal mke ard it

or irdivicisls tle draritabte * is crr t]le h'eis

for ufse @pomticn

Ee trD distincticns

a quite differnt bt

of legaf edity factcs directors

ftsn tbe tn:st, tjlat a rs

of these irD di'EtiEt,

hterrelatd corporatim trust

stanitard of

cate arrl rule of liahi r ity In qE lesFct,

for draritable tle strict,

ltas been ernlrdng. over irrto tlris realn:


standard carri

Aftlrrdt a dlaritable orporatlm direc"tor rurld rct be subject to tmst stardards in otielr iJlsuuG ' the ctraritabl.e ortrnraticr is organized- to drdrdster the of afsss ftr edrcatioal dft! 1uryoes and tJris irr@rporaticrr cbes trt lierse tlp <firector 5 rr{ csi trEte the property placedl in tJnlst.- Dr uqz acticr refrAing the'1-umnent dispoeitict of tjteir furlds, " Eliversity airectcs lrrrst be lEId to t]te Prentatiat of er&Nf,frrt fird assets, rat}er tlan Ule riEk inbererrt iI -. profit rrtirraticr. rprate GIE, _ * it turld sea e!rtt@\, ifirestirrgn be notd urf:fcefy sctte tiat tiat mrtd glfficierlt plae jusAificaticr cqrld be forr'd

fon any 'sial It stnrl-l

ttn endcrn:nt Exrrs in jeqarray. t}e cbaritable @rpdatldr 99CES. rdEold lDil..l ad t]rre adrrancd

ttete that m,rctr of tle dlebate abut

statdard of cale bas focuseit ot t}te q$restiar of t}e omership of the endorrsrt 8E StELidt is a ocrq*e* on. orpontiat lre rrcst liberal qstnEtiqt of tlc erdolrEnt pr*len filds,

tltat tJle draritabfe is sre lnre, s:Epct lrever,

is tlte abolut cnrsr of its in tJre reoerrt case f.ilr.42 nesolutidt

fur tlris vierFoi$t

Ge argnerrts of t}is questirm.

do rrt. derd ug[l an], particular orporatiqr

b the dli-tectors of a draritable _ specificaffy, a ocially do tlle fusteeE lespdtsifb isse

organizeit to prc\ridb hidrer - tra\re t}le legal arthorlty

ectrcnticr to adcFt

of Earpshire ollege

irrres@rt elrre*fy

policy whidr rrrufd requirc tlirrcstncnt in $e 6lfege's potfolio dricfi

of tlose saially

- lrFoEate security

are dle*d

firtlrer ilrrrestfuq to t]tose securit!, is$es rdrich Eet , i^rresporsiUle, ad rnrld liutt t}e ollger s staldatds of seial respcnsibiuty? Based cn the ED argLnEnts drich sitt _ b dvanoeil in tfds section, tfe poreserrt anthr's ursrer rnrld be E, stJbject. to trp



1.) alm't

Enfr poliey *ddr be iuegaf

threatend the Eecurity of t}re erdarncrn o atd Eu]d t}us eopose Ure $irstes

ns hnld of


to ttre Srtential

rirhilfQr. 2.1 Et.ler Dst circtctarcesr ertain of tlEir &ility b jugtify it Errlit seen rnf:ikely tlat a plicy of 'risk u|e Tlustes elrl|l be

r*ridr hd u,e po,teitiar of aar:sing a actdrtutrn.', (eth in legal arrd irt of tlre tnvesilcrtt 6111 t5e te!fis

severe rngative tnpact qr the factcs

financiar tcros, tlris Erestl,clr rests basicauy cr t.tre sility tEragel!ts b trEintain a sufficiently
of the policy.")

AiveEsified pctfofio

rdrile carryilg



@l1ege Ae A Charitable


gaqlsttre Oollege is organizd utder tne provisicrs of CtraSrter lg0 of the Massadarsetts c;errral r,ars, "cGtDraticrs Its dtarter, tdnically lcffi fior Graritable ad cecitain other RxSnses. " rlraler lbssadrusetts Lar as lts '&*icles of Orgarrizaticr,


ms dopted Septe*er 17. 1965. It trrcyides: qP FirEltt FIriEes of tne corpcatidl are to lErrage ant adrrarce rlr fr6srclEa of lcudedge ad learring' ad to prote tlre .a,'eatlqr of yong ncn srd rrnen Uy estaUfO*ry anil cdrcing a ollege- to be catld naetrire-Offege, atd in firtlcrare of ttlese trrjrrEry prrpoees: 4. to solisit ad ..oeFt Slfts of lurey, securities -illat ral and perscraf !rc[]ertli, eitner for clr:tertt use G for erdomrt ard eitjhr foE gene!:af c ftr s1-clfied trrJriDea, ard to ddnister Fryles ad dlistrnse of t}e sae il ecoordannesith tjle telans of tne several giftsl ,q 5. to irweat,, teinrrest, and ddrrister trhe fi.[lals of tlle or1rraticr...." As noted earlier, tne orpcaticn Farpsldrc @lleger s Thrstees are srbject. to the lars rlrder whictt ms orgarrizeil ad tne dictates of its clrartcr. SiJtce its adrytior

by tfte leg'islatue lassadusetts

h 1976, it has also bn srbject to the pEoyisidrs of ttre l\rds Lt.46

versictr of tlre ttrrif@n tEnaEsrEnt of fnstiurttcnal

Stadard of CaF' ergrrrErt teragrsrt of hnissicnrs of Institutioal cn ltrifoun


Ap "Asiness te*t

fta cigjnl

of tlp ltrrifm Oqrferere

nmds ec*,47 rms State lr:nrs in l9?2.

adryted ry tfE l{atiatal l,F hilre afreaay torctrd

cr tlre i4e{rrs

befiirrt t}re anftinl -31-

of t}e .ece.48 ltre raticrale

4odieat Hiq'sbfue tlD lct.

ln ttE Ac{ ts 5er?rape best eplicated

b[' t}E 19?3 al*lsisr of tiat

of tne l{l't state ' s nersisr of

SEEIETTE Oanrt, rrtrich raheld tne qrstiurtianality !E Jlrsticee wzse:

e*clnsively to f,wds held by an elemeynaqr iasLitrrLiqr Itre rcseat lct qflies qr !rrrpo6. fior its erclusive use, Hit, Iblre ttrere erd-sts rD qflic+ bebcen an irre beneficiarlt ard a rtr. irdeutun, lpr is there tbe uenEl fialrrcia4t ar relatianship tmrtls beneficiaries rlridr eilists-rfu-a 6st-t nnaffi--rga tjle erelusive use, benefit, G Fr4Dses gE its ddnisbiator alr are the firds (EEhEsis nite.)-regtdatd b1' this ect. en aside of a sqsrhat is fre$srtly er4)ies h their saEntic nabrre is neoessariy he!e. Ere teun 'fidrciaq," to bAicate a IEr$n behalf ad s$se tj|at ard

nsed, both in lay fargtnge arrf in legal uritjrq, a peiticr tather of sfldere tmrd otheB,

urd nust act dr tlEir nanner. It is iJ| tlat


tj|an in a self-lnterestedl Alied Fitjrort

t}te te:o "fidrsiary"

is frequently directors,

to clraritable rrcsarily


directors, of the ud it

evsr brsiness rlpratim particrlar _ tiat -

being irdtcative in qr-sLian,50

get of stardards rdlich goven the relaticrship tfusrghcnt

ts in of

sense that tbe telo has beelr q'loFd Et, lrever, "fidrsiary" benefieiariee,

this rport.

In tie qrteert ad their

tlE llrifolrn retat-iosttip dtaritable

is useil to refer nly to tnrEtee

to tJte tnst @rF:atlcn

and senree as a Ey of cltstirguislrirg tre rcdirlg trnstees of trE !r Eilrpstrj^re ale to nnnage tle fsrils are rS s Frogrrar.'Sl


frctn tnrgtees. tlEt

deci siqr irlr olres a nEgrritiqr enilerert, filds cn befialf of tlp

'(b) eca:se tle


as a v,irle,

tbe endomrt,

an erd ln tnemselves. ! .rs, " (af draritable afuirristers.'52

Rat}elr tIE]r aE a ttEans to adde\riJxt tfre uriversityt ortrnnticr is itself tlre beneficiary of t}le fillds it

lEE llrd naq)stUre opjJdqr nliirres! tcse inslitrti.qrs are irr a eitr:atiqr slt}l regidtd to ttEir erdouent frnd.s siffilar to tiat gf a brsiness @rporatiidr wittr respect to tbe adninistratiqr its gtl-l*y....15 lris _ sFllatjclr grrrcnd, reogritncr di-tectcs is tlte Ein tlat in tle mraEacnt. brsiress of their erdddsrt firds, directors, clraritable of

ressble ginapaf


ad crSrt to be so h their dnfting of

$hictr guidd

the @mlssidErs ??_

tfle Giginal

'versicn of the Inrifouat lct:



tn gtper Etadard otr lespduibnfity corpontl*r directcl [for a dnrit$le is u a|a:ogils to tiat of a directc of a busiress oorpomtldr than tlrat of a . . . trulrte. Ete kt establish a starda$ of hrsirEss care ald [rr|dere rdtt\in the qrteoct of a tugoflt institxrti@.S4 AE Etadad
ffitct)'ostlnary t'he tie lct'

of care portisr of tte &nnisEiorrs'

1rro\tf&s t}st ard lEuaere dsisiqr. ffiers


(Sec. 6, Starrlard of
Ehall erlelcl,Ee preuaililrg at

"fecificafty hsiress'caE

of a governirrg barrt

urder tt facts ard cinr[gtancE "56 t" staniard $ording. of ca:re porticr l$e cigbaf labeleil st*rtard

of tlp ac+ian c

of tJre I'Essactusetts 6 is diwicted int of


tns a ctsiderably crr labeld liahitity



ItD sectiqrsr

"&rues@rts, of rders. i

' ad tJte otler CE bsirEss

"ldrd.rristralicr of care Ls rC

traners of bardl engficitfy StiIL, a fistirg eciicr

srticnd. tl|e secLisr dl nDwestrErts' of tlre rytable begrin: tftEs of the fssacfusetts fc e"t (?. 6) pEolrides Elis

of fui,es@rrts

a draritabl.e


Dr dilicr to dr l.rnesffi otlpnrise artJrclzd !1l U!, c by t}le a4plicabl gift instrucrrt, ad qltrcut Estrictjar to in esfisrts a fl.dtriarrr u,I ruke, frre gollernrg 6.d, Effi-alry speciElcffigd-ft inEtnmtt c tn r:ta aplicable to lar3@ than l.a rcIatiry 4plicabfe (EEhasfu drEls-rir|\eststts a fidhrfary, Etz.... I [lrB, irir tlre cctidrr s ir*roartory ftrcrn Ure (trnst) par:agraph the dnritabl ridx'iary @Foo?tirm dffuctof ig

dUstingnisheit trrie as b in\rsffirt ' nrthennre, rs$ers' d.d.rtaf

- in rcgarif b tne boeailt.h of d.iscreticr dr tiat discreLion. of


dd in tlegard to t}e linitaticre nldninistntiqr

in the sectidr

of porers of board; liability usee aLrret veriatrln

(Sec. 8), tlre trtresactusertts versidr te.t b *ecify tne fiactcs

t}e language of t]te of "busiress

to be qpide-redl

in t}le e*ercise

carc ad lndere': Er ri'nin.i Ffr?lian of thelners. . . to Eke ard rtaln furtregffirts . . ., od a guternirry boad shalt qrsiibr de!.s lc:g ad Ehort te@ needs of tIE ingtifuCicn fui carryirg cr* its a/trnariorrl , teligiore, cluritSle, or dher arcynry . . ., its EEe$t ad anLieipateil finarsi^af lequirrsrEltts, Frposes eqEcta toEl rear4-dr its irtr es@s, level trrrds, and genenl Irie snrlc dditi-dg.58 -3 3-

tre taesadnrsetE pecufiar

\rersicn even adds dDtber ,ot fcud sirE


b be qrsidbrd,

-tfn versicr.

pdlerc IhfortrirEltdllr,

b the instituticr,'S9 caee la

ir ttre @mdelidrra' tJ|e UassachEetts of tl|e hrsircss

ro sigrdfiort adrytd. lurrer, seft

bae rearltd

\rersion of tlE Act Es stardard of care,


ttE lack of *,eific


tte language of tj|e nersian of tlte ect qllcable

I to EilrErBhfue s $tuatees tect.

to inply tnat solt of stanalard as strog\ lEssadttrsetts ctEritable aillnrirg rpo!.atidl

as tle ciginal tsild

airec{ors stariard

ba\re a goodl dear 6f

juslificat.ict of tie t[rifm stzllard tnst

fc tcl'

to tte h:sirEss

of care even rrlthcnrt tne antJrcity tlre hrsireeE aplid tne

basd^dr tJn grcrirrg body of case Lan ufridr ppliee Altlsrgtr in tln past 6rrts dio.t*=,60 hane sG.ims sine

to UEi.r aeeivities.

stardard of care to ctraritable ure tred


ttre early


been irr the @oeite directicn. FerfEps the nDst alecisive c:se to utilize tne rbrsirpss stadard argrncnt" y. Irrrt l*bb Fayes Natianal an *Lior qerated by a grqp kailiru Scfrcl fu agai$t lbaspss and lftssidraries.6l of a Dlstric alfegd

lns clearly

ras !!g lhis

caee funtolvd lrspital

of patients

ttre tnstees te glaialiffs

of 6ltr&ia

as a dutitabLe Unir


tJtat tJte tnrstees hd brcadrel tlE lDsgita.lr s invesffirts. of irse rgowd.


to $per/i6e tnrstees

tne mnagan:trt of for any Jss be

try askd tnat tln

be held fiable dil tlat

tltat rEight bave becn sufferd

b4l t}e @rtrmatiar, tiat tlte anlrt

tlre tnstees

ltte f,acts in the Stern case irdicate

of irlresFdtsibiliqr As just cn eorenple,

dgrsrsEateat by tfre &ferdarrt "tEitber tne Finilce Gilnittee

trilseees ms reatly rpr tle

quite rajor.

lrn estrEnt Ocmnittee ever rEt or cqducted t19601 until 1971....'52 of all tJris, anat folrt refirsed, the lpwener,

hrsirpss ft,or tlre abte of tf,reir <seaticr En orrt, as laight be elgecteil, gtrifq, of beadr

todc a clim visr of fiawiary ttrty.

defettddtt tnrstees to gant

lte @lrt In lejctfutg

aqr of tln relief liabilfity,

sorgfrt by tJe plaintiffs. rde:

tJE tnrst, starilads

of, care td

the olt


the tn:stees

are &arged witJl nriwnagwrt, -34-



serfdelirgEE ctEritable orpooatiorr is a tre :rp:icaute Lan is rnsettled. tefad\rafy rsr legal ertity driclr does tpt fit reatly^irrto tl|e eetaLfisheal 6ml rr" categories.... (ll he rcdesr trend is to ly coiilte ratlrer t}ran tnrst jn ikttendning tne Uability of tle directus of charitable erIpratiolsr, FillciPfes becarse tneir-$lrticrs arc rdrtlaUy inliseirguishabfe ftqr tneil '1rlre' aorp6ate onterparts.63 [te Stern dbcisicr is rw widely cited, ad t]te leascitiry db{relcped t$elie tEs berr erylqpit in a rar$er of rore reoerrt qlrt qinicrs.64 charitable @rlEnrtidrs, strcurd be that ttte _

fhe girniples

of la.Afuqrsseat here arle applicable to rrl ant mi\rersities

so it is rrurecessaq, to Frove tj|at orleges

in E=cific

subject to brsiress @rporratjdl stanrdarrls. rt is rcrtlr notint, lurever, sifiilarity le@Sdzd be|trEen $ese irstturLidrs irr tlte -rert cae Larr.65 ard Fivate

bsirpsses has been ryecificarly

ft tfiild

ttnrs sea quite clear that bot]r fui tlms of t}e mnt irrv*d jrr regard to inreslrent

of diseetiqr decisiors, tlre

allqred, ad the stadard of liabifity directors of an ir|etiirrtiqr

srdr as silrpsldte 6uege rf,ild be srbjec{ to a thrty of

cate tudr rue similar to tne ubenl brafuEss standard t.}rdr to tlre strict ttllst stardard. 'Brcn before tne develogurt otr tne orpuate stadard aPfied to dtaritabl qFratjat directcs


t.he H

ms to arnid a slstrrrticn

of crrirers[ip feadj1:g

torard tbe Dre strfuEesrt, staErnardfor dbtl' of care tqufud of trr:stees.'56


En 'Gnr*er


argr.ert stan&rd of care, tlp disaeticn allorcdt ctraritable

$tten lpld @Eporatidt

to a hsiress


in tlre rnalcirg of investrent tre arglrant ftr ,fplying

dlesisicrs is a goodt dteal broader than tjre lrrsirra.s deGatidl starrtard is rct that directors, brt -

tbat altcr'red trustees. less acco.urtabiliq r:atlrr exd t}at bJ virlrp


be elgected 8m


of tlp rnrue

of $Eh institlticts,

tne dircto!:s'


tJtae of tJte fidrciaries tle dtiEctors

ad uri\relcsities, irstibrLicnr oversee rll

of trrirrate ard draritable tfilsts. 'are to ensr:re tJrat tlre eahratisraf anil tlEry rrltiretely qrtrol all

[r t}e case of colleges goals of tJ|e and

s ctrarter arle ffi, 1t16 rniver:sity's

of t}re fwds,



As rrtd

beftEe, epdlire


s ctrar*er trrotrldbs that



trrr4oses . .

of tbe clnraticn by estabfishing

are to erErqte ad crihrlirg

ad dyance a1l brardEs . .' c lre orenridirg iJr anyr otlrr

of krurleitge

ard lerdrg. of tl|e

a ollege.

legal dligaticr rmtter, is to en$rc

tJE Thrstees, in GtdJrg| of tl:e Ollegers _ dve tJst tlE


prrtrnee as specified

in its durter.

It is ir oEder to tiat the f:rrsteE

rEasure of discretio to rnet, tlris cbligatJor Tuiite muLd be lELl to a hrsirress stardad of care.58 It is &eqturtly dmoatic aqued t}rat tJte edsticnl irstitrtio

is a unique entity of tle

ir a

seie lz, vrtridr serres as a 'safety b1z1zodairq a plae rtse

valve" against "the tyraury wtr

_ -


UV prevaifing

tjde6 of, grblic firr.ticr

irrtellecural to * cpinior. ttrile catrries with it irr a cially

can be carrieat cr unerrunbered scne rs:Id ard SEre to vis

this nudr sesns dviors, at dligaticn ard pliticalty trrilcoftty tlnt ollege

claira tbat tlris special trinercity policiea

be fortnrlated lnrever,

"neutlal'nay. ad i.n la,

is an anolvjrg srdr inelrtnllty"


bdlr in edhraticral oesible rs

as beirg reitller

dlesirable. '(el&stianal feaAercnip of

ItE Drustees of 6lutbia irr todayr s wld - ethical ad lumre requires psiticns 6Et rrt


lrave writtlr,

cnly ortstanfing'sdrolarstrip tlat, girE eff*tive

hrt ako tle nintenae natianal qinicr

erpressndt tt cr:r hidrest ia a strcurgly,rrcrdd


AF ltic$igal

of IEDeals has statsl


'(a) rni\re!!sit!, ales rpt eldst iJr a \raci.trln. ?t "' wit}r its seiaf respcrsibilities

" (T)he orept

of a urivel:siQr actfuq of tln prblic

- h aeordae

to avoial qrtrasrtior "72 is that the ollege


irttliest tras been readily aeeptea by tJre o:rts. A qoUary


to tlc rdrarter prlses"



c rniversity

lns an affimtive 6:Jd

to ireserrre tbe climtct


tJris argttrutt

be usd to lold be prdibitd, to the clinate

that irrrrestsrerrts irr nrlear slrc nrlear nr,

Lreapcts grd.rers, of rarlear rar,

- for !ran1lf.e, alurld qrstitrttes a that

ad ttE tircat


f6s' drr..ariqr. faculQestrdent-aitdnistratjcn instiurticrs set a.s

' (Ifl idegFeaat caqrrs r.rrrest, detericratirrg _ relaticrs, ail tle dlissatisfac*icn

with tlE exeuple edrcaticnal 36-

inrestrE. redless

. .'73

lr." been lnJ.t a tircat I s di.EctG. clirute

to ttre eahrcatiqral cllmate, In tlese cases, it is rrcae t}lan plic,y, is argnrd, it

justjqfjrg "the

b1t tln ilstitrrticr

pEeserrratisl of tt drcatiaral of tJre fildr s ;rulrere. '74 '!lorr' a8 SE Ett:icaf i3 it tEsat!/

i-s tne pcesenraticr


stabes, "in order to utilize dbcisicn

tJris legl injury

natiorale, be nEde iJr

that eadt fuveEas|t

with respect to seial tlre brildliDg can gqer.ly

respcnse to wicbspead is an crgoilg, for a qisis grdral to &rnlcp

strdtert dsrund or gFtest, Fooess ir bfiich tlrstees ouer a particular as cE olrt realltiee.

of Ebrdent qrfidence engage rfithcnt uaitiry

irrveetnerrt.'7s stated,. norgtrt not be perrdtteit to close that "(i}f

etirrellsity (tlreir)


eyes to Feserrt.day


!{art}a J. olsor bas written is essential this desisicr to fufftffing

t}te tJtlstes abttelrnitE a 'cleaDr portto':-lo ad hmnitarian


tne eahrcatisral.

goafs of tfte Etl,eEity, to tne caveats otlired of t-l= 1e6fity

rust be leEpected by tjle tlri.s stat@tt by elleges aFpears to be arr arrt urircrsities.




acc{r:ate reflec'tior l. Glfts

of '.oeial


trE qrDstian of tle mnarytt Aeqgttly hgaairy of ilwesffin

legality firds

ard prcpariegy of utilizing to the Gllege



in the

t.,tddt src

as gifts ft Elsrld

has been.raised be sEesEed that falls

dnEfug tlE orrse ad psoFriety of plicy *!at are rrt

of tlre lask tlorce I s rork. ressarily as tlp

the sane issue, ald t}lat t}re oncern realn of Lan. instituticn, c

jJrto tlE reln I{b Etter right frrds. b pfae

as vEIl

t-he legar


"1rllr3 via a gift

of an drratioal instrurEnt

dlsprs have a use of dcrated that

qr the irtvestssrL @nstihrt


of srdl grfts

by tlE instibrtiqr

a recogniticn

tftey Erst !s a;fini ctpretl irr acoord*re by tlE (br c tle qrrts, institrLicrs

with ury $rch specifieal tstrs. are held to a strict -37 stardad

thless rcdified of fidleliQr to

erplieit srsidention -

tid,tatians of inplieit

olaod cr gifts. ilttntlos

Sote eutlwities

hate sugFstd as rel1,78

ttrat hrt

of, tlE abnor nsy be elpectd irr the case of draritable

thc nodern trecl is b qrrize, (I)n tle absetr of clr alll abrDr to a draritable


tJrat: tlrat


to tlre 6rtrari/, is fe

it tn:Bt be as$cd

organizaticn, uhetler his gift

rith rith tne waerstanaing t]at

g neral suFport G for

will be





his acntJihrtl.@

adninisteEd in aoordse

t]re nrles of la

gp\re!:rrirq ctraritabte


Dre lns


tlre afuinietratisr @rpotatidts dliffers

of gl'fts

by olleges

ad uriversitiee trusts:

orga izeit as duritable

frcn tbose go\renilg

[E elelE[rt of irtentiar to creat a tnrst is abaent irr t]re ilstarr"e of an trd\tersity siJre tJre rniversity t s dtartEr sets fcth tne grrAoses irprponta ald cirties of tlre cgrizaticrr. lte chnors are representd by tfre unirrersity ar;nllatiilr ann ldle @Fo.aticr is bollil to use ttE filds fu drcatiqal

pltpoes *
its orluate

gah36a"a* I

of a trust ilstnurt,

ht ty tl|e govisicns of

As in otlEr dtdlenges to tJre &'ttors _

of draritable


fidhrciaries, lor enforcirg to usurp 'tle

It i.e tlE state attdrEry gelEraf rdD bas tne gjrury respoeiU"fiA cl tne dtaliticls of cturitable gifts. -' Ccurts are usually besitart prercgatj.ne of tne attorrqr generaf to initiate. . . *tisr,'82 enabcrt

- almlls been grdrtd srstruerl


6re!t rfiere Ed\rersity

O*ot= ha\re tst "rrf fin& ha\re beell

as a draritable

tngt.83 t!ils of tle grft instrucnt poohihit the

!r those cases rfiere tne erpticit

factors in tne mnaganent of a grft, it is urliJ<e.ly tl|at the _ srsiateratic.l cif rgrsuic furd mragers ould fiJd solid erurgh justificaticr to violate sudr t!ils. Cre - qild dri-tahly sed( b lE\re tne teEE difid " erican drrts, lwver, try tlle corts uder.t.be secalleal reluctance

"g gess Grirt. to ryly.9 - gift Et,

lrare terrned to dtorstrate rfirLt be sillirg

ild it ser in oEder to atld

dbnbtfnt that a qut nryial inrestirg."8{


to rcdlify a


$e fact tlrat ap G trqre


prticts Gifizitg Frtj'cn olleger t}is

of an bglitrtLsrr sociat critrja (s) ale nirrtaiJred s erdomrt

s sdcrlctrt sith

find are so errrdered

neeat rd, prEuent

the lest of tJ|e fiI|d,

so lcrg as tj|e erElderd .hently, Eilq)strire fut

irt a separate fur\re8trEnt p@1. any grfts

des rd, aFear to dltaill

tbat are lestri,cteat

mrurer, o it sould rS, Eea to be a gSlen. tt tfn cpinicn of the pesent, artlu, it is utfikely tJrat 's@ial either irrestirg" c iJr


by cbaritable G.e.



@|dd result

in ltabilj'qr

defeasare snessors), instnrdt. rrted, lurten,


of firds

irr farnr of a dspr.

(c his or ter heirs or by a grlfE It studd be


$fEre erh


is eoqressly prOU-Uita irdicates Up sae.

ftbst' rccerrt ffirt that this

cr tne qlstidt

is pedaps t.lte rgmlest'

alea of tlte t.ail to be stsi&t$ legal d\rioe

in this tpct. abart any $.ft A furtler

Itris behg the case, it hanld be IEIL to sed( specific invesA:nt tde decieicr tlrat, seeins $eEtiarabf. tere. lte Naticnal

of cauLia! stro:ld be srsideredt


of CoLLeqedtit Urivetrsity

Officers dvises: "*ry lftinis;tratian of erdorlstt ant sinilar firds requires Ehtenane of a regrister of elr grdr filds. [te tqistelr slror]d irr}ie su<*r infoomticn as (I) naes of qrtrElrts, the dbr (2) mnt ald de!.s of his f,anlly, *ith brief Uiogadtcaf (3) tdentificatio drt date of &utiqt, ({) dbsignatisrs of, of tfE q/Fe of fird, c,q restricticrs qr, use of tbe fird c lts earrirg, (5) idhntiftcatisr of soute (fuu, of sdr limitatios c qpn,Erir4t boqtd), (6) linitaticrrs cl Etrantor, i$resitrElrts, ad_17) referere to f@l aoeptare ald ot]Er acliqrs bry t}te goterniry b6ad.85 dbes rrt atlEpar to errertfy :.estrictiqrs lDssess reords as tlnro4tr as t]bse lrntestigtea be &tailedl qr


srgEested, PerftaPs becase gift ad reoordeal. tJre rest.ricticrs the src for rlr S:ea$rer pfad gift

have rpt been systaetically

Atlen Mrey ry tlre ,nnscr

hae arygesteil that a lega1 qirdo r"e?uest,86

ard it rdqd.al sea adhrisable to tto before any acticr

furfs seiaf

abdrt which titerc nigtrt be ilry Erestias reacs:ibifitl'eiteria.

is taken b ipl@rt 5. @E IrdE

Ib< Eq'tiar of a seiatly !spcnsible

r bas been eeeressed abcrt tne potnEial lrpact -39-

iflresErtt pofiqr qr e'q)ticr govelrdng tax aaqticr _ imealgt profit

fttn fderal

ard state jJrsE


A3 tj|e lin B

eurrentfy atrrd, the!, tlo rot apear to present any subetanti.ve AE Beabral Erternal blerrE fs eligjlrle Aoab povldeg tl|at a tuF tar pro\rided UEt:

to lnrdl a pliclt. einntioal ilstitrrtisr

for exenptncn ficun irsre

rc part of tttsl tEt earnbg irures to the benefit of any private shareJplbr c irdiwidral, rD slbstantial part of its activities is carrying cr gopgarda, or otlErrrise attgrptlng to influele leg:isl,Eti6l, dd titl does tEC parcicipate in' c irrtenre h (irEfrdirrg tne prblistdng c dlistribrting of a., statsrE rts), ag polttical cilFEigrr cr berhalf of anlt cadtdlate fc p.rblic of,fice.-' Ean;xhire| s otn chdter of f&al c srtat iJre q*airts prrisicrs barz&q any acticr rdridr rorld deprive it of the 6de. an ard

ta( elepLicrr,

and repuodrns the cited qditicns at. Ea,pshire $orld srstiurte

lEre tlFe of poliqr behg qrtaEllated - attapt Ellal to infhsre legislaticr


rnr participaticr

irr capaigns for prblic office,

tlus rst je4adize

orr ccryliarre

rditi t.he Code. lilr bars to srdr a policy appear

to rdst tn tlaseactnrsetts state la, 6. Standiry srsideratio to tjte *.ticns of draritabl to a qeciflc


A bjf challrFs

of tlte ls$D of stadirg of ollege

as it relates specificatty

to ls irr

srt rrd\rrgiq, <lirectors is in order tnre.

ble c1rnticr atirectcg are trt reg1usiUe frarit beneficiary c beaef:lciaries, ad stadirry to dralloge t$e perfonsre geneliaf. Ot]cr parties are


- of directc's -

is uaua$t resewed fori trhe state attcrcl, interesti test.

subject to a "qrcial

lrey rust aercnsU:ate that tneir interest, in the

@lForatialr s activities Mding

is grcatir

than that of tlre Frblic in generat.89 parties ritlr a potential to

to Eilpshile

@Llege's legaf cqltsel,

Et t-be "s1=cial irrterest" test,, ad be grartd - f,adrlty, slldents, Stitl allcrd _ stadirlg ahffti strderrt lprpa, alutrli,

standilg, are trusteee, &ilrisfulatG,

parefits aO arrs.90 tlEt trcet of tiese parties arc rd l.tirrity tJirstees ale t:dit3cralfy Errs algIs garrtd

tte lieoent aase Lr. inlicat of osse.

starlfurg as a Etts

in erits drallnging tne a.ttcns of a bard's,ojdiry.gl have sctfures tndl aHrid staniling, ts*,*.92 -40-

dd . stuatnts trarregeneraUy been

tquid to fesent a Fcent

to 'pled


of bail f,aiti, issrn tle orernilg orrt




t c

a$ittr.rircss In

a justicable C-r i foEria ese,

t}re sudent-urivetsity


held that iJl order to hae stanfiry rnEt plead f,acts to dkrsrstrr:ate tlnt stateat tllat tlle $derlfdrg e. re.latioslrip

to assert a a fidniary bertrreen

breac*r of fichriary relaticrstdp tie sttdents

6:rty, ebdents |le orrt


arrt the uriversiqz

dir*tor:s rlder

ms a ccrtratual

As rns dltsGrsseal earlier,

tne h:sjreEs

stardard of care, dlirec+org ucnld ln cases of duqr Urat

be teLdl fiabLe fion brEactr of dbty in tne mnaEeeclt of endofint finds crly niEre an &tEl loss Es srstained, Fa on tlle oder and shere it ms slsm tl|at tj|e beadr of gres rEgLigE r.

resrrfbat irr tfie ls


Cocfusidl b qEltde, it rcet seena fittjrg fr-qurtly articles to q$e frcrn tJc qrlusios Uh of trro of tln qldatf.crs l,a



citeal h ttris repoult. they crtrde

Aeat( in terins sirftitar to tie re.spcrsiUe

of dtivesffi,,gs

brt ttc

rat an fegaf arEsrts ryLicahte

d|es aArdDed ir tli-s report, furresffiit x.tiwities:

anat ar tJrrs troEe hldfy

to soci.ally

qrhdes fris qrcnt t]at ativetitrue is a pqer i.urresGrt dbcisicr qrsistnt tdth tjre drcatioal of tni\remiqr i$restrE rt filds ard,.as sudr, m1'-poperlyFrIge b adliard urder tie elcrcise of a directcre reaecrSl.e U.rstess jniign-rrt.f lltis nde qrltdee Edvelisity tsrstees can be acqlistreit ttrat tlte trrevailiry eiauciary stadad of cale abes rct pr$ibit political gror.rds if tle diWstiture ftEn ttlvestilg cr c rrml wittrdrt casiiZ arecorruic lcs to a-Ed\renity. . .97 -

Jtlstie srrtr errterlrises hrglas I q[rEnt tjlat "EE ddfcoFhy of qrr Li.ne to be lEld to a higfr stardard tlrar tiat of the nomls of the nad<e@Jace; tdrich tlalts a sirtgle{Ldeal, trl'opic detendltatjo to rE riilize poofits as t}e tnaaitjdtal be-alt {d td-all of, @Iuate fo tJe 6en,i seanrsespecially apgcpriate pollcy rilridr an begt se!'ve hb rrdrrelsity in ilanfopdrg 4r ifires@rt tlte udtrersity ad ttE @rdty role.98 in rd\idl it pttys sdt ar i.qlrtart




emendix A -

Baqlehfue OoLteEe Articles ('Charter")

of Orgarizatiqr


B -

ttrtiftun mnrysrt

o{ Instittrti@al

Elnds Act

(IUIE: lgtrprdix A, a afry of tlre narysnire Coltege Articles of Ggrizaticr, ad lgrrrdix B, a oopy of tJre ttrifon I{anagaerrt of M E\ld est, bave been elclndd fuo thie rtfort becaus cryies of bottr ha\re been preuiosly distrih:td to Ure ffiers of the Task be.l


np'pendixc !E reaosSliUty aE,

legaf scbf.ar.s stD argtE aFfurst by inseifuticaf tn tle rsrt Fst imreEtors. the use otr ocial rcseardl

of orse, qitlria tlat

Ihe polesent artlDr's

suggests, luever, 1ubfiEhd rspdrsi5le

t.lE prepcraerae

of rrhat has been sociat\

cr tlle guesticr ijt\restrEnt

argws for tle peunissability

of vario:s


Cds report ltas ben geared tcrdad ecplicatirtg for the presnt trrrrposFor to refute

the pofuts of lan tte artls tD attEr*rt tras ben de 6,er!, ar$Ett twy

feels are rc6t inFortant

to el.te erery argrrErt

dvanced Uy prceoerts trnE in ligtt

useil by otFcrsrts.

Eris is eeeaaffy

o the fact tlnt to an jrseibrLidr to lod( briefty

o;parc rt argrrErtts tlest on leqal pofuts tbat are rn't qticabte Ottege.99 It ruight be r:sefirl, lprpver,

of tjre nabrrc of B4etrire at sE sElqrle statcrt jorf,ral arLicl, 'scial dn!

of tne oSpoentr s argnnrnts.

I l|arp droeen tJE teoent lar Lry llri\rersity of Chicago

Investj.ng arrt tjre Lar of Dusts"100 E. falEbgl

La SdEl


ard Richard A. BosrEr because rrariors rE$ers faEfiartty with it. ard prolific writer:s irl tIE fails

of tln Epsldre tgr+An tbe field issrs

trllrity anat FEE

tgtte eryaessd aE, Ia.

to be sure, both'rell-lcffii brEver,

of fictriary

ginen tne my tne lasl( lfce irrvesting, Idr$eh

has fracd t.reaffiit

irnrolrnd in cially c"r.101 "sod.al E trary


& hner's reprt,

lr=r1, *rly tlle tsn

to tlE qrterLiqrs

of tJre Task llrre article

tlrery abfine


crr the secodl pge of tleir

to nEan: _

(Er:lchdfurg tlre securities of ertain dlpatdes frcrn an djreErrise attractine jrdgeif to be socially irrequts5Jrle, qsries pctlotlo fuvegtc's tne are bse cdPanies becalse dhelihrise Eattractine nral irEllditE tfie seurilies of ertail ard lardable nay. By iatt:act'ive' tiey are judid to be Hrarirg in a seially 'r:nattractiver qrventioal of irrvestirg, rndcfi is to e refer to the &jectirc mke uey...frr tlE i.uvffitt beneficiary. f02 It sesE, $bstifilLidr plitical 1l:actie, thn, tl|at fu of finasially qr mral 80 it reEsns. fanfi:il irynlent fris dd hsEr, fuivestsErts "seial irrvesLilg" sold reans the qres for

for flaancially to jttstify

regort ct@s rpt attq't

that Eort of iJt order to

is rDt 6rE r Essary

to <lisagree witlr la$ein -43-

ald haner



acccp't tJc a!$rE Are s*.ticr aut.tss laurr Iql elFli.cate fur,--I fit

rts advarrcd hee. qrtainirlt tlp *eciaf ad tids -ctiqr hilidr it geoedes. algtrelts arc dirccted lnrever, at private trustes, ntitled. ard especially \tsrirrcrsier tj|e clefirdtiqt M is foltqred by a secLicr iJr *rich tlreoryi tlE

of "lrcdem po*fofio is of sctrs,*Et geater

tlEy ha\re beq(E

length tnan the secEisr qr

argtrcnts ltrte hlk

of tne bgat


trEnagelrs. It orlrdes, lbr Rilst, te

with a sectiar

ErlcrrtElrts. rl04 if rEt errsrecos.

tJrelaea:re a nurber of points nEatehr]rich sesn ftisleadi "rgt, tJreryFEEpce tiat ove. dren aoe turns to tlc rtrEratlag, t$sts. . .:105 qrsLicr of higtnr

aduca+i q1 dom:nts,

. . to dnritable firrn clnritable

rt?ridr for present ftey lnake rD attsrE t ltte law of frfgqr.l06 ;; to nate. rnkes clear, rporatnal trusts. ollege ft and tte

1llrposes are indistingldshable to sr+prt A ca=ftil Fo*er's discussicr tureverr stadards tJris assertiqr tadfng of Utat

lloeft by citirq

a sub-seseiqr of Sottrs to tne geserrt a'tls;a frcn tj|e aE Scdt

"**t poirL is EcrHfti4t ratler rlder "!ftetgsirEss

t slqFsts dtifferent

is tqdrlg


of Carerergrrranti "sial ftr

in tJris nqut draritabl.e dtaritable

that for tne p:r1se du.ffer sulstaltiaffy

of evaluatiq ftd tnce

irue6ting', ild

tjotJl lrivate

serrs dd {:bat arr arricle ud\tersity nE ttidt esertrErt fird

tlrat, dls ungers

wit}t the stadatd irrblisfreit as Ert1y

of, care requfud.of

as lit^rEnber of 1980 mkes ro

drywhere in its

l0 pages of eitlrr nr|als lct,

tlre 1974 Stem dlecislqr d the ttnifotil in 1972 aril aalopted bft the lGssadrusetts

- $anaEsrEltt of lrrstitrrtioaf leq:islafir! tansein _ by olfeges ad "Errs.' in 1975.)


ard Foener dvare ant uriversities IJI the fi.rst

ttllee rrein argurnts agailst


fuvestiJg" grrtrDses,'

ridcfr tlEry J-abel tCharter, r of ttnse tte anthcs rrite:


A \t rietl, of the ''a'rc* espoltsql in tle nae of social jJt\tesUirlg are t't wirin the gETDses of o11e9e ad l'rirrc!.Eity dprters-for e'n4rle, er$6itl9 tlis4f[orraf of selectal foreign gp\rer Ents, or $Ff,orting ertair labor llriqr cadrizing capaigs. tu rrd\rellBiq/ t$stees to sFend rniverEity firds o srctr

carses alircltly rf,ild


be ultla



al*y to &-instiEisr.l08 if ntls &triq:s.


Frt tlre tlrstees -

i.n breactr of

|Etis mrdr is tnn, adr activities ille4l, bti

Itris reprt

nalcesrD attryt

to Justify


tiery Erfd

be, in tlr

Ainnm of tJe present autJor, f,atls o.rtside tne perieters of

.ard becase the sbfy of sudr activities lle il$Ia

tne hsk lbEee cfrage.

cms with the tE(t senterFe3 niFre tne Eustees

to trrrSIF the s@ erd ty e'gagdq in sociaf furvesting of tfre Eri'versityt s eldom=nt firrlils, tjrey nl"rl siply be attsqrLirq to rtc irdireclly what tjte], nay tpt clo directtlr.'f0 Ian$ein and Foss ale fuplyirg tEre that rp clistirrtisr o$rt to be rrade be{lreen airectfy dirtertirg dd tle ueilizatlgt of an erdc*mrt fird. rrttonErt of sial

nueyrs to tne Elpport of seial resporsiUillA criteria

ad political


as irr aq)ect of tlre mnagwrt, of a perscral pirt, arrd t}re

ltris ranld sea to be nre dr eltFsidl fp artlnrs qite ro iltJuity Also, srdr a fomrlatlor

cpdrrnar tnan a pofut of f.a. fent artllc is.mre

fur tlis fails

of rur.

to gatrl)le adequately abote.

rdth the 'dratrtetr prpEes/pogantic Se secrt argtrut,

goals" argrt=lrts psentd

ct 'ruFdlaritable

prposes", deals mirny in term of benefLt" as to acoeptabLe

ctraritable ttrusts, ad argrs *:Livities of draritis

fu a "starrbrd. of ounity

tiDse Fecise ctgin, dbftnitio anf a1plicalility rgnajrcal ' lrcIer b UE ltBefit .rtls. GE thitd ar3uert, cn 'furo:s,i sryests tfat tJilstees w?o eoqageiJr "sial irnreslirg" nn tle risk of triggerirg f,aru of tlE dbu. fris dlrfeasdce (i.e., forfitrre) of tJle finds in

popoeiticn. as re!! rests l!:e cr the un-lzoven assuqrLict fuwestirry' is to be guilty of itiveneiJg er&mtt c4tses. of tne distircticr discussed erlier to t}|e tknce (atal their fimds

that to er4age in "ryial fta ed'-'-+i cr to otls nr*herue,

the artlnrs nake rp rsrtisr

Hrreea the respcnsibility

of Frivarte ad charitable tnsts


_._-_.- rj

blrr l'der '


rIEr drart abrld r. b

a tnrBt instrrrEtt

ard that of dtaritabla


r @.trErat Gllally, tt

rotd (!gaitt,

that dter.drradq lhrasd olly ia te@


QssE .trrgtmtts,

fan$el.n erds

ad be's t4l rcdfrg,

qgluslsr, in lrrt:

of drarl.tabl"e tnrstsrl

Orr aElysis 6ds cr {r l8rrtain rde. EteG arc lFf dskg to the draritabfe tnr3te $ilD fatls to mcinize tlE vdtE of the drarityrs qdnsrt fid, h*, F are rct paepard to sa, th.t, tl|e t-r does, 9f^ rv-lrr tn,eating bfr cbaritable tru8tees. *' durld, abeotfitely ftdiil



T**, state bard of Eidres Ehrcatsiqr votd b divest dd refrain fto ilt tlp sFalties lle Aivestitilre tttidl otr cprattcrs r=aoll.uticr, **Jto qltJacbiar trry troirg'suustancfaf acdvity

or ritnder

18, r9zz ' in reagrse to stlurg saraLft



fi:ture irtl esltE'rt

tn sar$elrr Africa. (a state agencl,

t},e Gega, trilresugrt 6Dcil rwrager), qrtained

is tl|e hardrs

a clause crirectisg that:

rn carryiag ot ttds acticr, tne lr\resffi r*rager= are rsuestedr to &.t gpil i'-?,murr rnte''trv *ddl wirr noc jec'padize trn intFty oe trre erdorncnt, fida.r l'l Af,tr rpivhg ur lttcre.lz Genelalrs c[dnicr, U tne Gegd, lnrcs@rt 6rEit votd qr JtrE 21, l9z8 to refuse to caEy ort tne cEvesfurt inst;1Etiais. Ee Attmey did rd rfiild GerErarrs qinicr h.d aryud tiat tie staF Boant of Ei*ler Etrraticn srctr a decisicr

b tnlte qrdt i:n estrEnt decisicrs, ant tiat violate the O!arr .lndnt ij!uEs@.. stadads.

ltat e tne amcfty

Er a case tlrat rtas etE to be tsrrn as.Bssociatedt sbfus of hgur, ee- al v. E!rt' et, al., sbrdelrts, .r4$grar d-.laa+'ry serreral othr cr lihqber

of tlle lhtverstt!,

the stralent g:ru4r, alcrg with a rnnber of jndivirhat i suit for (ald @Irt le\r{l

sbderrt gru4r ad a ratrer of otrer parttes *r.d +inst tJE ders of the OrregurImtsEtt srit, fitd

ndgElElt ressaryr



trn orplaint

at aE tJial

A2, L97et sorgtrt a judgtgrt try tJre drrt

*tich rnrld enable the itinesagrt

to fo..e-r.

As ttre case progresseil, fo:r ortstadirg 1-l 'kjsiilts bes tJle state bad fc tJE er&mrt tiat

U3 issnns aevefopea. hare artlnria to Eke irnresugrt

of ltidrer Ehraticr of ttE ttrivErsity


of orcqur ryBtsn (held in trust bry

tjle state otr Cegrl

it dnirrbters? rdn alregeil "a srbetantial, airpct, trxdectabLe,

2.1 lrc the rrariols plairrtiffs, Fesent inttat, tDt. rlely

stdr as tJ|at of tne generaf ;[blic,

in tlle a&rinistratior,

-47 -

$rEEnrisidr, to blilrg 3.) *tiat [*!r, sdr

ad rtsraqsutt a erit?

of, hi$Er




]rave stardirq

Is tlErc

any vafiauty

to ttn &ferdents' lIder


that a dttvestrEnt relati.drs

by a state boaty is rsErstitrrtioal irterstat 4.) Ililtd cnretrce, the dilesffitt arrt/c *tio quaf

the ${EerE('l7, fueign clalses


of t]re federal qrstitrrtiqrllls of the O-gor 'lxrdenit,


a rdolaticr

irrves,tc" !F plainLiff Ehratiqr

standard dd tlE stardad filst trp of t}re EEtilcns lrkl

of care requiled

of tlte furdts

trr:steese[6. alrt. Itte

have been resolv,ed by Ute tJiaf

par-Lies rrre ms tcld

to have stardirg,

anal tJre clrregwr State Board of Eidrelr

b have arUutA ar tIE b qrrt

b rnate irvesurErrt acisiqrs.[7 affi:cutirre issues are erpectea to be beard ctrrEnt calerdat !ear. to

GosE Elians

tsrEining befe

ann nfleal cr by t]re triat trte l.citg

tj|e ed of tne qlt's fitst

pady is expectea b 41na1, 6rrt. Ge plailtiffs

to the Gregdr 6rt

of Atr4=als, tlEr to tal trhe

the Oregar S4r@ sstituLicna1 is$s

hane elqreesedl a rillirrgees errt if ,-o"".r1r. igsr U8 lelatd

to tI U.S. Sr@

Slurld a ateeisi.cr be readrat an tJre divesEsrt 'trmdent irvegtc' tln its igar tnst leglity etdoGrt will nrle, Lt EDId be the fut c uritrcrsiqr ort

as it

to tlE

(bcisidt ctteria

to deal clirecafy witfr in tle nruragrarrnt of

of, a ollege fiIrds. be dkessd

I s use of Eetal

Ge plairtilfr

s attoomelz has stated t]b.t, trtE stardard of care rlat to tJ|e issues of lo1za1t1zto the goartivity. Sigrrificantly,

in trD EyB - as it zd as it relates


to firancial

tlte plaiatiffs ryeGlt sith

ual, attnpt to stiprlate tbe &ferrlests

cr the finasial tbat finasial

issues - that is, neke an lcs is rDt at is51e All U9 of tlte

ard tfE olrt legaUty

ad that cnly tJte tednricar abferderrt lE*ies lf,rile

of the dirrcsffi,

is in qstictr.

rrnr1d, ft*ver,

luvri to aglee to srclr a stiprlaticr. Bigdfi.caft, its

tle uriq=rss

of this case rnlces it



to Eqahitcr8


fu ll.nitd

in trp reepets.

Eirst,, tj|e &rirrcrsity

of of

Gegcr ryatar s enlosrt

firds are held iJr tnrst,

ad it ts tne jrrterprertaticr

tlre stsdard of carc rqufrg dit*tca lctat is at issrr.

of tnrstees, ratber thm tJut of draritable Smd, tle stildad of care isar


is beirg djdicatd

ilr tln Ccgcrr stat6 rr.t

syr3tn, dd shite otfrer qrrts it rdll

irc liJ<e]y to take rcie of precedent ortsi.dle

of that6,er dlecisicn is edrd,

ttE state of Cregdr.

rpt tsrre tfc atffi.ty


IWTES litlrrrtea of tlte lrby 14, 1982 Joirrt lGeting, Imres:tsrErt S$ccrmdtte ad Ocnnrittee (CFI$, thgtees of llapehire 611ege, p. 2. dr 8r,lstrgrt reseosSUfity

2rgo rcc.r.a. (l9gop.p.t

3e sedtfary focr:s e*nild be elglained briefly. Diveslrent of tlpse seorities in an portfolio dridr are the isErres of opanies jrdiFat to be sciatly institrrtior's irresgtsilte is orly cr of several pos8ible st[rB t]at colld be tat<elr in tje- nane of sial !:espdtsibility. Because otr tie recent natioal carpaigr to persuade instiurtioar. irt\restor:s to alivst tngnserves of the seqEities of ocqarries with tl tlre Ep$lic q-ratiols of Sorth Africa, tulever, a 1ar9e part of tfn apficalfe sorrc reterial deFrc Frrirrily rdth tne dlivesusrt qr:eEtnm. dars ali\restrtnt, vierrcd as tJle first of, a ru&er of csible steps that qild be talcn irr the ingtitltisr of cially rcspctsill.e fuuesffitt is sqreLirres r,eferreil to j,n t[is tpat. lrEtrLio, lCqnprsatisr witjr Icrris E. H4LI, Ir., ttale & bET, Bctdr, JrrE 15, 1982. See also naviJtoff ald Grtzan, Seiaf espcrsibility iJr tjtlrestsErt, h]-icy ancl tle kldent Man Rrle, 68 rlrrif. L. E\r. 518, 5I9 0980). trfario:s antbrities have argud tiat in stE irstarFes even a subgtatial loes to a ollege c tniwrsity's erdqmnt fud tlEu$r the Frsuit of sial rrespcrsibiliQ (9r sfnildl tolentd. g*ld See e.g., iviJ(off ard Orl:zan, asa rptele-Iegally 3, nssin; Olscr, Ilriversity Efi,Estgrts with a Sqrttr lf,:rican euectlsrifnnferre Di.lrestit|lre hosi.ble?, ll N.y.U. J. Ert'I L. f Fol. 543, EE 5obar, Id. at 545.

4tUfm Uan ge|tEirt of Instituticnal nDda Act, (lnrreafter tl{IEA}, Ocrrrd.ssiqErs i Fefatcy !bte. 7A ttrifon Lffi erlEtatd, ItEster Eitiqr {05 (f978). A oryy of UE &tifoun Lats enrstatd terrt nry be fqrd at Ag4nndly B, infu.

825 rags. (9 Pi*.) ile, .61 ($30). Eanrard 6tte9e figurd in rtris srit as a rseirderon of the IEy tet@ltaq, trrlst. te sEit aid rct dlcern tne nanagsrEnt of ianrcstrcnt fids by Eanrad 6llege. 'A histdc'r acortt of the cbrrelotrrurt of the irnesffi tirties ard porcrs of prirrate trustees ftm tleir origins in Brglish 1a'r can be fonal in f.an$eit ard Eosner, lrbrtet *. Elltds ad T:nrst-Inres@rt L:lr-, Lt76 em. Bar Frolrdaticr nesearO it. l, 3-6 (1976). _ fOfan$eln ad Fsrer, 72,96 (1980). Seial fnrEstirg aDat the !a of Tnr*s, 79 Mictrigan L. En. fnder t}e nrergirry g, and 18? Ocrnent,g (1957).

llf&tcrt, Dtvestitlre ksolulians: Ilrirnrsier Dirctor Liability @rpol:ate Stadard, 15 U.S.f. L. br. 26L, 265 (1980/I98f). l2see Estat@rt !trd. at s. ?zt.


of Drrsts secs. 170(11 170 ffi ,

14'In aditjc.t to rEldrrg t-he trrrst PsoPerty proartirn thrq4.r lyoper fupestflE rts, a trust has a tirty to imrest 8o as to &tain tjte hidtest rehrrn gresible qrsistent with t}te saftl, of tne gircipaf. In order to assur high reblrr, qrrts tra\re requircd tnstees to stsider <liversiffirq fird irnleslrcnts .d have qlsicbred failure to df\renify trDre tltan tere tnistale h s:rcfnrgirg tlre t:r:stee fE :resultiJrg lcses. " tib&tdt, s|.Ga tde U at 266. lfttr Artfrer elaboratian anil refereres cr tlre stardard of care lequfued of prirrate ttrulrtees, gee tibrtdl, gs:a rcte LL at 265. l6sco,tt, frbridgarcntof tlrelanof 17l6rtcn, srnra rrte It, at 268. Thgts, secs. 198.1 (p.400),200 (p.401).

18fn 39 ladcr, 104 litisc. 372, L7J-N.Y.S. 981 (Sp. Ct. 1918), affrd rsn., 175 N.y.S. ycJ<, 9I6-(-sW. ct,. 19191. rtds is a 1918 decisicn uv tte *rrogate'il@lttTf-trsr affinptl by tle lSpelfarc Divisian, in t*dch the orrt r4held a trusteets cbcisidl to fuvest ir 3*t nirslt Liberty loan Bdds cr patriotic irr spitE of the erglicit arurds, instJrrticns of tfte tnrst instnnrnt, wtridt dtirected tjre t!.lstee to lnvest ard :einvest ctly irr 4t lailrcd Hs. ltrc tlistirgdslreal inst sdrolar:Ustin W. Soott ergEFats, (ard tne FEesrIt autlu @Eurs), lmever, that this decisicn flas an FlrEe'rt dle vtnse reascdng mr6t rdern orrts sqrld afnost oertaialy reject. Ihm oourts ha\re held that Fi\rat t:r'rstees (anal draritable tlustes and ctrarttable @rporatim direetcs) have a bload porrer (if rpt alrra]rs a ctrty) to avoial iUeglity qttravenLiqr poliqf, " arrl my be ercr:seat c tJe of the 'lubiLlc iaterest" c lrblic fror folloriry t$e htenticts of the tbrc wibr $cfi ddilids. lrave Sore ant}oritles argtied that this trnrer of t.he fiduciary, can be often tered tne "rrrle of illegaltty, " extenateil so tj|at a desisicr as to rfiat rrurldl or tflld rEt violate ule prblic futelrest tsrldt be \rithiJl trhe fiahEiaries' di8e:reticn, ard that tlre fidriary aFply tlat 6ild qr a tnrsteei s irfeeenaent dig@etidr to a fi[|drs tn{ragefEnt. 'Inves'tsrEnt ibcisidts based jrrres@rt assessrErt of the effEct, tnat qrtent wilt have cr the prbl,ic telt*ingl yit}r tJE tnrst Frge, if qrsistent revien seenEi to b belgrd tne pnria of jrdicial becase tJre tnstee tras a Eod porer to avoid' itleqatity. " tbrtcn, sqra rpte l[, at 267. see ale J. sirn c. F#rs, e J. allnerrfrr{ de ntrricaf inrFtor, 144-156

sorth Af,rica qrstidr,

Ztarr*.i" arrt hsner, sil4)ra rnte 10, at gg.

seer6rtcn at rp. 257, 277-TI8loLsrlrt,


e. scott, fre Lar of Trr.rsts (3d ed., Sr'g). 1982).

22"Scdt jr:stifies tiis peiticn by reference to oorFrate ctraritable srtribrtims. 'wittrfui prc6nr limit-s. I lhe He !!a,tes tltat orporaticrs nay mke gifts to durities ratioale fc tJris prqositian is tlat by aiding scie{ry as a rdnle, the coryoa:atian firrtlers its mt fdg teB irterests, Siflilarly, a trustee argtrably shrr:fd be able to cial cbjectirrcs tlulurgtr his 6 tcr fuvesffis cr the tlreory tlrat t}is airls trrqote siety ard tnere{ stEngl*rens the fondtatiqr of t}re tnrse. S6tt, }uvr, notes t$at he Erld plee '1rc1-r liuits I dr tnrstee dise=ticn. " Rarrikoff ard C\lzan, srwa rDte 3, at 527-52823SeeSott,
tiattE'l tlat

srrr:a note 16, at secs. 368-37? (p.

niJr an Eglish case tle qltt

563-6901 S@tt infors .

a tnst

us, for
iufldt rFt,

nhile 'it lEs bn held that e,[re a beqest fc the errecticn of a "be dnritable,' arint<ing fo.ntain, with a provisiar tlat tiere stnrld b a lifesize statlE of tle ttator c a stahE of his brse, the provisior ilial rEt prevelrt tl|e trlrst frcn beirg a dnritable tn:st.' _qr _

saitt tl|at

to feed slEl::srs

ztoltarr 25See Sdt,

stu>rii rp'te ll, supra rde

at 268. 16, at sec. lg7 (Fp. 3O-3G9).

26eeg s.w. zd 16r (!b. r9?ol

27!brEan, 28Soott, 29lortsr, 30lg. slr)ra rrrte L[, $tpr? rpte silrpra rpte at 269. 6671.

16, at sec. 369.5 (p. Ll, at 26g.

3lrd. at 273. 32soo,tt, rRpriarste 16 at se. 391 (F.

33tg. at p. 699 3419. 3Brd. at 699. 3Qrrtm, sq)tia rpte 11, at Z7g.

697-69gl .



of Grpoate
Ste til


ad Directors, sec. l.o5 (d

26 p9691 .

ear. 19731 .

38Cary ard Ei*lt,

ant tJre Iore of Erdrrcrerrt Et:ds,


39rd. ar u.
ta rri,b[itcl,


rte Z, at,l(8.
L!, at 272.

g4Eia rpte

_ 1bt*

stats v. r,l'rtt ltesr' pag 14 and a@{lilr}/tug

lbrtgage 6q)., t(t,

Ul8 f. Sm.

629 (D.D.C. 1954). of Estate of @Ilins,

$rya. ltc'r. ry,tr. 644, c.i :6 ossirtfrFzz _ 13e

See also ltatts

44See180 ILG.L.A. sec. 3; 1568 t{.c.L.A. sec. 13. rtA qrPlete ogy of Bapshirers.lrticles of Gganizalicr ie ilEldeal at rFendlx A, infra.

* 46tgoA ll.G.L.A. 47gqgq, srrria note 7. 48se" rpte 40 and @ te*E, snr)ria. _52_

49Oploloo of the Justtces,

306 A. 2d 55, 57 (N.8. 1973).

50S"e1 .g.1 Knepper, Eupra aote 37, at sec. 1.02. 5101"oo, -9gg, Dote 5, at 564.

52C"*7 and Brlgbt, The Developlng Law of Endowoeut Frrnds: tthe Law and the Icre" Revlslted, 37 (1974). 53Opfofon of the Justlecs, 54tn[ra, !gg3 note 40.

supra Dote I , st 409.

55S"" Appendlx B, infra.



Dote 7, sec. 6, at 421.

57t80e x.c.t.A. sec. 6. ttc flduciary staadard of cere requlred of llasgachusettg truEtcc8 la lom as balng coqarltlvely see scott, ggg note 16, at Strlngeot. *c. 227.5 (pp. 437-438). )dl80a H.G.L.A. gec. 8.

60S"", ..g., lrtrttcd States v. l.douut VeraoD llortgagc Got7., IZE F. Supp. 629 (Lg54). -

6lggf F. Supp. l0O3 (D.D.c. lgl4r. 6b.. at 1008.

63ra.8t lol3.
6fu.e, e.g., lfldstlatrtlc l{ational Super. 128, 405 A. 2d 866 (f979). Beo} v. FraaL G. Thoqsoa Fouodatloa, 170 X.J.

55scc, e.g., llalvelsity of lliasl y. ltllltatra, 1966); laach v. ceorte l{aahtagtoo Ualvereity, 65!dortoa, ggE lotd lt, at 281.

184 So. 2d ?01 (FIa. Disr. Ct. App. 370 A. 2d 1364 (D.D.C. 1976).

57O1eon, supra Eote 5, at 562. 68soe cooeutators epproach thle questloa by disttogulshlng betreeu "retu!Dproduciag" and 'rprograoatlc'r fuactl,oue of chaslteble corporatloo lDveatDnta, gtaadarde of care, that argulng that oaly the fotur Le goveraed by traditlonal the seD LDvestDtt cao aeFye both frmctl.oos, eod thst varlous portlooa of the law, taeludlng the Interaal Bevenue Code, reeognlze and reepect thfu dlstltrctloD. Th18 ls a slgnLflcaat pol,nt, but doeJ uot reall,y extend the t.charter pulposea'. ar$Eot beyood tbe pol,ats bctng tade 1a tbe presmt teat, ao lt has Dot beeD elaborated upoa bere. . See J. Sl,rn, C. Poecrs, aad J. Gruraeruann, -1E. uote 19, st l6(Fl5l; Olaoa, ggpgg oorc 5, at 564; I.R.C. .ec. 4944(e).. 69For a rcpreseatetlvc coateqorary Ivory ToEr: Soctal lespoaalbllltles 7ost.t.*ot of Colrnbla frustces Soutb Afrlca, Jrme 5, 1978. atateuent of tbese vlens, of the t{odern Uolverslty, Irvestoents see Bok, Beyond the 242-309 (f982). ln

oa Ualverslty -53-

1o Coqanles

,rsprlal v. Regeots of thc UDlv. of lliehlgan 1 43 lIlch. aff 'd, 390 Dllch. 84' 210 N.W. 2d 322 (1973). T2tbrtoa r gpg Dotc ll, et 277.

App. 178' f84 (1972)'

73ra. et 2?6. 71rd.

75J. Slrco, 76t.p. C. Poera, ead J. Guuaeroaaq, 9gg, t3 If.J. lote 19, at 162.

Suttb llfg.

co. v. Barlos,

145, 16l, 98 A. 2d 581, 590 (f953).

77olgon, lgpg

oote 5, at 575.

781s nrTehlrc t s legal cormcll has erltten: tbcpendlog o! thc tl.tie erd clrcunstatrees of a gift..., lt sould aot be suprlslng to flod a court deeidlng th.t thc uac of dooatcd firode by the college ea e DsaDB of .aprcsltrg . polnt of vle9 lay outsLdc tbe rGasoneble erpectltloue aad, thereforc, ogteldc the probrblc btcat of the donor.rl Iputs l. Esoll, Jr., lale aod D,orr, to JohB ttetta, Vlce-Chalruan, EaDpshlre College loard of Trustees, liay 12, .1982, p.3. 79J. Sl*o, C. Powers, eod J. Gunnenaon, .9gg, aotc ll, Ja., note lt, .t 273. tfatt3, gE oote 78, at 3-4. aote 19, ac 155.

E(hiorton, g4g Ell.oole E. Eerll, 82uortor, !g

to Joh

sG 274. llalvcrelty, 387 S.Il. 2d 132 (lex. 3?5 n.E. scc. 4.t Ctv. App. 1965). 2i! L225, f978 Adv. Si. (3d ed. 1974).

E3Sc., c.8.,

Coffce v. llcc

8hc., e.8., Wllllaoa 1265 (1978). EfuoUege rnd ltolvcrslty

CoIIete v. Attorocy Gerrenl, lusiaeee ldltDistratloo,

86[1co L. torrey to IDvcstDDt Subcorittcc, Eaot'ehl,re College Board of Trustee., ''trlercrandrn lfeceseaty IEveitEDt Dcclsioog,tt Jatuaty 9, 1982.

8726u.s.c.l. sec. 501(c)(3).


ghould bc r.'rttoned..., bormdary betseea chrt thcre ls en lratable eharlty aod govcrmeot t! r.tterr of publlc polley. Several grovielons of the Intetnal ReveBue Code, for era4l:, reflect a decp gwerucotal coacern that tax caeqtt Lastltutlone rrlll abnrse thclr rclpt 3tatus (rfitch ls aoo.tLoes cbarecterlzcd as a publtc subaidy) by brlnttrg thelr poer lnd lafluence to bear ln tbc polltical' leglalatlvc' end dlploratlc flelda shtch goecrmcrrt guerds zcalouely r3 ltt or!. The acparetloo of Church .!d State, lnd derlv.tlvcly the Pfust ADadlot frccdona of Splccb od &redly, rttcb tn tut-a uoderllc tbc 3pclsl tar end other prl,vl,lcgca accorded ly orr ler to cbulcbea ed other charltable orgsll.zatloos ' repreacDt e dlfflcult rod dellcste cqrodsc to of co,qcttng clatDs to the rlth! of tbc que8ttoa 1s ttluatrstcd by the Internel lcveaue SoverD. Th. scasltlylty Godc, ghcre rc3t!lccl@8 rre pleced o! tbe rlgbt of cl3c8pt charl.table organt zatlonB OOItTII{T'EDON TEXT PAGE -qa-




has rrltten:

88 (comrNUD) to attcqt to partlclpatc to lafluence leglslatlonr to the po11tlcel procc.a, or Co hgve c.rtala dcelfugs ulth goveanEcntal offl,elalg. Ftog g very therefoie, soe queatlons car be ralged Fto-tIf iencral pollcy -@g$g, porer by a taa eleDpt charitable epproprlateocsa of thG uac of lsveetEnt ofgeolr. e DdluD of po11tic81 apeech.r' (Eryhasls d.ue.) 'ltio! Louls B. EeDll, Jr., to Joh6 Irtta, .ggE aote 78, at 2. could aec! to be bcttffiderstood Btatcent Tbls as advl.ce ol e phlloeophlcal que3tloa than aB ao erplabatloD polltlcd .od of thc present legal altuatlon. lte cese lar clearly LDdlcstcs thet even the Dst strlct flduciary relatl,oaahlp doec not requtrc the flduclertrs oote 5, at 56) to be t'seers" (see Oleoo, lgg aod thus these cooalderetloDa do aot coDatl,tutc a legal l4ed!.uut to Eeqshlre I s adoptlng of a roclally reapoulble LDvestrrnt pollcy. See a13o J. SIDD, C. Porers, and J. Guanenann, .ggg. Dote 19, at 166-167. Shor exaqlc ' oae reccnt case cltcd a 1895 declelou holdLog thet Deobere of the couualty are ooly l.lcldeotally beaeflted by the'cducatl.oo of goe oeubcrg of the publlc. llIller v. Alderholder, 288 ca. 65, 66. lE4 S.8. 2d 172, f74 (197I) (quottng Ifblte v. Ifeff, 52 ohlo Sr. 375, 40 n.E. 720 (1895)). SCooversatl,oa rlth louls E. Eeoil, Jr., -ggg. aote 4.

9lsce, c.g., Eolt v. College of oateopathic Phyelelaoe & Surgeoae, 6l Cal. 2d 750. 394 P. 2A 932, 40 C.1. lptr. 244 (1964). 92See, e.g.' Goffee v. Rice Uaiverslty, 387 S.W. 2d 132 (Tex. Clr. App. 1965). Thla dcclstoaa Lsnolvcd eD .tterpt by uulveralty trustces to bavc lgl prcas applted provl.eione of !h trust fustruEent Ln order to rlt[l.Date raclally dl.scrtuhatory under sblcb the acbool was cscated. nro opposlog groupe of aluo,l rcrc; hosever ' later elloned standbg to Llterireae ty a hlgher court. 403 S.tf. 2d 340 (Ter. f966). 93t{orton, gli1 notc Il, et 2?4. 24 Cal. App. 3d I' l0l Cal. Rpt!.


942u'x1ra v. UalveasLty of Southera Gallfonla,

499 (L972>.

95s.. oote 3,3 -ggg,. 96Horton, ggpg Dote ll, 97o1son, lgpg er 263.

oote 5, 8t 545.

I 98fa. at 579. Justlce D,ouglas stateoent appeara at S.E.c. v. lledlcal Coo. for EuoauRLghts, 404 U.S. 403, 409-410, 30L. Ed. 2d 560, 566 (1972, (Douglaa, J.,
dlgsentl"Eg) 99ot" freqoentlt occurl,og exaryLe ls tbe rt usoy opponents of aocially reeponsible bv*tl"ng dsell on the rt.ndard of care required of flduclarlcs eho are subject to tbe 1974 federal pensloa reforo ler (Eqloyec RctlreEut Iucore Securlty Act of 1974, 29 U.S.C. rcc. 100f-138f (1976)). Baopeblre College'e Tnrteea, llke the dtrectors of laoy other collegeg and rmlversltlea, are not subj ect to E.R.I.S.A., asd cvco thoee kusteca rho do ran'ge peosioa firade uuder the Act are oot bouod to ltg rtrDdard of care ln oroagtag tbose portlols etrdowut firnda of thclr l,latltutlotrs nhlch are lot coEnectGd to a pcnsioa systcr. the psoposltloD that Furtheture, truatees subJect to thc E.B.I.S.A. staoderd of carc have Do grornda for Justlfytrg the e4loyoeot ooa-traditioEal acccated ' of irvest@t La Dot a uolveraally crlterla one. See, e.g., Bavlloff aod Curzao, ggg [ote 4, at 52E-536. -5 5-

lO0t eogbeta rad Po$er, 10lsc. oot.e

Egpgg note 10. tert, 3g.

5 eod 6 ead aceo4anylog

lo2Lngbcts esd Poenerr lg4

Dote 10, at 73.

10316. s3 77-95. See slao Lengbeln rad Poaner, aupra uote 9. On uodcrn portfollo of Legal lee BLaea, lrodcro Portfollo Theory srd Invettoent Lar: Refln.rpat theiry, sectlon of the Task Force report. Doctrtrc, 76 Colu$la L.J. 72L, eod the ftnaacial Ifhea the preaent euthor eaplalDed thc fllaBclel theotT underpinal.ng Laagbela aod legal couacll ' atated: rh doubt tbat Posuerfg aatLcle, Loule Baoil, Eaqshlrers ConversetloD rrlth Loulg E. EaDil, Jr.! a court routd hold to bc deDnatra.bly true.'l ggE aote 4. l041sog53lrt aad Poaaer, ggg note lo, 8t lo7-t12.

l05ra. at r07.
10659g gse33' gE 1o71.6. thclr Bote 2l , at eec. 348. l. pouers. Bote lO, at 108.

"Seyood l0Eksg6gla and Posaer, glg

11016.13 111. 1113". go*1.lnt Sult for Dcclaratory Judgoeat, p. 8, AeeocLated Studeatr of the ttnlvcrBlty of Oregon y. Erst, Ifo. 78 7502 (Clr. Ct. Lane Co., fllcd tlov. 22' 1978, o (hereafter ASUOv. &nt). I l2Ot.goo AttorDet Geocral OPl,alon No. 7616 (l{ay 2, f978). Attoncy for Plctltlffs' ASUO

lllfelephoae slth t{lchael B. Goldatela, cowelaltlo! r' v. Euot, Bugeoe, OregoD, July 23, 1982. I l46o*1gt!i ll5see Sult for D,eelaratory Judgent,

p. 5, ASln v. Euot' ggE

aote llo.

rrstate DlvestDnt Jaoeg t{. Ceqbell, of Southern Afrlcan InvestEenta and the (rmpubltshed paper wrl.tteo under contrsct wlth the Eugene' Oregon Coostl,tutlonrr of theee clalos. chepter, Netl,onal Laryer i Gulld, 1982), for a thorough refutetlo! ll5see Otegou AttorDey ceneral for Partlal opLnlon, gE Dote 111, at 2O2E-2O31. Septeober 29, 1981, Asuc v. Buat' gg eupra Eote 112.

llTsee order lote I10.

su@ary Judgeoert, slth lllchael

I lETelephooe converaatloD I1916.

E. Colatsteln,

- 56-

BIEI.IGRAPSY (lbte: ArIy bocks {d artic]s are referenced hre. llE to tlre ccrstr:airrts, I tE\re rrt listd tJle merous fuucnts, statutes, cases, ad stardatd fegaf t:eaUses srsurtd in t}le pregaraLicr of this tEpor:t. tt!6e that bear rEst <li.rec+ly cr t.tre dkcrr$ed h the tel<t aJ refeEloed in tl|e rptes. ) Firrts Enes, Earvey E. "!6dlern hrtftlio SFory ard Drrestsrslt Lan: Refirremnt bcttrjre." Oolubia ISLBg4CC 76 (Jure, L9761, 72L-789. Bayne, Darrid.C. n$le n ic -Raticrate Elriew 34 (19 ), 575-514. of P:oper Subject.. " &rirrcrsitv of Iegal Iar

of Detroit Stadads.

Beylard, t+illlan A. nE|ctamrt l\:nals - ollisicr.of Brsirpss Lawt'er 28 Gtril 1963), 807-818. F

Oorporate ard Ihlst

t, Derlelc. BE5gtd the I\rw.Jt IUr: Soqial lesguts5.bitities Carbrj.dge: Bar.ttad thi\rrsity PIesiS, L982.

of t}le lbdern Wdvrsitlr. E\nds: lEre 1959.

Cary, Ifilrian L., ardl Gaig B. Fidrt. [le De\relqfurg Iore of Erdougrt Law dd tJE l.ore" Evis_l!4. lH., Yod( . Ihe Lat, e!4 ilg Iore of fficnnert l\lrds.

IilerdYork: Ford Ftnrrdatiur,


thiyer-siFv BrsirEss lftinistratidt. of orporate

(3td ed.) nashirgtdr, D.C.: t{aticral ' s Officers, L974. Officers ard DitEctorB. (3nd eA.) cnt).

REIIE!i, lvillian E. Liabiliql IndianaSnlis, Idiau Iaqbein,

lmqrican Ror EQr.gldatisr_eqelctr

itcllr 8., ard Ridtad A. 9o6ner. Start<et.Rlrtalsard T:nrsit I restsErt 16r. "
Jcurnal (1926) , L-34.


"Social Irntesting ad tne Lfl 6f Ttusts." $g+gq-!qjgdg! 1980), 72-112.

Seia1 EEglstbilitv


Ia,grtt *hr Eeuis, ad E. Ilrri.dl bsnbln. @rmltate the Dlstitrrlioal Enrcstc: e EDrt to tfre

ard , l9?3.

'rDi\restiturc Fso}rtisrs: lbEtdr, eace lti:yienre. thi\rersitl, Dircctc Liability ItI9qI Corlnrate Standard." tlriverEitv of San EYancisco Lavr Rerier, llp_ErErgd.ry 15 (FaIl 1980^$inter 1981), 261-282. lirrdheim, Sert H. 'A Cmrent qr t}e Seial nesposibdlity of Life Insr.Il:arc Ccnparries as trrrestm. r \tilqrilia Iar bris, 61 (1972) , J-247-1264. Ol'gdl' lhlitba it. qftirtersity In\restrEnt-9 rrith a Scrrth Aff can @rrectiqr: gossible?" Divestiture XqfLIo* Folitics fL ,ftfinter 1979JI85S-C gaslery' Sert s. TrEFkofit orpo!:atiqrs - Icanntability of Dircctds Is I'lilabnt

ard Offiers. "

hrth, lfilli:al C. 'Fersctal. Liabdjtity of Dnrstees of Elhratiqral Jounal of CoUeqe ard lliversiW Lar 1 (1923), g4-92.
-57 -



R*rikof:f, fUtafd B., {Id l.tlrlat R. Olzan. in Iruestncnt "Seia.l respotsdbility Cafiforria Iarr Evis 68 Othy 1980), 518-546. the Hndent flhn Rfle.'


trre lgaf lplicaticns Eidtraar, Erald L. ilhranfrn: irl Oopanie bing BtsirEss iJr Solth Africa. " ,hrnal 164-173. 7 (1980/1981), Fport of the Cctunittee qr Clraritable lltusts.
ard Charitable Ooe"oltaddr Dinectors. i Fal @

of Eriversity InvestlErtB of Oolleqe ad &d\rersiw Ld

"Drties of Craritable Trrst Snrstees


(1957), 545-56{.

DaIIas L", ed. Slnrld Fensian Assets Be Safishry, PumFes?: An EStsI Folisv Ebrtrn 6, 1979) . Benefit fsearch Institute, 1980. Sott, Arstin l{alcersr. dd co., 1960. -Abrj.drsrt of ti}E law of ftusts.

For Sociaf/FoliticalI'ihshingtor, D.C. 3




Silrrr, tdlr G., Clrarl vf. hErs, afll itcn P. GffEl1rrar. Itre Ethical lrrnestoE: ttriversities anrl oormrate seial Fs@rsibiliw. Rress, tlsr Hanen-iiTi[6@ rlegal Ispects of lrvestarnt ruspcrsibd.Iityn, Lnz. 12F169.) Gsp. Ch. 5, Spain, GLen. kactitidter "Scially 36 (fbll respcrsible Inrrcstnents: 1!)79), 97-L[3. An Inrstated Bibliogm5*ry. "


FTNANCIAI ISSUES REPORT by Member of Debbie Knj-ght Force on rnvestment Octobee.1982



- 60-

September 27, Lg82 FINAL REPORT Financial Issues - Debbie Knight

One of the major financial the formation arises in of a socially for


surrounding policy types There


investment certain


ttre cost

of excluding pool

of comPtrnies frour the possible have been d,ifferent calculations. the cost cluded ft theories

of investments.

as to the best

way to make these that estimating of x-

has been generally


of exclusion

by comprring past companies,


and Dorl-xcluded

has serious

shorteomings. perfor-

Past history mance. tion

can not be a true


of future into

This method also does not take risk eleurent in portfolio will

consideraThe in con-

as an important of


guestion order cgrn.

'Eow much more risk our rate

we need to accept is a necessary

to naintain

of return?r'

For a given returns which This because there are unpredictable unpredictability

portfolio, are events and lead

there that


an alray within rates

of possible the market of return. risk,


to different or overall

in the narket,


has been shoflr to be roughly 30* of an individual companyr s I risk. lfottring can be done fronr an investment management point of vies to mininize this aspect of risk.


Non-market risk is





to a company) company's ComIt by is

specif ied by ttre variance that is not tied

in the returns

of that

securities panies possible holding This is depth

to movements in the market. stimuli and cycles. considerably

are af fected

by dif ferent

to reduce this certain called securities

component of risk

that' tend to offset and will be dealt

each other. with in more


later" Ittolern portfolio theory has been found invaluable Measuring theoretically the investor any the

in estimatinE increase

the added' risk

due to exclusion. that this is

iJt risk, to the extent 2 Possible ' is the only reliable ment cost otlrer lio

way of estimating policy and tools with

of impos'fi.ng rn exclusion "The techniques the only


criteria. provide

of modern portfodecisions


merns of making optimal

in cases suclr as this, environment tion leads 3 astray. i Risk is rneasurable the

where a radical (traditional)

change in ttre portfolio managerts intui-


an integral extent.


of the narket,

anrd is

to a certain

Thro studies

have been conduct-

ed recently to try to determine the effect of exclusion and/or 4 targeting oa risk" One was conducted using companies operating 5 in South Africa as a basis for exclusion. The other, done by the council the State judgenents on Economic priorities of California) against (cgp) (rrnder commission by of companies with discriminatiorl r banks

used exclusions employnen!

them for

rnaking loans

to South Africa,

and corqlanies with -62-


operations opposition assumes that financially

in South Africa.

A very basic

argument used in investing a

to the idea of socially in doing


so r one would not be able to build from the remaining studies securities.

sound portfolio

The conclusion " (a) lthough

of both of these


rras' that

the proportion

of capitalization

and the number risk port-

of contpanies excluded, were substantial, (relative to the Standard and Poorrs due to the large

the increased 500 lthe rnomal'

fo1ioJ ) was srnaII, substitutes for

ttre excluded

nr:mber of acceptable 5 companies. 'n

The studies only calculations by Larry for

of both Andrew Rudd and the CEP use equities in estimating risk. As the. less.

explained effect The risk ProPortion risk fore,



of the CEP study, considerably

of exclusionary associated than with


on bonds is



bonds is a much smaller market and there-


There is more overall market)

involvec less

(more stable 7 to diversify.

ttran the equities In a real portfolior

Ets opposed to forrn of of investments, estate,

a ttreoretical. investment

one, conmon stocks represented.

are not the only

Among the numerous types hold stocks,

most institutional and, cash equivalents. concerning Currently


bonds, real schools

There are different proportion contains

of thought be.

what the appropriate ' Eansphire' s portf olio

of each should

64 ..7* common stocks , The model that Standish,

24* bondse and 11.3t Ayer

cash equivalents. investment

t lilood (Eanpshire's

managrers) reconrmends contains These

70t cormon stocks , 25* bonds,

and 5t cash eguivalents. - 63-

proportions examPle,

are traditional United. States TruEt


Eot universally


For aeeountB only


socialily.;aanslttne and bonds with

Iean more toualds 20t of behind forms the the portfolio this of nethod

80t for

cash equivalents

invested is

l,n conmon stockE. feeling that

llhe rationale there are other than The

based on the which least are safer under

investments narket, at

and nore profitable narket conditLons. is



question ing

of appropriate iliscussion.. Diversification


rn:ix for


one warrant-


is its

iqrortant for

to proper reducing

nanagement of non-trErket Eince by ornin risk in the

a portfolio risk. itE ing Ilris

because of principle in


has been relatively the nineteenth

uncontroversial Briefly,

establishment two coryanies

century. that

in different

industries the

are impacted (non-narket) stock either


says by outside to offset is that

events, of less the the


of one tends tr.o cotq)anies idlually. reduces through



therefore reducing of the

ri.sky available

tban trning investoent


Sharply the ability

choices risk

investment South AfrLcan

manager to reduce

diversification. are heavily of proper

and weapon-producing industries (the goal and sectorE. is to

coryanries Ihe best


in certain

questl.on replicate all other


of which is

the narke t ana balance available industries quantitative that react

out cycles) studies similarly

infirortant. by

Eowever, choosing tlre sam c.onpanies

have shorrn that (usually 8

within group of One palt

sector), is not

the effect as large

of excludj.ng

a particular

as intuition specifically

would predict. at this

of Andretw Rudd's study



Using the Investor of L77 publicly-traded certain


Research Centerrs in

(IRnC) list as

conpanie s operating industrj.e B rere

South Africa

the index,


Euch as nsoaps, to coryensate for oil.,i where

coEr0etics, .' tretail, the forced


and ntelephonei

(by exclus.Lon ) undenreighting rnachinesr' and nmiscellaneous, tended

i.n 'international conglomerate"

'buginegg nany of tl

companies Applying

to be concentrated. of rnodern portfolio that, yes, exclusion tbeory, at Eoroe

the principles conclusion

one ia point risk


to the

can severely anal reduced

danage a portfolio return. is The operative relatively

in terils phrase

of increased is "at sone point. number i

Earqrshire I s endoment of coqranies

smal l in tems the College

of the

represented. 30, 1982)

For exaqrle,


holds the securities of three contrnnies 9 goods sector in tlre capital whose n rrket capital represent ottly :.10 .39t of the I'licroscan 1400, goods {t of the lticroscanrs capital aector, and 7.5t rere of Eampshire t s .incone all three for fr@ cot@on stocks. there is fron If no tlre

(as of April

the College question remaining stringent

to sell

.rny reason,





be selected

96t of the llicroscan aocial reaponsibility

t s capital criteria

goode even rith (capital

the most

goods represent . is a stlong the

9.763 of the ltlicroscan


1400 market capital.ization) point wbich the never of viewr. there closely

From the theoretical incentive 'market, to design " although a portfolio in practice, would rnarket'

replicates funds

amount of


to any single folio identical

investor to the

be enough to holcl a portand proportion. Small

i-n size


portfolioE of securities

e3pecially tlcy

have a natural can hold, creating


aE to the number level of natural

a high


in any event.

Ehere are nany tlpes investnEnt in the nanagers

of exclugion operate. Probably sized Depend-

under whiclr traditional first pool ing and forercst of inveatnentE on the size is


of a nanageably to clients.

used for fir:m,

recoumendation the size

of the

of gls fi.rm Ayer

may vary. & Wood, keep

EalErEhire I s investmen:! qt-to-date orr a rotating operate

nanagers, pool under


of roughly

250-300 comlnnies. criteria lsocial as divresponsi-

Ottrer portf,olios idend or guality bilityl criteria

suctr exclusive "Financiallyr

requirernents. are no different

from rnany other

exclueionary nanagethe 11 "

and targeting nent. asseta


. .whicb

are imposed on inveEtnent who are able to purchase

There can be few nanagers tbey rant LEespective

of external practical

or internal exgrerience

regulation. to date

There hag been lfuuited involving criteria. sib!'e exclusions under


responeible have he ld but nost

investnent socially have taken re Eponrnore

Many of the mjor policies for


a number of years, shareholder approach

of a regponsible approach.

than an exclusion/targeting

The United for


Trirst Socially

Company has compiled Sensitive accounts

data which

1980 and 1981, on their 20$ of a1l specified, their

represent concern than

accounts. accounts

With nine

areas of social better


ba\re done considerably

the Dow JoDes Industrial for thds result:

Average. nost

There are rnany possible portfolios are


of their


concentrated comprnies that great profit,

in cash eguivalents have been avoided etc. But for overall,


than equitiesi

the of

have not been in there

a period has still

whatever reason, warrrnting

been a marked prof it observation. l{ichigan roughly securities fomed well $10 nillion, in 1978. above its


and closer

state fully

university, divested time,

with itself their

an endowment of of South African portfolio has prthat

Since that previous while Again, point


The securities

were sold


those that'were there are other that

bought as replacecontributing there was not faca

ments did very well. tors, but ttre majof in

to be made is income.

marked decline


The PAx l{orld 1970. They operate

Frrnd was organi zed, as a mutuar stringent criteria



under very

excluding other corl-

the Departurent of Defense I s 100 J.argest contractors, panies of their panies contracting gross wittr the Department of Defense if

5t or more anrd cortrThe fair and, it is


utere derived tobacco

from such contracts,

engaged in


and gambling industries. companies wittr and practices,

Fund also

has positive

criteria control

targeting policies

emploYnent and pollution invests well solid

in some international in for its over field


This organization its investors

respected returng

and has been offering

a decade. infor-mation on socialry euite doing respona few business

There is sible ilvestnents

ver-y little from colleges

and universities. ix corporations


have divested



in Soutlr Africar Eowever, there being incurred. is

but most of these actions no evidence

are fairly

recent. losses

to date of any dramatic

Eampshire t s investment

nanagers r standish, with


& l{ood

have e:lPressed' a deep conunitment to work closely implementing any new policy that is instituted.

us in

They are very of social respon-

awa,re of the concerns sibility in investing.


the issue

They don I t want to see Harupshire losb and ,have pledged at which to telI us if ttrey

money on its


fe91 we are nearing table psychic is

the point

they would

be nncomforget a orr r n

in managing the portfolio. retrard

'To help our clients

from ttreir.. portf olios , not j ust L2 one of SA&Wrs main goaIs. Another area that

a f inancial

needs to be addressed poficy (if





of a new investment There is very little

on potential any) empirical

donors data s

to the Collegre.

on whictt to base an estimate suPPorters of its investment

of ttre effects policy. This

on an institutionf ie a question that

needs to be opened for issues involved. Haqtshire with significant It be, is

broad discussion,

because ttrere

rre many

funded largely

by enrollment alumni,

(tuition) friends

, and

contributions is difficult

from parents, to predict involved policy.

corporations. reaction socially night

exactly with It is

what the to to (parents, that

of tlre people investment

Hampshire, difficult


judge what the effect friends, futnre

on some of these constituencies alums) might be. It


is possible


so[ne of this ated.

constituencfT agree

may, for that


reaaons matters



Sone rnay not to moral capital stand ig no ray are going is


are political strongly

and subjeet feel that

considerations, not neutral. that It

whi le others

nay be,-tlre Fattiellar others. Either way, ho!,

political there people donors nent

jJr questiotr of quantifying to react.

disturbs or acculately


There are nany notj.ves is likely

directing agrreeaction by to give

who gLve support


to be both of whatever may react clontinue

and disagreement takes. suppor!.

as to the advisability Sone of those others disagreeing will is

the College witbdrawing

nbo disagree philosophy

becauae HamE shiret behind that their

s political


the nptive the only change

donatiqrs. be e:rpected

Anong.those mu].ct be that



of increased concern about policy worId.

support. the possible

tfhere effect


an understandable responsible with to our

of, a Eocially relatioaship


on tbe It could if

College's prove

the.corporate cor?orate

to be danaging



tbe College donors only effort 0.65t

were to alienate cortrorate

a substantial contlributiona and tbe

number of prospective at preaent cor?orate repreEent fundraising -


of Eansphife

t s revenue, snall.

has been relatively Patriclc r tbere dowr for Afrlcan llhere

On the other ingtances sith the

hand according where Eanpshire iqrlication for the that denial.

to Gerard ras turned

have been trc support policy


our south

divestrent are different should

was the



of thought announced.

as to how a new Representing



be publicly


one point

of vieo

was an alumnua who responded se 90 about can be. fotmulating this

to our questionpolicy, cares the what '

naire i 'The quieter more restrictive little Eaqrshire re

Since no one really we can probably t$ese the in



have cleaner guidelines inter-

hands and cleaner 13 nal." Iet this a political Africa.

investsent stlongly

s by keeping conflicts with tlid


of naking Souttr

statenent In that case, the Despite South African , it is likely

ag tbe College by taking


case of in

a slmbolic to clear


a groning for other retLcent

area of concern, institutions. over its

College tlre

he lped fact that

the path


was fairly

divestment that


was not

even a pregs would it


rnost nembers of publicly ingtead

tlre coruunity of keeping in

want to announce the pollq/ secret. investment sought. to tbe & tlre decision profits, then tlre

is 'nade not their

to share

a corpanyr s ought not be

corporate it

donatidrs is pre-

The noney is c@pany. .

sare shether

or post-tax

We can suroarize areas shere thse policy is tbeories

our findings i.e.

as followg. portfolio

In those theory, investnent

and d.ata exist, that the a socially Collegers

no evidence subj ect There is

responsible portfolio


to any slgnificant on which to base

added risk.

virtually of

no good evidence such a policy In thiE

a j uclgement cf rhetlrer tion

the effect

on future alea

donations, intuiIt


or othenrise. evidence

we have only

and anecdotal

on rhich to allorr

to base our asEessr0ent. such tenuoua arguments

does not vent

Eeeu appropriate fron

to pre-

the College


a socially



-7 0-




Ayer & Wood meeting,


L4, L982.


of modern portfolio Critics techniques, other analytic world. Wtrile this probably mains that this is a fairly investment prudence bottr in A. Rudd, 'Divestment Journal of Portfolio

as most ttreory claim that it, cif .the seal is not refttective has sorre validity , tlre fact Eneans of evaluating standard financial and legal circles. How Risky?r"

3. 4.

of South African equities: Managemeng, Spritrg, L979.

ttrat and targeting operations Excluding are two investment should to hand in handr excluding those companies that rre 'offensive' and targeting investments towards oproductive" oless offensive' or companies or industries. A. Rudd, Spriog r L979 . A. Rudd, nsocial Responsibility and Portfolio tlanaq Cafifornia , Surnmer 1981. Conunrrnity Econonics I Inc. 7 Divest Prudent Approach For Pension A. Rudd, SpriDg r L979 . ilhe market is broken down into sectors into which aLl the various f it. industries Stanrdish, Ayer & Wood use the following sector list: Eealth Care Basic fndustries Goods Capital Technology Financial Services Consumer Durables Nondurables Consumer Transportation Energy Utilities From Perforrnanc r tr Africa: A

5. 6. 7. 8" f .

to the 10. The MicroscErn 1400 is an index of the market similar of Standard and Poor's (Sep) 500 (wittr market capitalizations but and 5773,712 nillion respectively) $1r039283.1 million broader - as it includes 1400 comprnies rather than just 500. We have chosen to use tttis broader index because a reasonable of reaponsnumber of ttre companies appeErring on the lists producing companies and of companies doing business in South Africa are not part of the SeP 500. We wanted a readily index which contained most of the corE)anies (some available a,re privately wned) to be excluded und,er present or proposed guidelines r so that the effect divestment of the exclusion could be fairly assessed. 11. A. Rudd, Suluner, 1981.
-7 L-

NOTES (cont. ) L2. Standish, 13. Letter Ayer & lfood, July 7, Lggz. 19g2.

from Brian

James, ZrF, dated August s,


AppendLx A

The rrsafestrr portfollo Ln one sector that of the narket. If

does not have lts souething portfollo diversified, cycles


concentrated iu

were to change drastl.cally would be greatly its

area of the market, lf the portfolio durlng

the entire ls properly


Rather, stable

chances of remaining greater.



of changing

or swlngs are far Ln South Afrl,ca just

By excludtng produclng

U.S, conpanies

operating pool

and weaponshow nuch of Wou1d and

companles from the posstble sectors

of investments, for wlth

each of the naJor market there be a sufflctent

would be Lneltgible renaLning find

Lnvesting? whlch

nuuber of conpanies In an effort,to all

to bulld

ualntaln sectors

a sound portfollo? each of the two llsts:


I broke down lnto in South Afrtca, with for and

companLes operating of top contractors

the top weapons producers of DefenEe. total Ihere

from the ll.st

the Department the conbl,ned /110, the have

was some obvlous


so the figures As stated

are sooewtrat less

than the sum of the two, .lndex

Ln footnote Not all of

the lH.crosc'n companles been ln

1400 was uged as the base appeared & Poorts 1n thls Lndex,

of coupanles.




nany more than would tally those for

the Standard

so rre can only

which we

have luforuatlon. Letts present lLst. walk through It ls an example. Rockwell lnternatlonal Ls a company

on both li.sts. Its ril'rket value

found at nuuber 13 on the weapons producersr Roclnrell ts

as of 6130182 vas $2403.4 ntllion. and Other Industrlal

elaselfled places lt

as a Mu1tl



conpany whlch

tn the Capltal The eoryanies

Goods sector. wlthln the DficroscaD capl.talizations 1400 have been broken nere found for each. down into I{l,thin each


and total


-7 3-


the Lndustry


were combined to provlde


ln each of that

the each

ten sectors.

These were the flgures wlthin tts

used to fLnd the percentages

eoupany represents

own sector.

Seck to our elaople. of ita bdustry (ftulti ulcroaca! Ind.),

Rockwell lEternatlodal 2.362 of 1ts secto!

accouuts fot 6.6g2

(Capltal Goods), and 0.232 two flgures ale the

of the eDtlre mst releveat

1400 capttallzatlon.

The laet

for our orn purposea.

At the bottortr of the second page of data Eere, the percent weightings of

are the breakdosas for eacb sector are totalled.

the weapoas list.

The go"'e laforoatlon page of the south Afrlca sulllvau Prlnciples. ltst

speclfic (f24).

to Roclxrell

oay be found oE the fouath to the

Nore that Rockwell is a slgoatory is hportaot vhen looklng

This dl,stlqctlotr

at page 12.

The. eare concept 18 follosed llst. The elgnatory fl,r8t co4aales

here aa vlth

page 2 of the'weapona prod.ucere' compaaiea are totalled for the totals of all

ard the. oon-slgnatory

eeparately coqauiee


each sector,

then added together

operatlng The laet

l"n South Afrlca. page ahora the co'bi'ed rbe percentageg totars of the two llsta, teklng the




of the coupaales

appearl.ug on

both llsts

sere aubtrscted

fron the ueapons totals. pohts r'oag the results wtlch should be

rhere are aouer tDtereating Eoted.

The percentage of the ut1l1tLes glaace eeens tather

sector large.

represented yet,

by weapona-producing back to the fre lelalD-

coryaalea at fl,rat chart ' ffud

by traclng

that ar&t contrl.butes utllltles

to 2g.LL7 0f the entlre


lng 3.072 of the total oBe colpaay. for lmreatlng, so' shlle thls

aootrg the seapona producere stauda for only sector would be inellglble the rest

32.182 of the utilltl,es

ouly ueaas tso coryan1es, one bel.ng AT&T, leaving coq)ao,ies ea vtable itrvestDenta.

of the tens of utlllty

-7 4-

In a glven coryanl.es Hanpehlrets that nrst wtrose stock hold




a relatlvely tlne.


number of such as whlch means nanagers and

rnay be held

et a slngle



around 20 dlfferent pool twenty

companyts stocks, lnvestment that

out of the entlre be able to find at

posslble least.

of Lnvestments, at any glven tlne

are stable

profltable. entlre

The comblned total 1400. tt

of the ttro llsts 642 of all


35.312 of the llsted ln of


Out of roughly

the coupanies

the llicroscan,

mtrst be posslble Large, shether outlook. small,

to flnd

the rlght etc.)

numbers and type wtth which at

conpany (whether Ia the analysis, depends upon your the renal.ning Mlcroscan to flnd

growth-oriented, posLttvely look

to invest. flgures about

you look

or negetively at the totals


You should Industrteg, that frou

and thlnk

60Z of Baslc

the renaining these hundreds secure. It

642 of of

the entlre we need

1400, aud rerember only twenty


whl.ch are flnancl,ally

can be done.


t :c



rYE.E^9E :o/20 Furt

!irnL, I

I J 4


6 7

9 _10


t2 l3
la _ 15 t6



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ta t-f

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2A 2l 22

2a 25 26 -28 29 _30 3l 32
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{a tt5 l6 rlZ tlg tfe




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Wagi ng Peace at



by Chuck Collins

w:ith Doug Tooley


One of the more laudable elenents of our proposal to divest from companies that produce nuclear lreapons is that it aproaches the roots of militarisn at a more fundanental level. The freeze campai.gn has brought the reality of nuclear war to the attentj-on of the najority of Anerican citizens. But lt is evident that the freeze movement as it stands attacks only a synpton of the disease. Several members of our comunity have been exploring, in detail, this question of tVhat are the roots of the arms race?tt Professor Al1an Krass taught a course by that name which exanined different theories; bureaucratic, strategic, econontc and ideological, ln an attempt to locate the doninant, driving force of the extermini.st technology. The genesis of the arnsi race becomes even more (the quest for compllcated when we see that strategic interests technological advantage and invulnerability) are actually shaped by economic needs, bureacratic structures and ideological assumptions. Richard Barnett in The Roots of hlar shows how the business creed and corporate interests shape the di.rection of Anerican foreign policy (and therefore neapons appropriati.ons). Seymour Melnan, author of The Permanent War Economy writes that the political decisions whj.ch support the war economy are ttrooted in the ecomomic interest base of part of the economy, but are also given political support from the rest of society that has been ideologically trained to regard the war economy as necessary for the well-belng of all. ft (Melman, p . 287) people working to end the arms race must transform Therefore the gearworks of the arns race as well as challenge the ideological active agencies conducting foreign policy. One could argue that, waging peace on this level is no different from the novement for SRI. As Alexander Cockburn rrrites in the Vil-lage Voice nTo reverse the momentum of arms spending in the United States requires, in the end, perhaps one alien to many a nelr social and political order mustering to the freeze movement today. A broad movement nust, self evidently renain broad, but the denands of consensus should not exti.ngui.sh political debate or seemingly uncomfortable proposistions. rr The whole issue of corporate ties to the rrms race is very touchy. It is one of the ideological assunptions of our socj.al order that our functions for the benefit economic system of hunan needs. But the reality of the nnarket is that it treats all goods and services sfunply va1ue. for investment and Ethical criteria on their dollar production are outside the realm of narket considerations. An excellent example of this is the Gross National Product, how we measure econonic health. The GNP measurement makes no distinction between soci.al utility and excess.


It is quite easy to show that there are nany corporations which profit from operating in oppressive countries, the cold rdar and war ltself. Unfortunately wr as benificiaries choose not to think about give our taciL consent. it and A relevant question here ls whether those corporati-ons which benefit from the weapons build-up use their power to influence the decision-making process of the U.S. government. This questi-on has not been answered conclusively but at the very least their political beliefs, wtrich may be influenced by their profit-making, gi-ve ideological confiruation to the justificati,on for nuclear escalation. If there is ever a large scale divestment fron nuclear weapons producers the profitability for the renaining investors should be lowered by a large margin. Ttris would allow then to look at the lssue more cleanly. Divestiture does not end nuclear weapons production unilaterally as some opponents suggest. We do not advocate this nor believe that SRI could ever bring iL about. The symbolic statement alone is extrenely strong. To divest says rire do not believe in war and will' not take its benefits. One further value of divestment is that it spurs, by media coverage, the wide-spread movement for SRI. This is a big step fon*ard for the freeze novement, whether it succeeds or not is a big question " IrIe can say no to nuclear lrar but are we willing to pay the costs?




and the production

of l,reaponrv


by Bram tevin, Beth Marcus, Chuck Collins, and Barbara Mcqueen I.4arch 13, 1992

Matt Goodnan, Ton Stoner,


To understand why and how our arsenal continues Lo expandr w must understand the nature of the.uilitary industrial is a "orpi"*...It trenendous polltical and econoni.c nachine, upon whlch thousands of bureaucrats and millions of workers are supported. Conversion is not rn idealistic solution to the arms race, realistic alternative for the hunan race. . Brandon Fine, "Conversion and the Arns Racer" Social I Exam, Spri.ng L979. but a

Science Division

What threatens our i.nteresSs-vfusf, causes us even mental unssss-is seen as outside ourselves, as the Other. We can ki11 thousands because we have first learned to call then ttthe enemy.tt l.lars cormence in our culture first of all, and we kill each other in euphenisns and abstractions long before ttre first nissiles have been larrnched. E.P. Thonpson, Letter to America


For the PurPose of these guidelines, SOCIAT II{JURY rri11 be interpreted to mean: the injurious inpact which the activities of a conPany are' found to have on consrrmers, eurployees, or other persons, or the environnent, particularly including- activities which violate or frustrate the enforcement of rules of donestlc or international law intended to protect individuals against deprivation of health, safetyr o! basic freedom.


INTRODUCIION CII0IR, a subcommittee of the Finance Connittee, was created in response to the grow'ing concern of students over the college t s What energed investments in corporations operating in South Africa. from this vigorous debate was the articulation of a college investment policy that sought to avoid corporations that further sociaL injury. During the five years CH0IR has been j.n existence, the South Africa investnents have been the only ones that have been However, there has been sone considered as socially injurious. liuited di.scussi.on about withdrawing investment, from companies in other human rights violating countries, and companies that manufacture nuclear power plants and nuclear vreapons. In the last two years we have witnessed a Large nrrmber of Hanpshire students and faculty expressing concern about, and organizi.ng around the i.ssue of U.S. nili.tarism and lreapons production. In Aprl1 of 1981, the college community participated in a Freeze. The referendun on the U.S.-U.S.S.R. Nuclear Weapons students, faculty, and staff voted overwhelningly ln favor of the freeze , 934 to 2L. The Hanpshire Coalition for Peace through hosted a Disarnanent, a student group with broad based participation, national, inter-collegiate conference on the Nuclear WeaponsFreeze in the Fall of 1981. Over two hundred students, fron over 25 different colleges, came together to discuss the arns race and the role of the U.S. weapons industry. 0n sampus there are also groups which have been active around i.ssues of Central Anerica, regi"strati.on and the Draft. Several dozen students are engaged in academic projects rel-ated to U.S, srilitarisn and the U.S" weapons industry. portion of the student body and faculty A Large, well-inforned believe that the U.S. weapons industry, and primarilly the top 75 weapons producers, causes social injury donestj-cally and abroad. This report specifically addresses the injurious inpact the top 75 have upon the United States economy and citizens, the ways in which 1aw, the the top 75 have vioLated donestic pol-icies and international i-mpact lreapons production has on our environment, and the threat the top 75 have inposed on world peace. There are several reasons why we have chosen the top 75 weapons nanufacturers as the concern of this proposal. ' Most of the contracts awarded by the Departnent of Defense are concentrated in a handful of corporations. Out of 231000 companies recei.ving defense contracts, the top 100 conpanies obtain two-thirds of the dollar value of the awards granted by the Departnent of Defense. fn this proposal, we have singled out the top 75 corporations which recei.ve contracts solely for lreapons manufacture, rather than the broader issue of defense work per s. For example, this proposal does not target companies involved in the production of either oil or uniforns for the Pentagon. As membersof the Hanpshire community, rde feel we have a responsibllity to scrutinize what our own institution is doing to promote or retard fundamental hunan rights. Divestment of the top 75 weapons producers would represent a significant step towards creating -96-

a socially responsible investment portfolio. Such a step would gpsng to peace, progress, signal to others Hanpshire College t s c,emmi and social justice. MILITARY SPENDING AND fiIE ECONOMY Since lJorld I'Iar II, it has often been argued that nilitary spending stlnulates the A[erican economy by generating increased productlvlty and eoploynent. During I'/orld War fT this process did in fact hold true as the war econony helped Anerlca shake off the Great Depresslon. Over the Long tern, hovever, nilitary spending has had exactly the opposlte effect. Since 1'945, the nllitary has consrned the greatest portlon of capital and vital resoulces, while yieldlng no product useful for conauoptlon or further productlou. Decades of h'igh Eilitary spending have helped to create lnflation aud uuenplolment, have drained scarce resources, and have decreased our cotspetltive edge in the internatlonal narket. One does not have to look very far to see the deterioration of the autonobile lndustry, the steel iodustry, nachine too1s, radlo and televlsion natrufacturing, rallroad equipnent, precisioo optics, and naoy nore. Ihe military hae been reeponeible for dulling our coupetitive edge in the world narket by lnvestlng huge suos of capital for non-productive purpoaes. Our lndustrlal base has been drained because public speuding has been dlrected touards producing soclally and econouically useless products aod has not increased our capacity to leet huuan needs. As Iester Thurou points out, rnllItary spend:ing ls a forn of consunptiotr. It does not lncrease our ability to produce goode and servlces 1n tbe future.tt (#1) As the result, growth rate dropped to 2.lZ by the productlvity 1965 and to 1.82 by 1975. The UnLted States has had the loveet rate of productirity nation durlng the pest of ary hlestern fudustrial years. fifteen By L977, growth for every $100 spent on lacreasing productivlty, By contrast, to the Ellitary aector. $46 rras allotted West Gernany allotted sector, $18 out of every $100 to the Eilitary and Japan gave $3. It is not a coLncidence that both Japan and l{est (#21 growth rate has been above 52 annually. Gernany's productivlty Arother inevitable result of nllitary spending is inflatioa. firis is true for two reasona: 1. Payi:rg workers to bulld fleapons rrl11 increase donand for baeic goods and gervices but doee not siEultaneously increase the supply of basic goods and services. 2. The funaelling of billions of tax dollara irto a handfuL of large corporatloae has created veritabLe nonopolies which are no longer responsive to fluctuatl-one in the econony. Because these corporationa are so large, they can set pricea a.od through vertical nonopolization can prevent other companies fros entering the msrketplace. (#3) This Deans that durlng periods of receseion, these corPorations can reglst lowering prices to upgrade darnarld, and can even raise then to neet their proflt ojectives. Military spendlng, due to its capital-intensive nature, also generates nore unenploynent thao other areas of econonic speuding. A U.S. Departnent of labor study found that a billion dollars spent on -97 -

energy development, areas such as environmental control, alternative would yield on the average 201000 more education, and nass transit, jobs . (#+1 It is beconing clear that our increases in weapons expenditures are not increasi-ng our security or power in the world. They are, in As Richard Barnett writes: fact, havlng the opposite effect. trExcessive rrilitary spending now produces some of the same consequenses as nilitary defeat; that it gi.ves foreign governments greater control over the life of Lhe country.tr (#5) Excessive military spendi,ng creates a decrease in productivity. ft creates inflation. It creates unemploynent. The sum total of For these statements is ttrat it, undermines our econon-lc strength. all these reasons, w conclude that the current 1evel of American weapons expenditures is injurj-ous to our economy and the American people as a whole. MILITARY SPENDN'IG AND SOCIAL PROGRA},IS There is a lot of talk about security these days, but it is unclear what exactly is neant by that when the sacrifices made for The international securi.ty so obviously threaten domestic security. There resources of this country, although vast, are not limitless. must be a balance struCk betryeen spending for defense and noney spent on social services and hunan development. Although it is difficult to separate the role of corporations in matters of defense, the complicated relationstrip between them is more Tttis argument w:tll specifically addressed elsewhere in this report. be restricted rray defense spending in its present form, is to the socially injurious because or its negative effect on donestic spending. The priorlties are heavily skewed of the current Adninistration in in favor of defense spending. trtlhile cutbacks are being instituted alnost every area of social services, the United States is sending nilitary aid to repressive regimes and building redundant nuclear weapons, in the name of ttdefensett and security. Particularly affected by the cuts in social spending are women, children and the elderly, of aLl of us suffer the losses. Seynour Melman published an article i.n The New York Times (7 /26/82) ln which he discussed the ways that this countryfs vital services have suffered at the expense of the modern military budget. Included was a list of trade-offs that the Reagan Adninistration riras making 3 a trading of conservation for military. For exanple, the $34 billion that would be required for the I'fi nisslle, first cost, could pay for a ttcomprehensive 10 year enery-efficient effort to save 25 percent to 50 percent of United States oil imports. rr The $100 billion which w'i11 be ttseven percent of the nilitary outlays from fiscal 1981 to 1986" would rehabilitate the U.S. steel industry, to naking it the most efficient j.n the world" And the list goes on. Very sinply, because of the enormity of the defense budget, basic human needs are no longer being met by the government. While the President assures us that he has preserved essential services for the truly needy, more and more people are feeling the effects of Reaganomics and realizj-ng that they are paying the price of inflated -98-

defense spendi-ng. May 1981 sarr 100,000 people denonstrating in hlashington against U.S. uilitary aid to El Salvador. Traditionally conservative groups such as church councils and college adninistrators are joining more progressive groups in voicing their oppositi-on to current levels of defense spending. 0n February L6, L982 The New York Times reported on the annual neeting of the executlve council of the AFL-CIO, Despite the AIL-CIO! s long standlng support for a strong national defense, the rrThe Presidentts L982 State of the Union Message council asserted: and his Budget message add up to a total disregard for human needs and for the economic and social costs of high unenployment and recessioo. tf Lane Kirkland, president of the AFL-CIO, criticized the Reagan progran for proposing that, ftthose who have the least to give and who have gained the least from the fruits of our denocratic societytt should bear the brunt of the nation t s economic hardships. 0n February 18, L982 in The Tines, Albert Shanker, presi-dent of the Anerican Federation of Teachers ttwho refers Lo hinself as a t certified hawkt expressed concern about the amount,of money spent on money the military without proper investigation to see how nilitary should be spent and where waste natght be.tt Also on February 15, L982, The New York Tines carrj.ed rn article about the ways colleges and universiti.es will be struggling in the face of cuts equaling as much as $2.2 billion in Federal noney for student aid. These cuts in financial aid will prevent nany students from returni.ng to college, and schools will be even harder pressed to meet their rising costs. Ilampshire is only one of the colleges nationwide where cutbacks in increasing the nunber of rrnemployed persons, dnd virtually assuring ttrat educati.on wiLl becomea bastion of the wealthy. In addition, the overall standard of education in this country 1r:t11be lowered. It is a matter of fact that .there is noL enough noney to increase defense spendlng rclthout cutting spending for human needs and vj.tal services. In light of the tremendous power that defense power that individuals, corporations wield, and the linited including women, children, the elderly and the poor hold, it seems mandatory that we denonstrate that rre do not support the stockpiling of nuclear arns or aid governments which repress their people while people in this country are deprived of their basic human rights.

DOI'IESTICINFT.,UENCE ITIE TOP 75 OF The top 75 weapons manufacturers have engaged in a wide variety of activities to influence Congress. Their financi.al objectives are to get Congress to raise nilitary spending and to but the latest, most sophisti.cated weaponry. These activities include lobbying, supporting political action comnittees, and engaging in propaganda campaigns. The amount of noney these corporations spend on pursuing their own j.nterests far surpasses that of any public interest groups. A study of the top five defense contractors (Boeing, Lockheed, Rockwell International, I"lcDonnell Douglass, and General Dynanics ) -9 9-

shows that a total of $16.8 xnillion was spent by the companies to operate their offices in hlashington, D.C. during L977 78, and Lhat the companies! Political Action Connittees, the largest corporate PACs, averaged $811000 each per year in total disbursements during (#01 the same tine period. In reference to the influence of the large corporations doing business with the Pentagon, Adniral Rickover, in his farewell statement to the Congressional Joint Economlc Comittee said: 'rPolitical and economic power is increasingly being concentrated among a few large corporations and other officers-power they can aPply against society, Government, and individuals. Through their control of vast resources these large corporations have become, in effect, another branch of government. Ttrey often exercise the power of government, but rclthout the checks and balances inherent in our democratic system. tr (#11 Rickover goes on to document numerous contract violations and cost over-runs of the top defense contractors. Due to their size and donestic influence, these corporations are able to undermine democratic institutions and violate the basic laws of a narket economy "

E}IVIRONMEI{TAL EFFECTS Conpanies engaged in activities which cause harm to the environment are suspect of violating Hanpshire College t s investment guidelineS. The products of the top 75 weapons nanufacturers clearly are guilt,y of this. The use and production of weapons not only drains economic resources, it poses a serious threat to our environmental safety as well as our hunan and natural resources. fn order to Prove the environmental injury of the nanufacturing of weaponsr w have found it useful, .to divide different weapons systems into three catagories: nuclear, chemical-biological, and conventional. The atonic bonbing of Hiroshina and Nagasaki in L945 has made the destructive power of nuclear weapons knonn to the world. In the past thirty years the increase in numbers and sophistication of nuclear weaPons has increased the destructive power in the United States arsenal several nillion-fold. A full scale nuclear exchange between the United States and the Soviet Union would result in the obliteration of all major cities in the northern henisphere, and would ki1l the najority of the urban population. Most of the rural population would be ki11ed by blast and fire. Nuclear fallout resulting fron the nuclear blasts would seriously reduce the ozone layer, causing change i-n global climate. The use of chenical and biological weapons would also have serious environmental consequences. Chemj.cal weapons such as defoliants, Agent Orange, napalm, and other incendiary weapons were used by the United States to denobilize the guerrL11a forces in the Vietnam War. Their use resulted in long the ecological inbalance of Southeast Asia. Even though there are international agreements against the use of biological vreapons, the United Statesr BS well as nany other countri.es, is stockpiling chemical and biological weapons


at unprecedented levelg. Biological neapons (1.e., 1etha1 l-lving organisns) are Their inpact would relatively uacontrollable and indiscrininate. extend beyond the battlefield to innocent third parties. There is no uay to control the spread of the biological organisrns to Livestock and crops through winds and water currents. We do not know what the potential iEpact chenical and biological weapons would have if the stockpiles of these weapons were actually used. Fina11y, one should not underestinate the environmental destruction caused by conventional warfare. The bonbing of Dresden in lrlorld War If kiLled as tuany civilians aa the bonbing of Eiroshr rn.. It required nillions of dollars to rebuild Europe I s industrial aud agr:icultural base after the destruction of World lrlar II. The hlar seriously depleted Europe I s foreats and, in sotle cases, caused severe soil erosioo. Not only does the use of the above-nentioned reapona cauae injury to the environnent, but the construction of these fleapotra Extractiag threatena our safety and squanders our natural re8ources. uraniuE fron the earth for the production of nuclear explosi.ves exposes niners to toxlc radiation. Nuclear Eaterials Eust be tratrsported fron extraction facilities to productiotr sites by rail and roadway which iocreases the possibility of sabotage and radiation leaks. During the 1950rs atrd 60's the testing of nucLear reapons areas of desert conta$iDated our ateoaphere and destroyed signiflcant ir Utah and Nevada. Ttre public anreness of strontiun 90 in nilk during the 1950rs brought about public resi.stance to the teeting of nuclear weapona wtr{ch forced the United States government to make an Even agreeEent rith the soviet union to ban above the ground tests. (knoun as the Partial Test Ban treaty), though thiE agreenetrt exists undergrormd tests continue to release radioactive lsotopes into the atnosphere. Finally, the nuclear waste generated by the production of nuclear ueapons nust be stored in isolation. As of yet no satiafactory technological solution for its dispoeal bas been developed. The devel-opnent of chenical and biological neapons pose the sane dangers as nuclear weapons. The stockpiling of these weaponst represents the constant threat that soEe day they $i11 be used. production, and storage of theee rreapons risk an Transportation, accidental release. Serious accidents of this kind have already occured. The 1950 release of a bacterial agent, Seratia, resulted in (#9) the deaths of tvelve innocent people. pover of rdeapons In the past century the potential destructive has increased to the point where lt is nor possible to destroy the rrorld. The obvious threats posed by the use of thege r{eapons and the serious environmental danage caused by accldente atrd testing leads us to believe that the productiotr and use of weapons today endangers us to the extent that there can be no question as to their socially injurious nature.

It is little more than a truism to assert that any

- 101-

weapon--whether conventi.onal, chenical, biological, or nuclear--is inherently a threat to peace. Ilowever, in our tine it is one forn of hreaponry, the nuclear weapon, which clearly poses the most serious threat to peace, Erd which menaces a type of war that hunanity has never before experienced. Therefore hre r^ri11 generally confi.ne this section to the questi.on of nuclear weapons. Simi-lar arguments, it night be added, could be made for the three other forns of weaponry. j.nvented and first used ix L945. Nuclear weapons were first This does not mean, though that the development of increasingly accurate and powerful nuclear weapons has stopped. We are all aware that it has not. For the sake of brevity r w wlll only focus on one srrch innovation here: the MIRV" A MIRVed nisslle ls one ttrat contains several independently targetable warheads on it. Each rrarhead can strike a different target. What this means is that one missile has the capability to destroy nany of the other side?s missj-les. For exanple, one Trident subnari.ne can carry about 400 warheads, but it would onl-y take one warhead to destroy it. fn terms of the actual numbers, all 91000 U.S. warheads could be destroyed by about Lr20O successful Soviet shots, while all 61000 Soviet nissiles could be knocked out by about 1,500 well-ained Anerican warheads. (#tO) Therefore, the United States has about six times the number of warheads needed to destroy the Soviet deterrent, while the Soviet Union has about five times the necessary number. . Thi-s does not mean that there could be successful disarmi-ng first strike by either side. But what it does mean is that there is an advantage-an increasing advantage-between striking first and striking second. When the issues are as great aE national security and world peace, this situation certainly has ominous consequences. trMost governments when asked As Hernan Kahn describes the sltuation: to choose between war and peace are like1y to choose peace, because it looks safer. These same governments, if asked to choose between getting the first or ttre second sfrike wiLl very likely choose the \ first strike. They wiLl do so for the very same reason they chose \ peace i-n the fi.rst choice; it is safer... As soon as either side thinks that war is probable, it is under pressure to pre-enpt.. . The i,nstability is caused by f the reciprocal fear of surprise attackt, in which each side feels a pressure to strlke nainly because it feels the other side has exactly the same pressure.tt (#ff) We need only look as far as World War I for a historical exanpLe of rrthe logic of weaponrytr l-eading nnwilling nations to war due to the advantage of striking first. A.J.P. Taylor gives this account, unnervingly similar to the situation we face today: ttNowherewas there conscious deternination to provoke a vrar. Statesnen nj.scalculated. They used the i.nstruments of bluff and threat which had proved effective on previous occasions. This tine things went r,Jrong. The deterrent on wh'ich they had relied failed to deter; the statesmen became the prisoners of their own weapons. The great armi.es, accumulated to provide security and preserve the peace, carried the nations to war by their o!{n weight. tt (#tZ1 As a final noter we would like to mention that ttpeacetr does not anong nati,on-states. There is also the 9n1y refer to relationships ttpeacett that can only exist anong generations that can pi.cture a future several generations down the road. Clearly, nuclear weapons



have destroyed thJ.s peace. Dr. Joha Mack conducted a study of Bosto! hlgh schooL students between 1978 - 80. Thege are his concluslons: ttthe questioonalres showed that these adolescents are deeply dleturbed by the threat of nuclear war, have doubts about the future aud about their own survj.val. Ttrere is also cynicisn, sadnees, bitterness and a senae of helplessness. They feel unprotected. Sone have doubts about planning fanri.15.eeor are unable to think ahead in any long-terB sense. tfe nay be seeing that grorring up in a world d@lnated by the threat of im:nent nuclear destruction is having an iupact on the structure of personality itse1f...It seens that these young people are growlng up rrithout the abllity to forn stable ideals or the sense of continuity upon whlch the developnent of stable persooall,ty Etaucture and the fortnatlo! of servlcable ideals depend. We oay find we are raising generatione of young people rithout a basis for naklng long-tem couoltsents, who are given over, of neceasity, to doctrlnes of iupulsiveless in thelr personal (#13) relationshipa or cholce of behavlors and activities...tt ?rinpact o! the structure of personality It iB thls itself, tt thig growth of cyniciso, apathy, porrerlessnegs-whlch is directly related poses ln aone to the steadily eecalating nuclear arDur race -that nays the greatest threat to the long-tern peace of the worLd itself. Beyond a doubt, it is socially inJurious to ralse a generatioB of young people rmder the shadon of nuclear nar. CONCLUSION This paper has attenpted to show that our current, levels of military spending are in fact decreasing our security in the world. Real national security comes from a stable economy with full enploynent provisions for substantive hunan needs. ReaL security rrill come from decreasing the exports of weapons and lowering the prospect of nuclear r{ar. Ttre present course of U.S. policy is gravely decreasing our national iecurity. Furthermore, those i.n porrer all too often seek military solutions problens. to political Vietnan, Afghani.stan, Guatemala, and EL Salvador are just, a few examples of the doctrine of force taking precedence over the principle of negotiation. Demilitarization of the world must start now, before the endenic occurences of global violence becone epidenic and irreversable. The people of the United 'governnent States are connitted to peaceful ideals, but the U.S. is also the leading proponent of arns sales to the Ttrird hrorld. The U.S. as a world leader should put an end to this dangerous and paradoxical policy by developing a new policy of deniLitarization of the Third World and by pressing for an international agreenent on Elrms traffic. With the U.S. Leading the way, other arms-exporting nati.ons would be hard-pressed not to follow suit. Such a policy hrill not be adopted, though, until the people of the United States speak up and te1l those in power that nilitarisn is no longer acceptable. The path to a more peaceful world is not an easy one. As President John F. Kennedy sai.d, rrMankind must put an end to the arms race or rrms will put an end to the human race. tt It is j:r this vein that this proposal is being made, in the hope that the Hanpshire College conmunity on contribute to the struggle for a safer, more -





FOOTNOTES 1 Lester New Yorl< Thuro'nr, t'How Reagan Can Wrecl< the , May L4 , 1981 . Means of Economyr"

2 the Selrmour Melmanr "Looting The lleLYorl<_ filqe_g, JuIy 25 , 1981 .



3 - "The Inflationary Impact of Unemplo]rynent, " a study Waslrthe ,Joint Economic Committee of the U.S. Congress, for 1976. ington, D.c.: covernmerit Printing office, of the 4 - U.S. Department of Labor, "The Structure Economyr 1980-85r'r washington, D.c.: Government Printing 1975. 5 - Richard Sch.uster, 1981), Barnet, p.98. Real Security Trianqle (New York: (Nev York: Before U.S. Officer

Simon and Council the on Joint

6 - cordon Adams, The Iron Economic Prior j.ties, 1981).

'tstatement 7 - Admlral Hyman G. Rickover, Economic Committeer " ,January 28, 1982. I - Arthur H. westing, The State published by the united lliii@ the 9 - .Arthur Environment H. westinq, weapons of (London: i;y of the

Environment, sz. and

Mass Destruction

t'The Evolution 10 - Allan S. Krass, of Military and Deterrence Strategyr'r SIPRI Yearbook ( Stockholm: International Peace Research Institute, 1981). 11 - Herman Katrn, On Tfrermonuclear

Tectmolog'y Stockholm




War (Princeton:

12 - A.,J.P. Taylor, The First corn Books, L972), p. 16.

World War (Nev York:


13 - Dr. .fohn Mack, "Psychosocial Effects of the Nuclear Arms Racer" Bulletin of the Atomic Scientists, April 1981, pp.19-20.


From :

The Faculty;
Chucl< Co]. l ins

f or the

and the Students

Board of for

Trustees Re-


spons ibi lit.y

Re: Date: Response to May 13' Memo from Adele Simmons ' May 1 1 r LgBz


once again the motives It is important for us to clarify proposal that will and concerns reflected in the divestment be voted on Friday in the Finance Commj-ttee of the Board of Trustes. As President out in her memor . there are Simmons pointed address the contwo parts to this proposal. This memo will part of the proposal which urges the cerns over the first divestment of the CoJ.J.ege's holdings in the weapons producers of the top 100 defense contractors. policy The proposed investment is not meant to "imply policy that even a rational is of national self-defense socially injurious." Our paper atLempts to show how major weapons producers, within the context of our present foreign policy and nationaL objectives, to social injury contribute guidelines. as defined by our College t s investment We asserted this by showing the ways in which these major weapons producers violate international laws and treatis r undermine our country's democratic institutions, threaten world peace, cause environmental damage, and destabilize our economy. A second concern was that, 'rHampshire not become so strongly political identified wittr a particular view that free inquiry would be compromised." The Collelge is making a political statement by its economic support of the weapons industry" ft is myopic to consider divestment which might as an action compromise "free inquiry" while not considering tacit consent and collusion with major weapons producers a poJ.itical statement in itself. The third major concern over the proposed policyts implications f or the "healttr of the colJ-egerr is indeed ttre most difficult. There is a legitimate concern that the College may lose money in the process of selling its stoclcs even though the proposal urgies that the securities be sold,- . rrat such a rate and in such a manner as not to financially endanger the Colleg. rr It, is al.so possible that the corporations which we choose not to invest in may talce offense anC refuse to give donations to the College" This however, does not seem to have been the case with the South Africa divestment. Our present guidelines do not al.low investments in almost 4OO coriorations which operate in South Africa. The weapons proposal addresses itself to less than 70 corporations, 30 of which operate in South Africd r and hence are already excluded by our present guidelines " Will choosing not to invest in these 40 jeopardize more corporations substantively gift-giving? corporate Another financial concern is whether the College I s -106-

options wil]. be severely for investment limited. Our research and discussions vith members of U.S. Trust and other firms specializing in socially has shown that responsibte investing, the Collegers investment options will not be seriously limited by not being able to invest in less than fifty major weapons producers. Very fev major weapons producers r,tould be desirable prudence investments for the college for reasons of financial a1one. Because of the nature of major defense contracts, the stability of these major corporations tends to fluctuate. There are many other institutions, church groups and foundaguidelinesl tions which have much stricter ethical investment and yet remain financj-ally stable. whatever the ri.sks the College might experience should be measured against the health other forces which are endangering of Hampshire College. It is true that members of the College comrnunity have been doing important work to artraken the American public to the dangers of nuclear But as war and mj.litarism. many of us have found in this work, the arms race is not an phenomena rf,hich is totally aberration. It is not an abatract policy goals of the United removed from the foreign States' fron the lifestyle we have as Americans, and from the w-ays in r'rhich we treat in one another. The arms race is deepLy rooted our culture, our nation's viev towards the rest of the world, in our economy, and in our institutions. As individuals we need to speak out against the arms race. We also must pressure our institutions and demand that they do not collude vith the arms race, not profit from the manufacture of veapons, and not condone with silence the polj.cies of our goverrunent. At this moment in history it is very easy to speak out against the arms race. What is difficult is to divest oneselfr one's institutionrs and oners country of the privileges we derive from that which ve abhore. ft is one thing, year to endorse overas we did as a College commurlity last vhelmingly the U.S.-U.S.S.R. nuclear lreapons freeze. It is quite another statement, and one which has more lasting meaning, to make a choice not to profit fromr and condone, the arms race. What is rea].Ly threatenj.ng the health of Hampshire College? Is it a group of students and faculty vho are pressing the College to face the contradictions between its professed ideals practice? and its financial Or is it the threat of ni:clear coming from the possibility annihilation, a lJovernment which transfers money from student loans to the Pentagon, and a society which has confused its priorities with regards to education and milj-tarism? It is the view of this group that the moment has student come when we must clearly articulate what is really threatening the health of the College, and act to challenge that threat. We hope that you will support our efforts, understand our urgency, and join us at noon on Friday for a ra]-ly in front of the library and a march at 1:00 p.m. to Blair Hall. If you would like a copy tions, cal]- Chuck Collins of our report or have further or Matthew Goodman at x273. ques-

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lastern Ulcbtpa Unlv -z{lchlgao Stete Unlvcrsl,ty {trchlgaorUnlversltt of -louot l8olyoLe llcr Bnrnsvlck School o! Ttrcology lcr ?orkr Stete Ual,vcrsit5z of at Ocoota Oblo State Uolrrerslty lhto Unl,verslt5z --)regon State Schoolg Rutgers ilttb _irastlrrore Tufts lnion Ttreologf.cal Scolnety
-- Tagetr fcsleyao -111!!.nc

600r(xn 1, 200,000
2"5 Dtllioo 7 "2 n1111m 306. Ll7 .57 459,000

3 corlroratloos 2 cotToratloos 1 corporatloo 15 corporetlooa md brnks 1 corpoartloo 1 cotaontl,oa 1 benk 1 corporatl,oo 4 cotporatloog 27 corpoaatlons I 3 2 1 corpoaatton corporrtloas eowel 1'beok bsnk

.77 .92 fgo | 79-80 .79



go,(xxt 2:i0r(xro
60,(XtO 6 ntlllm 697 r72E 2.2 dlllon

!79 , '78-79 r78 P T T P P P P P

'77 -78

t81 t79 rg0 r7g rg0 rgo t7g '79 tE0 '79 .79

4 utllloo

6.5 Ellltm 367rfiro 70or00o 11 nl.lllon 1.6 Dllllon 2.|i dllloo ll ,000 4 dlltoo

-Fleconslo, Uolv of vale ssoclatLon of Strdeots, trcIA Iler YorL Uolv, br School ' Studcat l.r Asgoclatl,oo __-allfornle,Untvcrsity of at Serkelcy

6 beaks I corpoaatl,oo 1 coaporatlon/ 6 bsnks 25 cotaoretl,ons 2 baoke 2 benkc 1 beolc



DI\IESII|BTT BY I'BAR 19763 Erqrhlrc

Collcgc (rctovsrtcd

1o 1978)

1977 t Uotvcrrlty of (bcgao) liarrachusetts, Orcgoo State Schoolr ( Goqlcted 1978) Solth Collcgc l97E: 1982) lnhergt Collcge (cqlctcd Anttoch Collcge rrnp3[13" Collcge (gccood protest) Bourd Ual,vereiESr llrsnchueettg, Univcrrlty of (copleted) tcr Yorlr, Strtc Uolvergtty of, at (boote Ilar York Uolvcrrlty Studcnt Ber Asgoctetton 1979) Ohlo Stete Ualverstty (cqlrtdd otrlo UnLvcral,ty Vesgar 9Lsconsln, Ualvcrglty of 19793 Bostoo Untvcrrity lrandclg 'Cellfornle,Uatvcrrlty Uul,rrcrsl,ty of, et Berlclcy Collcge Cerletoa Colrdta Ualvcrstty R--Fchlre Collcgc (redlvcrted) l{lchigaa, Uolvurrtty of l{tchlgen Stete Ual,verrlty (cqlcted ln 1980) Tuftr UnLvcrrtty Irlc Ualvcrrlty

GrllfonlerUolvurrlty of at loe Aageler, Assocl,etlon of Strdcotg Colby Collcge Erstern ltl,ehlgeo Uol,vurtl,ty Butgcrs Univrrrlty Xcrleyen Gollcge tltlllans Gollegp Sru{ nerfl Uaioo fbeologlcrl

1981: Eenrard' Untvtistty

Lutheraa School' of lltrcologi ldount . Erilyoke Collcgc Sngrtbore 1982: Erverford Gollcgc Iltoc, Uatltrrlcy of .trooCr..l ItGlll Uolvcrrlty, trcr Bnrorrlc}' ltcologicrl Scolnrr5r -109-



Hanprhlre College ll'qulfies lssue of South Afrlca until forned.

sna1l portfolio over i.nvestnent policy ls

0ctober 1977

Trustees adopt liampshire College Investment Policf. Includes creffi tT'iiloa Investnent Responsiblliff . Also a pledge not to nake olnvestxaents whlch support activities whose inpaet is eontrary to fundanental rnoral and ethlcal principles. tr Early deflnltlon of nsocial lnjuryf? try comlanies to be avolded ln the college portfollo. Also states that, eonslstent with these contld: eratlotrer the rprlmary Lnveetnent objectlve ls to optLnlze flnanclal return to the Colleg. ff Flnance Connlttee rneetlng wtth CHOIR votes to dlvest fron eertaln corporatlong dolng business .F|-. InEotlth Africa. Investnent policy adopted EEFE-tEFGIrege should nn6t puiehasb the seeurltlee af any conpany havlng operatlong in Soutb Afrlea. n CHOIR begins dj-gcusslon of college lnvestnents companles that produce weapons. in



0ctober 1981 January 1982 Mareh 1982 May 1982

CHOIR dtscusses and defeats a proposal to divest from top 100 Departnent of Defense contractors. CHOIR adopte a proposal to divest from top weopohsnaklng eonpanies after eonsiderable discusgion. Finance Cornnittee receives reconnendatlon from CH0IR to refuse investment in top weapons producers (aeflned at ttre top- 75 c6ntractors wlth the Department of Defense. ) Proposal is voted down. Finance Committee votes to erea.te a speclal task foree on investment pollcy. fhe ta.ek foree is dlrected to ldentlfy types of lnvestnent tbat the College should have as well a.a guldellnes


Chronology of fnvestment Pollcy on soclal injury issues, Full Board of [rustees confirns bottr Bosltions taken by the Finance Comrnitt. cole sclenee Bulldlng is occupled, then vacated by protesters. June 1982 IASK FORCE0N INVESII',IENIRESPONSIBIIIIY constituted. Student, faculty, and trustee menbers from CHOI.R and Investnent Cornnlttees . Vanessa Ganble ilenry Morgan John Watts Mary Ellen Kurtiss Schloss (other students rotate off j-ttees board. conm and graduate)

Cora Weiss

A11an Krass


Jim Matlack added as adrninlstratlve


On-campus nenbers of task foree rneet to deflne tasks. rntervlew candldates and seleet: Mlke current Deborah Knight as gunner regeaxehers anc student rnembers. June July August task tr'oree neets a dozen tlnes on canpus and on fleld trlpc for Lntervl,ews. Questtonaire rnade up and sent to all llanpshlre gracluatgs, current parents, staff, faculty, and students. consuliation wlth other institutlons and experts i.n the flelb.. Gathering of relevant d.oeirnents . written nateriars circulated among task foree neabrB. tr'ull texts preBared for four-Fart report on summer regearch.
--Introductlon and overview of Lssues. --legal eontext for trustee votes in fiduciary ro1e. --Posslble flnanclal inpact of dj.vestnent o --Frocess lgsues and returns from questlonaire.


0ctober 1 982

Full lask Force spends weekend together ln Anherst. Extended dtseussion; sone sligf,t revj.slons of text s . Prelirninary effort to define guidelines. lask Force also will call- attention to need. for Conflict of Interest rule for ilarnpshire trustees. Extensive aetivlty over following weeks leads to ful1 proposal on investoent guiaetlnes.


Chronology of Investment Po1lcy

Task tr'orce agrees that it is not yet ready to subnit guiCellne proposals on vieaponsand

weapons-fiakefS. Unable to formulate overall alternate approach to npositiveft investment of CoLlege funds.

October IRUSIEES MXEIING FulI reports and guideline proBosals presented. Modlflcation in cHorR nandate also advanced. No guldelines on wea.pons-mskers o ffered at th is tfune. Trustee Executive connlttee adopts strlct policy on conflict of lnte:rest affecting all tiustees, Finance committee and full $]CIE mandate. board. adopt nodlfled

!'inance conmlttee aad full board adopt most proposed guldellnes. Several deferred for more background work. Afflrrative and negatlve guidellnes in force

ll*:iil{}'i#*i:},:,::: ";i:",;"
workplocs o --treatment of ninorities and wonen. --DVlronnental protectlon and conservatloo.


November 0n-canpus task force menbers contlnue meetings wlth December partlcipatlon of lnterested students.

Progress on deflnlng posslble guldellnes on renaining toplcs. No task force eonsensus on text of guidellnes that address defense lndustries and w-apons pxoduct lon.

January 198'

January TRUSIEES MEEIINC Draft of proposed guldellnes dlstrlbuted. Alternate texts on several guideline .'toplcs. No aetion asked a.t this meeting; trustee s comments sought. O n - e a m p u sp r o - c e s s c o n t i n u e s t o r e f l n e p r o p o s e d texts. Off-eanpus task force mernbeisconsulied by mail and phone.



Chronology of Investment Pollcy I,lareh 198, i{areh IRUSIEES MEEIING Six addltlonal guidelines proposed: ---$sglear warheads and delivery systems. ---p3sllferation of weaporur against law and . treatles. ---Q[srnical and Blologi.ca1 Weapons producrs. ---lfsspons makers rrho engage ln lllegitinate behavior. ---Qs6panies eompllcit in severe hurnan rights vlolations, ---$g11era1 weapong-Gokors. Flnance Connlttee adopts Prollferation, tsi,ologleal Y Weapons Producets (revlsed deflnltl6n of Chemlcal Weapons in May), and llunan Rights Vlolators guldellnes. Nuclear and Genecal Weapons-l{akers proposals voted down. FuII Board of lructees debates Nuclear Weapons , exelusion. la"rk Force and Flnance Connittee both rpllt ' on:l'lt.': ' : '' . Strongest convlctloas expregsed on tbls lsgue, Anendment deletas reference to rdellvety systenc. i FulI Board Adoffts, Suclear: lddrheads guLdellne as additionil factor toFffililFt6n of eonpany fron Lnvestneat portfollo, Vote ls 9 ln favorl 6 agalnst, t abstentlong. lagk Force on Investnent Responslblllty ls terrnlnated witb thanke for gerviee of ltg nenbers. CHOfR resuxres lead role ln deallng wltlr lssues pertainlng to soclal recponslblllty ln college lnvegtnent pollcy. FuI1 revlsed text of llanpshLre College Inveatnent P - ollcy.






The Trustees of Hampshire College recognj-ze their own responsibility and the concern of the College community for the moral and social implications of the management of the College's investments. They also recognLze that primary investment their finanobjective is to optimize cial return to the College. Hampshire College will not knowingly .make investments which support activities whose impact is contrary printo fundamental moral and ethical purpose of these guidelines ciples. The is to establish in addition criteria to economic return which the Trustees will when maklng investment consider decisions and when exercising their rights as shareholders. This statement also provides for procedures for forwardlng these concerns to the Finance Committee of the Board of Trustees and to the fu1l Board itself. fI. Procedures A. A subcomnittee of the Flnance Committee of the Board of Trustees will be established and will be called (CEOIR) the Committee on Investment Responsibility. The Comnittee 1. will:


Make recommendations to the Flnance Committee regarding the maintenance and the modification of guidelines. social responsibllity Make recontmendat i-ons to the Finance garding the vot ing of shares " Cornmittee re-

2. 3.

Revlew the way in which the Flnance Committee is interpreting the guidelines and review the performance of the College's investment managers ln carrying out the investment guidelines. Keep the Hampshire t ivit ies. community informed of its ac-

4. 5.

Provide all relevant information in its possession to the Finance Committee and the College's investment managersr especially as concepts and findings that bear on social injury envolve.


rn cases where the Finance Committee does not accept the recommendat ions of the Committee on Investment Responsibility, that committee w111 have the right to


Eampsblre College II. Procedures:

fnvestment continued


Page 2 of 6

Ea&e tts views known dlrectly Trustees. D.

to tbe


Board of

The Connlttee wiII be composed of two people to represent the Board of Trustees, at least one of whon nuat be i trustee, two faculty members, two student members, an alnnnus/ a, aud the Treasuref r E officio. Tbe Tlustee. representatlves w111 b appolnted by tbe Executlve The laculty of the Board. Comlttee .reproselta.leDreseBtatlvea vi1I include tbe faculty tlve ou the Ft[ance Comlttee and ole nember of the f&culty elested at large by the feculty. The student represert&tl.vos stlI the studeot representalnclude tlve oa the Fhance Comittee and <ine studeat elected by the students The Preeident of the College at large. wlll seloct w111 servci aE th6 alumaus/a. A trustee cha,lrna! of the Comltte. The Comittee will have access to the lists of all boldlngs nenaged by tbe College, ard to all pertlneat detir conplled by, or on behslf of, the College' wlth respect to coEpelles has tn whlch an investnelt beeu uede. The Co@ittee E8y lEltlate ft also ttE ora actloDs. mlst respoad approprlately fron to vrltten requeets atry Dnrber ol the College co@rul'ty for act loo or laforma,tlon regardlug responsl.bllity. llyatEert In order to carry out lts fuweatlgatlo! . the College should sollait bforoation fron indlvlduals a,Ed gloupa ln a,ad out comunlty. Betore actio[, 1. 2. ' . 3. tbe Co@lttee tbe Comlttee ard aDalysls, ald advl.ce of the College for





submlt s a recomendation w111:

Glve full consideratlon to tbe facts partles; ments advanced by all Include ln its fi[dings an opinlon ancial lnpllcatlona to the College atry recomended ect lon i

a[d arguou tbe flneadownent of

Include in lts findiags on social inJury n6t oaly lts own opitrion but also the oplnious of otbers witbin the College co@unlty.


Tbe Comittee nust respond pronptly to requests for advice from the Investment Comlttee and the Finance Comittee regarding tbe interpretat ion of these ' guidelines for soclal responslbillty ln itrvestment

Hampshire II.


Investment continued


Page 3 of

Procedures: J. K.

The Trustees requests for

will make the final deeisions aetion f rom the Cornmittee.

on all

The Trustees wiLl inform the Commlttee in writing of the Trustee I s act i-on and a summary of the reasons for the aetion. The Committee may submit recommendations to the Trustees for amendments to the guidelines or the Trustees may on their own initiative conand after sultation with the Committee amend these guldeli.nes f rom t ime to t i,me . for_laggstment Responsibility




hese guidel ines , social in jury will be interpreted to mean: the injurious impact which the aetivities of a company are found to have on consumers r employees r or other persons, or the environment , part icularly activlt ies which including violate or frustrate the enforcement of rules of domstic or international law intended to protect individuals against deprivation of health, safety, or basic freedom. B. primary investment objective The Trustee's is to seek a prudent financial return in line wlth the College I s objectives._ This policy does not preclude the Trustees from determining, from time to time, that invest-

H:3$,*t.T;'ftil':3'il3*'ii,:;"tl$:"1il:"i;'31{ ili unreturn

C. Criteria 1" for Social Benefit and Social Injury Hampshire College does not wish to profit from, nor appear to support or endorse by holding equity securities in, corporations which cause social injury. Therefore the Investment Comnittee is directed to instruct the College's investment managers that, subject to any necessary donor restrict lons and within the Col lege I s guidel ines f or maximizing expected return at a prudent leve1 of risk, they should: 2. FAVORequity holdings in corporations which are good corporate citizens, including more specifically corporations which emphasLze one or more of the following characteristics -116-

Eampshire College III. C.

fnvestment gocial

Policy Benefit and Soclal

Page 4 of

Criterla tor Coatinued a.


provide beneficial goods and services sucb as food, clothlng' bousing, health, educatlotr, transportatiou, atrd safe eEergy; pureue eoergetlc research and development progra^ns that hold promlse for new products of soclal benefit and for increased enployne[t prospects i Ealntaln fair labor practices lnc1udlng exemnansgg6aat policles ln such areas as F1ary afflrnatlve action and worker participatloni nalntelo a safe aad healthy sork eavllooEeut luc1udJ.ng. fuII disclosure to workers of potetrtlal work hazards; denonstrate and wonen; exenp lary treatneot of nlnorltles


c. . d. e.

f lrDs that, proln relation to etrylrouDeutal pltb retectloE, are Enora to be innovetlve spect to policies, organlzatlotal stluctutea, and/or product development i l r,rnE tbet gl.ve evldeace of super lor pertoloalce wttb respect to wEst6 utlllzatlorl and pollutloo coBtrol sbould alEo be favored; are see! to stretgtben local and regloaal sell ae the aational ecoaonles; have a record educatio!. of sustaiued support for as

t. g. . 3. .


AVOID luvestlng ln or holding equities of corporaE6iE whlch caise soclal iaJuryr- oore partlcuia,rly tbose corporatlons rhlch --a. b. c. have operatloEs in South Afrlce;

engage in the product lon or sale of coEponeDts a,nd technologies for uuclear warheads; engage in the production and/or export of gensitlve nuclear and nllitary techuologles whlcb contrlbute to tbe prollferation of weapous in violation of restrictions embodied 1a United States laws or govertrnental regulat ions or la arns linitation treaties to whlch the United States ls a party; directly loglcal contribute -117to the product ion of bioweapons or to researcb and


Hampshire III. C.




Page 5 of 6

Criteria for Cont inued

Socia1 Benefit

and Social


development def in it ions e.

associated be low) ;

such weapons (see

human operate engaged in serious in countries rights violati.ons to perpetuate, and function promote, and finance these conditionsr 4s identified'through case by CEOIR: a factual pursue aetively pract ices ; maintain basis of national unfair and degrading labor



practices on the which discrlminate sex, sexual preference , r:ace , color, or ethnic originr or handicap; harmful, ; irresponsible


engage in substantially practices environmental


manufacture and lor market products which in prodnormal use are unsafe or impure or sell ucts outside the United States which competent U. S, governmental authorities have prohibited from sale or distribution on the grounds that such products are harmful; have markedly inferior records occupational health and safety; with respect to



repeatedly refusg to cooperate with responsible requests from the public for information regarding their performance in relation to any of the above listed issues of concern.


Exercise of Voting Right: 1. The Trustees of ownership stockholders will be used tees I votes:

will normally exercise their rights by voting its shares at meetings of by proxy. The following guidelines in determining how to cast the Trus-

The Trustees will normally be influenced by a proposition which seeks to eliminate or reduce the social injury caused by a company's act ivit j-es, and will vote against a. proposit ion which seeks to prevent such el iminat i-on or reduction, where a finding had been made that the activities which are the subject of the proposition cause social injury; The Trustees will not vote their shares in favor of any resolution which advances a -118-


Hampshire College III. D.



Page 6 of

Exercise of Voting Right: posltion or a social or political question unrelated to the conduct of a company's business (or the disposition of its assets); c. The Trustees w111 vote for disclosure of a company's policies and pract i-ces in areas of publlc lnterest (to the extent that such disclosures do not cause a company competitive disadvantage); The Trustees will vote for election to corporate boards of directors prof qualified sons who w111 not only contribute to good and ethlcal" corporate management, but will also bring greater diversity of interest and coocern for the public interest. Dlvestment: A decisi.on to sell for other than financial reasons w111 be considered by the Trustees if in tbe opinion of the Comnitteee on fnvestment Responsibillty tbe exerclse of shareholders' rights by the College and other shareholders wlll not, withi,n a reasonable period of time, succeed in changing a. conpany's attltude toward a rcral or social problem.



Adopted: Revlsed: Revlsed:

October 7, Lg77 March 9, L979 ( ffl . C. 3. a. ) March L2, ,1983

Definlti,ons3 Biological (1) weapons sha1l be identified as follows:

Microbial or other biological agents, or toxins whatever their origin or method of production, of types and in quantities tbat have no justification for prophylact ic, protect ive or other peaceful purposs. Weaponsr equipment or means of delivery designed to use such agents or toxins for hostile purposes or in armed conf 1i.ct . taken froms of the "Convention on the Prohibition Development, Production and Stockpiling (Blological) of Bacteriological and Toxi.n l{eapons and on their Destruct ion"


Treaty ratlfled by U.S. governmenti Entered lnto force on March 26, 1973. -119-