learn

Online Resources:

• The Sustainable Endowments Institute is a nonprofit organization engaged in research and education to advance sustainability in campus operations and endowment practices.

• The Responsible Endowments Coalition works to foster social and environmental change and to promote corporate reform through university endowments by educating and empowering a diverse community of university members and allies.

Q & A:

Endowment Basics:

1. What is an endowment?
   
2. Are university endowments significant?
3. Who controls our university’s endowment?
4. What are the responsibilities of those who control the endowment?
5. Who manages day-to-day investment decisions here at UH?

Shareholder Basics:

1. How can a large university act as a shareholder?
2. What are shareowner resolutions?
3. How do universities vote on shareholder resolutions?
4. What universities take an active role as shareowners?
5. Are there any precedents of shareowner engagement by other institutional investors?
6. Is shareowner engagement legal for institutional investors?

Implementation:

1. How can we implement a shareholder engagement policy here at UH?
2. What powers would be given to the committee?
3. How would students and faculty be represented?

1. What is an endowment?
   

   An endowment is a fund that holds its principal in perpetuity and only distributes its income.

2. Are university endowments significant?

   Yes, they’re significant to both the national economy and the university.

   Currently, 765 colleges and universities have combined endowment assets of more than $340 billion.

   Largely funded by alumni contributions, endowment income helps pay for part of the operating budgets of colleges and universities. Endowments have soared in value in recent years, sometimes surpassing tuition as a source of income. Endowment income can pay for a significant portion of the cost of student education, thus minimizing tuition increases, while enhancing resources.

3. Who controls our university’s endowment?

   The Board of Regents of the University of Houston System control our endowment. Specific committees within the Board, such as the Endowment Management Committee, are directly responsible for its management.

4. What are the responsibilities of those who control the endowment?

   The concept of fiduciary responsibility has traditionally guided those who make the decisions related to endowment investments. For almost two centuries, the “prudent man” guideline for fiduciary responsibility in investments has meant maximizing financial return while minimizing financial risk. This generally accepted understanding of fiduciary responsibility has avoided dealing with externalities like environmental and social issues.

5. Who manages day-to-day investment decisions here at UH?

   Actual investment decisions are usually outsourced to professional investment management firms and/or mutual funds.

1. How can a large university act as a shareholder?

   Endowment investment decisions are an expression of universities’ financial values and priorities. Schools that own stocks in corporations have shareholder rights and responsibilities, including the right to engage in constructive dialogue with corporate executives as well as to vote and introduce shareholder resolutions, which are included in corporations’ annual proxy statements.

2. What are shareowner resolutions?

   Shareowner resolutions provide a formal process for shareowners to request information and/or policy changes in corporations in which they invest. Shareowners that have held at least $2,000 in company stock for a minimum of one year may submit a resolution for consideration by all shareowners of the company, most of whom vote by proxy. There are hundreds of shareowner resolutions submitted every year dealing with environmental, social and governance issues.

3. How do universities vote on shareholder resolutions?

   Recent research by the Sustainable Endowments Institute indicates that fewer than five percent of universities with large endowments make their own proxy voting decisions. Most schools delegate proxy-voting decisions to the same outside firms that they use for investment management. These firms have a strong predisposition to simply vote with corporate management on all environmental and social shareowner resolutions.

4. What universities take an active role as shareowners?

   A growing number of schools have taken active roles as shareholders by creating advisory committees on shareholder responsibility. Schools that currently have student participation on committees considering proxy votes include Bard, Barnard, Brown, Columbia, Dartmouth, Harvard, Penn, Stanford, Swarthmore, Vassar and Williams. Furthermore, Swarthmore College has been a leader in direct dialogue and engagement with corporations by filing several shareholder resolutions.

5. Are there any precedents of shareowner engagement by other institutional investors?

   Engaged shaerowners represent a broad spectrum of institutional investors.
   Mutual Funds: In response to an SEC ruling in 2003, all mutual funds and investment managers are now required to have proxy voting policies and to disclose how they vote on each proxy question.
   Private and Public Pension Funds: These funds have an impressive record as engaged shareholders—not only in voting their proxies, but also, in some cases, by initiating dialogues with corporate managers and by sponsoring shareholder resolutions. Public pension funds that have taken leading roles in introducing shareholder resolutions include those from California, Connecticut, Maine, New Mexico, New York City, New York State, North Carolina, Oregon and Vermont. Private pension funds are governed by the Employee Retirement Income Security Act of 1974 (ERISA). An ERISA interpretive bulletin affirms the rights of fiduciaries to utilize proxy voting and other forms of shareholder engagement to protect the value of their investments: “The fiduciary act of managing plan assets that are shares of corporate stock includes the voting or proxies appurtenant to those shares of stock.”
   Foundations: Some leading foundations including the Boston Foundation, the Ford Foundation, the Nathan Cummings Foundation and the Rockefeller Brothers Fund have adopted active proxy voting policies.
   Religious Institutions: The Interfaith Center on Corporate Responsibility (ICCR) is the leading coordinator of shareowner engagement for it 275 faith-based institutional investors. Its members include national denominations, religious communities, pension funds, endowments, hospital corporations, economic development funds and publishing companies. For the 2006 proxy season, ICCR members filed 256 shareholder resolutions.

6. Is shareowner engagement legal for institutional investors?

   A recent report by Freshfields Bruckhaus Deringer, the world’s third largest law firm, emphasizes the importance of environmental, social and governance (ESG) issues to the investment decision-making process. The 2005 report was prepared for the United Nations Environment Programme Finance Initiative. Paul Watchman, Partner at Freshfields Bruckhaus Deringer and senior author of the study, commented: “The report confirms that a number of the perceived limitations on the integration of ESG issues into investment decision-making are illusory. Far from preventing the integration of ESG considerations, the law clearly permits and, in certain circumstances, requires that this be done. This legal interpretation has far-reaching implications for the institutional investment community worldwide.”

1. How can we implement a shareholder engagement policy here at UH?

   Fortunately, many prestigious instiutions have already adopted such policies, and have successful models. The most appealing is a system in which a sub-committee composed of board members, faculty, and students is created to review investment guidelines and when necessary, intervene in proxy voting instances.

   Such a committee would fairly represent all voices within the campus community and encourage cooperation amongst faculty, students, and board members.

2. What powers would be given to the committee?

   The committee would exist as an oversight mechanism.

   As such, it should be able to make recommendations to the Endowment Management Committee regarding changes to the Investment Guidelines, have access to and be able to review current investment information, and intervene on specific instances of proxy voting.

3. How would students and faculty be represented?

   Students would be elected to committee through a special election amongst their fellow students. The same would apply for faculty members.