Choosing either a profits focus or a social responsibility focus is ethical for profit seeking entities like businesses and college endowments.

Ethical Dilemmas for College Endowments

by Elaine Schwartz    •    May 18, 2014    •    870 Views

The closer you look at ethical investing for university endowments, the more you see the tradeoffs.

The headline coverage began when Stanford announced it would “not make direct investments in coal mining companies.” Explaining, Stanford’s President John Hennessy said, “Stanford has a responsibility as a global citizen to promote sustainability for our planet…”

Meanwhile, Swarthmore’s President Rebecca Chopp confirmed that her school would retain coal companies in its investment portoflio. Conveying the ethics behind her decision, she said, “The board is simply not willing to accept the significant cuts in scholarships, faculty and curriculum that a significantly lower return would necessitate…”

Although the endowment debate focuses on investing, it really is about a bigger question. We are asking whether it is ethical for a profit-seeking entity to base business decisions on social responsibility.

Believing that profits are the (ethical) responsibility of the business firm, Nobel Laureate Milton Friedman (1912-2006) said that it is not appropriate for corporate management to pursue social responsibility. Agreeing, former Harvard president and Secretary of the Treasury Lawrence Summers cited the housing bubble debacle fueled by Fannie Mae and Freddie Mac to display the cataclysmic results of combining doing good with seeking profits. Then though, seeking balance, Harvard economist Edward Glaeser discussed the debate surrounding corporate responsibility in his economix blog. Reminding us that it need not be “black and white,” he encourages us to ponder different levels of corporate social responsibility.

Our bottom line? Whichever endowment investing perspective you support, Stanford’s or Swarthmore’s, economic wisdom requires recognizing the opportunity cost. Making a decision means you have sacrificed the benefits of the next best alternative.

Please let us know which endowment investing sacrifices you are willing to accept at your favorite university.


Sources and Resources: For more detail on the opportunity cost that Stanford and Swarthmore each accepted, the NY Times had the ideal article (whose title I object to because the clash is not between ideals and funds--it is between 2 different ideals) while Stanford further explained its position here. Then to ponder the ethics of social responsibility and the ethics of profits, here is an excellent Edward Glaeser economix blog. And, above, we did excerpt several sentences from a previous econlife.

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