The managing board of Harvard University will almost double in size, adding seats for the first time since the board’s creation in 1650, after a financial crisis forced Harvard to borrow $2.5 billion.
The body, known as the Harvard Corporation, will also establish term limits for members and create three committees to focus on finance, facilities and governance, the university in Cambridge, Massachusetts, said today in a statement on its website. The governing board is now composed of six members plus the president, Drew Faust, and will grow to 13 members in two or three years.
Harvard, which had a $27.6 billion endowment as of June 30, lost a record 27 percent on its investments in the year ended June 30, 2009. The university agreed to pay almost $1 billion to terminate wrong-way bets it made on interest-rate swaps, and it borrowed $2.5 billion in December 2008 because investments were tied up in hard-to-sell assets. That mismanagement showed Harvard Corporation wasn’t organized to anticipate and prevent problems, said Mark Williams, who teaches risk management at Boston University and has studied Harvard’s finances.
“Harvard is admitting it had a weakness,” Williams said in a telephone interview. “Harvard had a significant corporate- governance issue, and the fact they were willing to bet $1 billion and lose indicates that they didn’t understand what they were getting into.”
Harvard Corporation oversees Boston-based Harvard Management Co., which manages Harvard’s endowment under the direction of Jane Mendillo, president and chief executive officer.
The board, formally named the President and Fellows of Harvard College, needs to grow to reflect the size and complexity of Harvard, and it should place a “special emphasis” on safeguarding its finances, the Harvard committee that recommended the body’s expansion said in a report today.
“The changes we’re pursuing will give us greater scope to see the big picture and take the long view,” Robert Reischauer, a member of the corporation and president of the Urban Institute, a Washington research group, said in the statement.
The composition of the board made dissent difficult, said Harry Lewis, a Harvard computer-science professor and former dean of Harvard College.
“The number of people with experience in the world of finance was very limited,” Lewis said in a telephone interview. “In a small board, the natural tendency is to defer to the expertise of the people who are supposed to be experts. With larger numbers, people will have to explain and defend themselves more, and that will be healthy.”
Harvard’s size demands board members who can commit time to understand the university, said Frederick Abernathy, an engineering professor who co-wrote an opinion article with Lewis in the Boston Globe last December about corporate governance at Harvard. Lifetime appointments meant members couldn’t focus solely on Harvard, he said. The committee is proposing term limits of six years with a possible six-year extension.
“The notion to have term limits is terrific,” said Abernathy, who has been a student or professor at Harvard since 1953, in a telephone interview. “For six years, I can say ‘no’ to everything else and do this.”
Other members of the corporation’s governing board are: Nannerl Keohane, a former president of Duke University in Durham, North Carolina; Patricia King, a professor of Georgetown University in Washington; William Lee, a lawyer in Boston; James Rothenberg, chairman of Capital Research & Management Co., a Los Angeles-based investment company and the chairman of Harvard Management; and former U.S. Secretary of the Treasury Robert Rubin.
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