Board defends conflict of interest in investments

An established conflict of interest on Swarthmore’s Board of Managers may be neither inconsequential nor coincidental. In the fall of 2013, the Board of Managers formally announced that they would not divest from fossil fuels because they predicted a loss of return on the endowment that, they claimed, would cost the college $204 million over ten years. The decision was reached by the investment committee of the Board of Managers and through consulting with outside advising firms that both manage the college’s financial risk and create a plan for endowment spending.

Marshfield Associates was the third highest-paid investment advisory firm hired by the college in 2011, receiving a consulting fee of $191,381. Cambridge Associates, the highest-paid consulting firm hired by the college, was paid $738,084 in the same year.

A portion of Swarthmore’s endowment is also invested with Marshfield Associates. Christopher Niemczewski ’74, a member of the college’s Board of Managers, founded Marshfield Associates in June 1989 and remains the president of the company. Niemczewski, as a principal manager, owns between 25 and 50 percent of the company, according to Marshfield’s own public reports.

Niemczewski is chair of Swarthmore’s investment committee, which is responsible for investing the endowment and finding external consultants and managers to invest and manage the endowment. The school has been a client of Marshfield Associates since at least 2002, and Niemczewski became chair of the investment committee in 2007. Niemczewski also holds positions on the executive committee, the development and communications committee, the compensation committee, the committee on investor responsibility and the property committee. Niemczewski declined to comment for this article, and the Phoenix received no response from any representative from Marshfield Associates.

In a 2005 bylaw to the Board’s conflict of interest policy, financial conflicts of interests in which investment committee members stood to profit from investments were prohibited. The addition states, “As a matter of policy, the Investment Committee will not make new investments in separately managed accounts, partnerships, commingled funds, or other investment vehicles with investment firms in which an Investment Committee member has an ownership interest or employment relationship and the potential to profit directly from such investment.”

However, the policy does allow exceptions if the investment is determined to be in the best interests of the college.

The policy allows for pre-existing conflicts of interest of the aforementioned nature: “With respect to relationships in which, as of the date of this policy, a conflict of interest already exists, or in which a conflict arises upon an individual becoming a member of the Investment Committee, the individual involved shall disclose such conflict to the Audit Subcommittee at least annually, shall disclose such conflict to the Investment Committee in every discussion pertaining to the particular investment, and shall excuse him- or herself from discussions in which decisions involving the particular investment are made.” The Audit Subcommittee has since been upgraded to the Audit and Risk Management committee, which holds the same responsibility as outlined in the policy.

Thus, according to the policy’s bylaws, the relationships Niemczewski holds to his firm and the investment committee are allowed as long as he discloses the conflict annually and recuses himself when Marshfield Associates is discussed. Gil Kemp ’72, chair of the board of managers, who has previously chaired the audit and risk management committee, confirmed that Niemczewski does both of these things. However, Kemp stated that Niemczewski is under the same scrutiny as any other potential conflict of interest.

“Clearly there is the potential that Chris is involved in a deal where his firm is profiting … It surfaces as having that potential, and that’s why the audit committee reviews any potential conflict and chooses to set up procedures or not,” said Kemp.

“We have, I think, a very detailed conflict of interest procedure,” he added. “…Every summer each board member has to complete a pretty detailed survey that reveals any potential conflict of interest that board member might have and then is reviewed very carefully by Greg Brown — previously Sue Welsh — and any potential conflicts are brought to the attention of the audit subcommittee.” Brown replaced Sue Welsh in June, the end of the 2014 fiscal year, as vice president for finance and administration.

“And it’s a minor part of the endowment,” added Kemp, in reference to the portion of the endowment directly managed by Marshfield.

“It is very explicit that he has to be — in formal language — recused from investment meetings involving Marshfield,” Kemp explained. “I’ve been at one of the meetings in which Marshfield was brought up, and he got up and left the room … He’s out of the room and not part of any decision to use or not use Marshfield.”

Katie McChesney, an organizer for, a climate-focused activist organization, believes the implications of the conflict of interest on the board are not innocuous for the college’s financial decisions.

“Especially if the board’s bylaws actually reflect on fiduciary responsibility as the key argument for why they make the choices that they’re making, I think this conflict of interest really clouds the reliability of the board’s decision making process because it’s impossible to know what’s being weighted where … and what the priorities are based on this conflict of interest,” she said.

Mark Kuperberg, professor of economics, also believes the conflict of interest has an impact on the college’s investment decisions. Although he emphasized that legally, the policy is sound, and that Niemczewski likely believes he is working in the best interests of the college, he still thinks that the relationship is subject to bias.

“…As a matter of policy, I think it is wrong for the college to invest funds with, and

pay management fees to, firms that are owned by members of the investment committee of the Board of Managers,” Kuperberg said. For Kuperberg, the problem lies in Niemczewski’s directly profiting in any amount from Swarthmore’s investments.

“It doesn’t matter what kind of fund he’s running, it’s an issue that he’s on our board and we’re putting money into his fund and his company’s getting fees, that’s where the conflict of interest is. He could own 100% of his company or he could own 10% of his company. It would still be a conflict of interest if he’s on our board and we’re putting money in his company in my view,” he elaborated.

The Board of Managers, however, seems to see the relationship as largely beneficial.

“We make sure we have our endowment managed by the most capable manager we can find and it’s an absolutely essentially review process and Marshfield has to go through the same process… They have to prove themselves just the way any manager does,” said Kemp.

The Board’s rationale for investing with Marshfield despite the conflict of interest with Niemczewski is that they perform better than average with Swarthmore’s investments. According to Kemp, If Marshfield were to perform less favorably, they would go through the same review process any manager would go through.

“Nobody can guarantee that past performance can guarantee future performance, but for many, many years we have outperformed the averages and that’s a very critical part of our institutional success,” said Kemp.

Kuperberg, however, does not find this explanation compelling.

“We maintain all our people do better than average,” he said. “That whole debate is an unresolved thing in my mind. And if they do better than average do they do better than average every year and how many years have they done better than average?”

“Board members who are not involved in investment decisions, I think we could invest in their companies,” said Kuperberg. “I know we could say that Chris Niemczewsky is excusing himself so he’s not involved in that decision, but he’s involved in all the other decisions. … So I think it’s different.”

Kemp emphasized the college’s transparency regarding Niemczewski’s conflict of interest.

“It’s not private, our assumption is that anybody can look at it,” said Kemp.

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