Larry is a Busy Man

Does Larry Summers have carte blanche to violate Harvard rules about outside activities? It's a serious question. I actually think it is possible that Harvard has granted him the kind of immunity of which Whitey Bulger can only dream.

I spent part of yesterday in a discussion with my faculty colleagues in computer science about how we could mount a new course. An unusual opportunity had arisen and several professors were interested in helping out with it but everybody is overbooked. We are enjoying huge student interest in our field, but the size of the faculty has not increased in proportion, so between undergrads, PhD students, proposal writing, and committee work, people are out flat. 

Then a little further down in my inbox was a Bloomberg Businessweek article about the wealth Larry Summers accumulated during the period from 2001 (when he stepped down as Treasury Secretary and, five months later, became president of Harvard) and 2009 (when he became Director of the National Economic Council). The change in net worth, from less than a million dollars to somewhere in the $17-40 million dollar range, is based on comparison of the disclosures he filed when he became Treasury Secretary in 1999 and his 2009 appointment to the Obama administration. That appointment ended December 31, 2010 and Summers has been back to consulting since then--we know of some of his activities but not how his wealth has increased in the past three years. (We would find out, I suppose, if he were nominated to be head of the Fed and had to do another disclosure.)

How did he make all that money? For five of those years he was President of Harvard. Now the president of Harvard used to stay away from outside commitments, compensated ones at least, but there is at least one report that Summers was an advisor to a hedge fund, Taconic Capital, while he was serving as Harvard president. Perhaps there were others; no way to know for sure. But let's assume that most of the moneymaking happened after he left the presidency, that is during the years 2006-2009.

Here are the consultancies we know about from the Bloomberg story: Citigroup, Nasdaq OMX, DE Shaw (from which he earned $5.2 million in 16 months as "managing director"). He also earned $2.7 million in speaker's fees, from Goldman Sachs and others. That is all prior to 2009.

Since the beginning of 2011, his consulting clients include Citigroup, Nasdaq, D.E. Shaw, and Andreessn Horowitz. He is also back on the speaking circuit.

Now the Bloomberg article focuses on the question of whether we should be worried that Summers' sympathies as a powerful federal official might just be influenced by the cozy and profitable relationship he has developed with these firms. Damned right we should be, especially given his poor track record in getting the very idea of a conflict of interest. 

But my question today is different. Why does Harvard put up with this level of outside activity? The consulting and speaking activities are not the only ones he has picked up lately. He joined the boards of electronic payment service Square and person-to-person lending company Lending Club. He chairs the advisory board of online education company, the Minerva Project, is a member of the board of governors of the Broad Foundations, and is a director of Teach for America. I got tired of chasing these down one at a time and just stole the rest of the list of board memberships from his for-profit web site, larrysummers.com:

ONE, Center on Global Development, the Institute for International Economics, and the Partnership for Public Service. … He holds membership in the Council on Foreign Relations, the Hamilton Project Advisory Council, the Trilateral Commission, the Bretton Woods Committee, Group of Thirty and the Council on Competitiveness.

Now maybe all these places are getting what they want from Summers; good luck to them. But is Summers being faithful to his obligations to Harvard?

At Harvard there are rules about outside activities. To pull the key phrase from a long and nuanced document, "no more than 20 per cent of one's total professional effort may be directed to outside work." Harvard professors have to file annual reports with the university administration documenting what we do outside Harvard and how we are dealing with any financial conflicts our activities my create, even when these activities fall within the 20% commitment limit.

Summers's level of outside activity is not normal for Harvard professors. Given the length of the day my colleagues work, I doubt any of them is coming close to spending 20% of their effort on non-Harvard matters. Nor is it normal for University Professors--the ones I know are among the hardest-working professors at Harvard.

So what's up? Are there special rules for the smartest man in the world? Probably not--there would be too many competitors here for that exemption.

More likely the President and Fellows of Harvard College have made a calculation, that they had better not try to stop Summers from doing whatever he wants to do. He knows everyone, he is a powerful figure even without a federal appointment, and he may be about to get another one. And of course his old mentor and protector, Bob Rubin, is still on the Harvard board.

But I wonder if there is not an actual exemption for Summers. Perhaps whatever deal Summers cut with Harvard in exchange for his resignation from the presidency included a nondisparagement clause, which could be interpreted to render Harvard liable if it ever did anything that would publicly embarrass Summers. That would give Summers pretty much complete autonomy to use his Harvard perch as he wishes.

(Summers's Harvard salary? I don't know. The 2009 disclosures showed it at almost $600,000; it has probably dropped down a bit since then. The average for a full professor at Harvard then was $165,000, a number that I believe is inflated significantly by salaries in the Medical School and perhaps the Business School. And I doubt that the Charles W. Eliot University Professorship Summers holds is like the others, backed up by an endowed gift; it's probably just a title, and the salary is paid out of unrestricted funds that come from the usual sources, student tuitions and annual giving. And why does college cost so much?)

In a way it would be a relief if Summers were named to the Fed because it would put an end to his outrageous corruption of the standards of commitment to which the rest of the faculty are held, and almost universally hold themselves. If Summers stays around, I have a proposal for the President and Fellows: Suspend all those rules rather than allowing a single egregious exception. Have a community conversation about professors' moral obligations to our students and our scholarship, to replace the regulations that special people among us apparently can ignore with impunity. Try something like the experiments with eliminating traffic signs that are happening both in the US and in Europe, to see if people will behave better with fewer rules and a greater sense of common purpose. 

It would be impossible to eliminate all the rules, because the federal agencies from which Harvard receives sponsored research funds require those reports and disclosures anyway. But the current hypocrisy about the "20% rule" is demoralizing and should not continue.