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Monday, May 15, 2006

The Summers of their discontent

A recent Financial Times piece [registration required] by Graham Bowley connects a few of my favorite topics: Russia's development, institutional responsibility, and Larry Summers:
...near the end of the meeting [of Harvard's teaching faculty], Frederick Abernathy, an elderly, soft-spoken professor of engineering who had not talked publicly at a faculty meeting since Summers took office, stood up and asked what the president knew about the Andrei Shleifer affair.

Shleifer and his wife, Nancy Zimmerman, a former Goldman Sachs bond options trader, had invested in Russia in the 1990s, taking advantage of Shleifer's position as director of a Harvard project that oversaw the US government's aid programme in Russia helping with post-communist privatisation and establishing functioning capital markets.

The whole story was told in the latest edition of Institutional Investor, a leading investment magazine, and many of the professors in the room had read it. (Many had received photocopies of the story in unmarked envelopes in their faculty mailboxes.) In 2004, a judge in a federal district court in Boston found that Shleifer was liable for conspiring to defraud the US government by violating federal conflict-of-interest rules, and in August 2005 Harvard agreed to pay $26.5m after a long legal battle. (In the settlement, Shleifer himself paid a further $2m, although neither he nor Harvard admitted wrongdoing.) Despite the ruling, Shleifer was still a Harvard professor.

Shleifer was a close friend of Summers. The implication was that Summers was protecting his friend.

"I really think that Harvard was defending the indefensible," Abernathy told me later by e-mail. "It offended my sense of values and what I hope are the values of the institution." In fact, Harvard had not been able to start its own investigation until the government's case was settled, and since August a Harvard ethics committee had been looking into Shleifer's conduct but Summers was bound by faculty rules not to disclose this. In answer to Abernathy, Summers told the academics gathered in University Hall that because of his personal links he had disqualified himself from any of Harvard's dealings with Shleifer.

"We all saw that as a Washington lawyer's non-answer," a professor told me afterwards.

When pressed by Abernathy about whether he had any personal opinion about the case, Summers said he didn't know the facts.

"A gasp went around," said one person who was there. "The provost rolled his eyes. Afterwards, people were saying, 'Does he think we are children that he would lie to us?' It was the moment the presidency disappeared."

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