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February 26, 2006
David Warsh, Proprietor

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Those Three Weeks in March

So Larry Summers has resigned the Harvard presidency, pretty much (though not exactly) as predicted. But the story of Harvard’s failed Russia project and its lengthy aftermath only gets more curious.

In most newspaper accounts, little was made of the scandal and Summers’ long-time mentoring and presumed protection of the man at its center, Harvard economist Andrei Shleifer. The two men met in 1979, when Shleifer was a sophomore at Harvard College and Summers an assistant professor at the Massachusetts Institute of Technology. They have been close allies and fast friends ever since.

Yet at Harvard itself, interest in the matter has intensified, ever since an authoritative account of the affair appeared in a magazine last month, prompting a devastating “no-comment” from Summers at a faculty meeting and pair of ambiguous denials from the seven-person board, known as the Harvard Corporation, that governs the university.

In a letter to Institutional Investor (which published investigative reporter David McClintick’s 25,000-word article in January), Harvard general counsel Robert Iuliano asserted (at the Corporation’s request) that Summers had removed himself “from any university deliberations or decisions” concerning the US government lawsuit against Shleifer and the university “from the outset of his presidency at Harvard.”

In a second letter, James F. Houghton, the senior member of the Harvard Corporation, told Prof. Frederick H. Abernathy, a professor in the division of engineering and applied sciences who had raised questions about the matter in a letter and at a faculty meeting, that “President Summers was not present for nor did he participate in any of the Corporation’s many discussions about the [Harvard Institute for International Development] matter, including those resulting in the decision to settle the case.”

The crucial issue, however, was unaddressed. More than three months passed between the Sunday in March 2001 when Summers was elected by the Corporation and July 1, when he officially took office — presumably the “outset” of his presidency.

And it was in the three weeks immediately after he was elected that a behind-the-scenes court-mandated mediation by a federal judge collapsed in Boston. That was Harvard’s last chance to admit its culpability and settle the case, without the additional embarrassment of continuing to maintain its professor’s innocence and its own in the face of overwhelming evidence to the contrary.

And there are several reasons why one might wonder if Summers was deeply involved in setting the university’s strategy during those three weeks — involved, that is, in “university deliberations or decisions” about the matter. The person who holds the key to the mystery is Anne Taylor, Harvard general counsel at the time, who is not talking. One year later, she was eased out of her job by Summers.

There’s nothing difficult to understand about the Shleifer matter. The Harvard professor lined his pockets while under contract to the US government to render untainted leadership and advice to the government of Russia, which was then seeking to turn its bureaucratic nightmare into a decentralized market economy. Not a lot, at first — some oil stocks, some government bonds, shares in a private equity fund. But in flagrant violation of the rules.

But when the Russian SEC chief arranged for Shleifer’s deputy, his girlfriend and Shleifer’s wife to receive the first license to start a mutual fund in Russia — a potential goldmine that the trio touted to would-be backers — the Harvard professor’s co-workers blew the whistle to USAID. He was quietly investigated and quickly fired.

It is easy enough to speculate about why Shleifer flouted US law. Raised in Russia, he was incompletely socialized in American norms and little supervised on the job. Whether from simple greed, arrogance, idealism or, most likely, some combination of the three, he routinely broke the rules.

Far harder to understand is why Summers failed to distance himself — after Shleifer’s misbehavior became known and he was fired by USAID in 1997, after the government filed its suit against Harvard in September 2000, even after the government won its case last year.

As a senior official in the Treasury Department — by 1999 he had become Secretary — Summers had oversight of US economic policy towards Russia throughout those years. He stayed at the Shleifers house in Newton while interviewing for the Harvard job.

Harder still to know is why Harvard defended Shleifer from the moment the scandal broke, on ever more narrow legalistic grounds. He wasn’t covered by the conflict-of-interest provisions of the government contract that prohibited investments of any kind in the country he was advising, the university’s lawyers argued, because he was a consultant to the advice-giving team that he headed (instead of an employee), or because he didn’t actually live in Russia.

Hardest of all to fathom is the stance that Harvard adopted in March 2001, once Judge A. David Mazzone led the parties informally and in private through the arguments of the government’s case. US District Court Judge Douglas Woodlock had referred the suit to his senior colleague for mediation less than a week after it was filed, presumably reflecting his sense that the matter could be settled relatively easily.

In late September 2000, when the government has filed its treble damages suit, much had been up in the air: George Bush vs. Al Gore in the presidential election, Harvard beginning its search for a successor to president Neil Rudenstine. If Gore had won the November election, Summers in all likelihood would have continued as Treasury Secretary.

Instead, the presidential election was a tie, various recounts failed to settle the matter, and the Supreme Court finally decided the result. Summers was out of a job. Two months later, on March 11, he was named president of Harvard, his appointment to take effect on July 1.

We know very little with any certainty about what happened during those next three weeks as concerns the suit against Shleifer and Harvard, except that at the end of them, the negotiated settlement fell through. On Friday, March 30 2001, the docket notes, “Case no longer referred to ADR (Alternative Dispute Resolution).”

A year later, when Summers was deposed under oath, the government’s attorney asked about his conversations with Shleifer about the affair. He replied, “There were various points prior to my removing myself from the case, not long after I took up the position at Harvard, conversations in which he vented a certain amount with respect to his feeling vis-a-vis the way this was being handled.”

And, at another point, when exactly did the recusal take place? “Not long after becoming president of Harvard. Just when, I don’t recall.”

So the three weeks in March remain an enigma. Many lawyers were involved in those settlement negotiations; sources report a deep division of opinion at the time. Harvard is said to have wanted to settle, Shleifer to have refused, unless Harvard promised to pay his legal bills andf to indemnify him against a finding of damages. Clearly there was friction between him and general counsel Ann Taylor. (At one point, Shleifer complained to Summers that she was among the Harvard officials who were “bad-mouthing” him in the press, according to the president’s deposition.)

If it wasn’t the newly appointed (but not yet inaugurated) Summers who made the argument, directly or indirectly, to defend Shleifer and try the case instead of settling, culminating in the collapse of Judge Mazzone’s mediation, then who was it?

Harvard has acknowledged that former president (and former law school dean) Derek Bok entered the case at some point as an adviser to the Corporation. When did he begin? (Bok has been named interim president once Summers leaves, in June.)

The Wall Street Journal reported last October that Summers had recused himself “at the Corporation’s insistence.” When exactly did the formal action take place?

And if Summers was really recused in the matter, what cautionary measures did he take to clarify his judgment when he dismissed Taylor 2002 as the university’s top lawyer and promoted Iuliano into the job a year later? Granted, superintending the Shleifer case was hardly the general counsel’s only assignment, but it was probably the most important, with potential exposure to the university of well over $100 million, though the loss turned out to be “only” $26.5 million (plus another $15 million or so in lawyers’ fees) in the end.

Harvard’s Institute for International Development is dissolved, and soon Summers will be gone from the president’s office. But Harvard has not made peace with its disastrous Russia project. Giving Summers a university professorship, Harvard’s top academic rank, is one thing. Absolving him from complicity in the decision taken during those three crucial weeks in March 2001, when he had begun involving himself in management but not yet formerly taken office, is something else again. The failed mediation, and the timing of Summers’ recusal, are matters that First Fellow Houghton really should explain.

* * *

Why did Larry Summers’ Harvard presidency fail?

“It would be presumptuous to try to aggregate the opinions of thousands of individual faculty members, or to guess at the private thought processes of Corporation members,” and it is far too soon to attempt a history.”

So wrote John Rosenberg last week, just before he reminded readers of his own courageous earlier analysis as editor of Harvard’s alumni magazine. (…[D]istinguished faculty members from a variety of disciplines spoke about their sense that the president, while pursuing change, had claimed ‘sole agency’ to do so, soliciting and then ignoring informed counsel, and resorting to ‘bullying and personal aspersions,’ humiliating faculty members and even silencing their opinions.”

Two other pieces that appeared last week struck me as especially enlightening.

James Traub, who three years ago profiled Summers in The New York Times Magazine, wrote in Slate, …[H]e wasn’t forced out of Harvard because he stood up to political correctness. If anything, Summers was forced out of Harvard because he behaved so boorishly that he provided a bottomless supply of ammunition to his enemies, both the ideologues and the doctrine-free.”

Richard Bradley, author of Harvard Rules: The Struggle for the Soul of the World’s Most Powerful University (and of a blog that keeps track of subsequent developments as well), wrote in The Los Angeles Times, “Summers was ousted not because of a clash of conservative versus liberal ideologies…. The real problem was that Harvard’s faculty rejected the encroachment of Washington politics….Summers spent too much time positioning Harvard to suit prevailing political winds rather than advocating for the university’s traditional separation from the corrupting worlds of politics and commerce.”

Naturally, I think my own earlier analysis also stands up pretty well — that, having gone to college down the street at the Massachusetts Institute of Technology, Summers was attempting to address a caricature of Harvard that had developed at MIT over the years, and that he possessed no real understanding of the institution of which he had become president, having served eight years as a full professor.

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