Harvard’s Governance Dilemma

What Harvard’s drama says about D.E.I.

The resignation yesterday of Claudine Gay, Harvard’s first Black president and the second woman to lead the university, was tied to a mounting crisis over plagiarism allegations. But she had also been under fire for months over what critics said was an insufficient response to the Oct. 7 Hamas attacks on Israel.

Her departure, weeks after Liz Magill stepped down as the University of Pennsylvania’s president, casts a spotlight on the increasingly rocky landscape for the policies known as D.E.I. — diversity, equity and inclusion — and spurs questions about the power of donors over schools.

Gay’s position became increasingly fraught. Her credibility was weakened by her congressional testimony last month about universities’ responses to antisemitism on campus. Her troubles compounded after conservative activists published a growing litany of plagiarism accusations.

Alumni were also dismayed to learn in recent days that applications for early action admission to Harvard had dropped 17 percent this year to a four-year low.

Gay has become a lightning rod in the debate about D.E.I. She assumed office six months ago, just as the Supreme Court rejected the use of race-conscious admissions at Harvard and other universities. Political clashes came to dominate her tenure — the shortest of any Harvard president — with some conservatives arguing that she was unqualified for the position, a charge her supporters rejected as racist.

Christopher Rufo, a conservative education activist who helped publicize the plagiarism allegations, celebrated her resignation on X as “the beginning of the end for D.E.I. in America’s institutions.”

Companies have been reducing their D.E.I. initiatives over the past year as conservative politicians have taken aim at such programs. Some on Wall Street have suggested that D.E.I. programs were flawed because they didn’t encompass pushback against antisemitism.

Others criticized the treatment of Gay. “This is an attack on every Black woman in this country who’s put a crack in the glass ceiling,” the Rev. Al Sharpton told CNN, adding that he would picket the New York offices of Bill Ackman, the billionaire financier who had repeatedly criticized Gay.

Harvard’s governing board is also under scrutiny. The Harvard Corporation, led by the billionaire and former Obama administration official Penny Pritzker, had initially stood by Gay after the congressional hearing. In its statement backing Gay last month, the corporation acknowledged that it had been made aware of plagiarism allegations starting in October.

Though many Harvard faculty members expressed dismay about Gay’s decision, some called for a shake-up of the governing board. “We need multiple new independent members on the Harvard Corporation that are not tainted by recent events and failures,” Frank Laukien, a visiting scholar of chemistry, told The Times, adding that Pritzker should resign immediately.

And the debate over who should run universities has reopened. Alan Garber, Harvard’s provost, will serve as the school’s interim president. But the process for picking full-time leaders of Harvard and Penn is likely to be heated, especially as increasingly outspoken alumni weigh in.

Ackman taunted Sally Kornbluth, the M.I.T. president who also testified at the December House antisemitism hearing and remains in office. “Et tu Sally?” he posted on X.

HERE’S WHAT’S HAPPENING

Wall Street awaits a big Fed release. At 2 p.m. Eastern, the central bank is set to publish the minutes from last month’s rate-setting meeting, when it stunned markets by suggesting a trio of cuts were in the cards this year. The Fed’s message provoked a big year-end rally, but stocks have gotten off to a lackluster start in 2024 as investors wonder whether the bank will begin cutting as soon as March.

Donald Trump sues to get his name back on the Maine Republican primary ballot. The former president accused Shenna Bellows, the state’s secretary of state, of being “biased” after Maine became the second state to exclude him from the ballot. Challenges to Trump’s candidacy have been filed in at least 33 states.

Maersk extends a pause on travel through the Red Sea after missile attacks. The Danish shipping giant said it would continue to avoid the area and the Suez Canal after Yemen-based Houthi militants tried to board one of its ships at the weekend, prompting a firefight with U.S. forces that killed 10 of the attackers. Worries are growing that the Israel-Hamas war could expand into a broader regional conflict after a Hamas leader was killed in Lebanon.

Disney gains a noteworthy ally

As the entertainment giant faces renewed pressure from the billionaire Nelson Peltz (and from the two disgruntled former executives joining him in his proxy fight), it has secured the backing of another notable activist investor: ValueAct Capital.

ValueAct will support Disney’s board nominees, the entertainment giant said in a statement on Wednesday. Disney added that it would enter into an agreement to consult with the $16 billion hedge fund, including through meetings with its board.

“ValueAct Capital has a track record of collaboration and cooperation with the companies it invests in,” Bob Iger, Disney’s C.E.O. said. “We welcome their input as long-term shareholders.”

It’s something of a symbolic victory since ValueAct’s stake in Disney is believed to be far smaller than the 33 million shares that Peltz controls. But ValueAct is highly regarded on Wall Street as a constructive collaborator with corporate boards.

And it remains unclear exactly what Peltz and his allies — Ike Perlmutter, the irascible former chairman of Marvel Entertainment; and Jay Rasulo, Disney’s former C.F.O. — are calling for.

Tesla’s China problem

Investors are shrugging off news that Elon Musk’s carmaker has lost its crown as the world’s biggest seller of electric vehicles, ceding that position to BYD, a Chinese rival backed by Warren Buffett. But industry watchers say the changing of the guard is a potentially key moment.

Tesla shares were down a tick in premarket trading on Wednesday after its latest sales update yesterday. The company sold a record 1.8 million vehicles last year, bolstered by discounts. That included the sale of nearly 485,000 cars last quarter — about 41,000 fewer than BYD in the same period.

BYD is the dominant E.V. maker in the world’s biggest car market. The company initially focused on making batteries before pivoting to manufacturing its own cars. It sells cheaper vehicles than Tesla, but its profit margins have held up, partly because it owns its battery supply chain and sources less expensive raw materials.

BYD is now looking overseas, putting further pressure on Tesla. The Chinese market comprises about 90 percent of BYD’s sales. But BYD’s international business — it’s focusing on Europe, Japan and Brazil, and has largely avoided the U.S. amid trade tensions between Beijing and Washington — took off in the second half of last year.

Whether BYD can translate its domestic success “onto a global stage is one of the big questions of 2024,” Matthias Schmidt, an industry analyst and director of Schmidt Automotive Research, told DealBook. BYD announced plans last month to build an electric-vehicle factory in Hungary even as the European Union, the world’s second-biggest E.V. market, investigates Chinese firms for illegal subsidies.

The market is changing profoundly. Federal tax credits and other incentives are drying up in Europe and the U.S., and governments are mulling more protectionist measures.Growth is coming from more cost-conscious consumers .

Those shifts may show up in Tesla’s future numbers. “Its growth locomotive appears to be coming off the rails despite large discounting, characterizing it increasingly as a traditional automaker chasing volume over profit,” Schmidt said.

Crypto soars despite a legal loss

The great crypto rally of 2023 looks as if it has plenty of firepower left. Bitcoin topped $45,000 this week, its highest level since April 2022, with crypto bulls driving up the price on bets that regulators will approve the first spot Bitcoin exchange-traded fund, or E.T.F., as soon as this month.

The surge has occurred amid a wider regulatory crackdown. The S.E.C. scored a big win against the crypto company Terraform Labs last week that could have major implications for other digital asset cases. A federal judge concluded that the company — which caused a market meltdown in 2022, prompting its trash-talking co-founder, Do Kwon, to go on the run for months — sold crypto tokens that were unregistered securities.

This has become an existential issue for the industry. Gary Gensler, the S.E.C. chair, argues that most crypto tokens qualify as securities. The industry has resisted that approach in court and on Capitol Hill, spending millions fighting cases and lobbying for an alternative regulatory structure.

The latest ruling bolsters the agency’s position just a few months after it lost a separate court fight against Ripple, which was found to have complied with S.E.C. rules in how it sold its XRP token.

Old laws apply to a new industry. In his ruling, Judge Jed Rakoff of the Southern District of New York rejected Terraform’s contention that a 1946 Supreme Court case setting out a test for securities was irrelevant because it stemmed from a “bygone era.” In that case, the court said that “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits” from the promoter’s efforts falls under securities law.

Judge Rakoff found that the test applied to crypto tokens, adding that Terraform and Kwon “made specific, repeated statements” that would lead a reasonable investor to expect a profit based on their efforts.

Kwon is in prison in Montenegro on falsified-documents charges and faces accusations in multiple countries. He fled his native South Korea after Terraform’s epic crash, and may be extradited to the U.S. or South Korea to face prosecution.

THE SPEED READ

Deals

• Fisher Investments, the money manager founded by Ken Fisher, said that it wasn’t in sales talks, denying a report that it was negotiating with Advent International. (Reuters)

• Fidelity has marked down the value of its stake in X, the social network owned by Elon Musk, by 72 percent. (Bloomberg)

• “Wealthy Investors Rescued Juul From Bankruptcy. Others Are Crying Foul.” (WSJ)

Policy

• Senator Robert Menendez, the New Jersey Democrat already accused of improperly aiding Egypt, was charged with helping the government of Qatar as well. (NYT)

• Chevron warned that it would take a charge of up to $4 billion because of “continuing regulatory challenges” in California. (FT)

• The Indian Supreme Court rejected calls for a new inquiry into the billionaire Gautam Adani’s business empire after an American short-seller accused his companies of fraud. (BBC)

• “Copyright Law Is A.I.’s 2024 Battlefield” (Axios)

Best of the rest

• The Messenger, a digital news start-up, will lay off two dozen employees as it seeks to raise more capital, and Cheddar, the embattled financial news site, put some employees on unpaid leave. (NYT)

• “Saving the Panama Canal Will Take Years and Cost Billions, If It’s Even Possible” (Bloomberg)

• Meet the advisers who were turning Travis Kelce into a household name, even before he met Taylor Swift. (NYT)

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