Could Be Liable for Divestment Losses, UC Regents Advised

Times Education Writer

University of California regents, struggling to find a way to take action against the racist government of South Africa, were told Monday that they could be held personally liable if their action harms the university’s huge pension fund.

Amid growing demonstrations on the campuses, the UC governing board has been under pressure to divest itself of stocks in American firms that do business in South Africa.

But 78% of the university’s $6.3-billion stock and bond portfolio is a retirement fund for the faculty and staff, with the regents acting as trustees.

UC General Counsel Donald Reidhaar said at a public hearing at UCLA Monday that the regents have the “legally fiduciary responsibility” to seek the highest prudent returns on the investments.


Lawsuit ‘Possibility’

“In my view, the courts would not permit a diversion of these funds for other purposes,” Reidhaar said.

In answer to a question from Gov. George Deukmejian, UC’s chief attorney said there is “a possibility” that individual regents could be sued if the stock portfolios lost money by switching to companies that have no ties to South Africa.

Monday’s meeting was briefly interrupted by students who shouted from the balcony that the hearing was a “sham” because few of them were given an opportunity to speak. Outside Royce Hall, about 100 students chanted “divest now” and banged pots to demonstrate their displeasure.


But inside, advocates of full and immediate divestment got a double-barreled shot from top university officials.

First, UC Treasurer Herbert Gordon presented a report estimating that a move to drop stocks with South African ties would cost about $100 million and would probably lead to lower returns in the future.

Then, the university’s attorney said such a “broad-scale divestment” would probably be illegal because of the cost involved.

As a result, the regents are still badly divided and, according to most observers, have not settled on a consensus position.


The 28-member board is set to vote on the issue June 21 in San Francisco.

Many want to take some stand against South Africa, but they also acknowledge that a quick and total divestment does not have majority support.

“The large number of regents are somewhere in the middle . . . between total and immediate divestment and doing nothing at all,” said Deukmejian, who added that he was one of those in the middle.

As a trustee of the pension funds of others, he said he will make his decision “based on my fiduciary responsibility,” but then added that the “university has some obligation to consider human rights conditions.”


The regents heard one alternative proposal Monday and a hint of a second from the university administration.

Prof. Kenneth Simmons, representing a faculty group, the UC Faculty for Full Divestment, said the regents should first try “political pressure and selective divestment” over two years to send a firm message to the South African regime that “apartheid must be dismantled.” If it is not, the regents should then divest themselves of their South African-related stocks over the next three years.

‘Selective’ Action

Meanwhile, university officials were talking of a tougher “code of conduct” for American firms with South African ties. Although reiterating that the bottom line came first in handling pension accounts, Reidhaar suggested that the regents could “selectively divest” themselves of some firms that had not done enough to help their black workers, without harming its investment position.


UC’s action has been closely watched because, if approved, it would be by far the nation’s largest stock divestiture from U.S. firms that have operations in South Africa.

The UC treasurer’s report estimated that universities, colleges and branches of state and local governments have divested themselves of about $1 billion in stocks and bonds of American firms that do business in South Africa.

The UC system alone has stocks and bonds valued at $2.4 billion in these same companies. However, only about 1% of the operations of these firms are in South Africa, and all but about two of the 33 firms in question have signed the “Sullivan principles” aimed at bringing equality in the workplace to black South Africans.

Times staff writer Richard C. Paddock also contributed to this story.