FPPC Report Cites Stock Ownership : 2 Regents May Have Conflict in Divestiture Vote

At least two University of California regents who own stock in companies doing business in South Africa are likely to have a conflict of interest in voting whether to sell UC stock in those companies, according to a staff analysis released Thursday by the Fair Political Practices Commission.

On the basis of the report’s legal reasoning, as many as four other regents, including Gov. George Deukmejian, could also face a conflict in voting on divestiture questions, FPPC spokeswoman Lynn Montgomery said.

The watchdog agency’s analysis contradicts advice from the Board of Regents’ own attorney who said there would be no conflict of interest because sale of the university system’s stock would not significantly affect any of the regents’ personal holdings.

Implicit in the report’s findings in the case of the two regents is a broader question: whether regents who have large stock holdings face conflicts of interest in making routine decisions on how to invest UC pension and endowment funds.

The Board of Regents is scheduled to vote next Friday on whether to sell stock in 33 companies doing business in South Africa. Advocates have called for divestiture to protest the white-ruled nation’s strict policy of racial segregation.

On Monday, the five-member Fair Political Practices Commission is scheduled to vote on whether to formally adopt its staff’s analysis of the conflict question.

Regents who have a conflict of interest would be required by state law to disqualify themselves. Depending on how the issue is framed by the regents, that could mean abstaining from all or just a part of the divestiture decision.

The report by FPPC attorney Robert E. Leidigh looked at the cases of four regents who asked for advice: UC President David P. Gardner, William J. Milliken, Joseph A. Moore Jr. and Robert N. Noyce.

Gardner is not likely to have a conflict because his investment, about $3,000 worth of IBM stock, is too small to be affected by the sale of university stocks, Leidigh concluded. Similarly, Moore probably has no conflict because he sold his direct investments in these companies and now has holdings through a trust fund he cannot control, the report said.

However, Noyce, who owns more than $100,000 worth of IBM stock, and Milliken, who has invested more than $230,000 in five firms tied to South Africa, are both likely to have a conflict of interest, Leidigh said.

“Some regents (such as Gardner, who has only 24 shares of IBM) are not required to disqualify themselves at all,” Leidigh said. “Other regents would have to disqualify themselves as to any divestiture decision in any company in which they hold a sufficient amount of stock.”

Four other regents, Deukmejian, former U.S. Atty. Gen. William French Smith, Edward Carter and Stanley Sheinbaum, have reported a financial interest in companies also held by UC that are doing business in South Africa. Their holdings range from more than $10,000 to more than $100,000, according to their latest statements of economic interest.

Their cases would have to be studied individually to determine whether they would have a conflict of interest that would prevent them from voting, Montgomery said. Such studies are undertaken at an individual’s request.

Beyond the question of divestiture, the FPPC report could have far-reaching consequences for future investment decisions by the regents.

A committee of the regents responsible for making investment decisions includes at least six regents whose personal holdings duplicate UC investments, according to Steve Thompson, chief of staff to Assembly Speaker Willie Brown, who is also a regent.

“The FPPC report raises the question as to whether a number of persons presently serving on the investment committee, including the chairman, can continue to serve in that capacity without divesting all of their stock holdings above a minimum amount . . . in any stock that is also part of the UC portfolio,” Thompson said.

So far, the FPPC has not directed its attention to the potential conflict for more than a dozen legislators who have similar investments and who voted this week on provisions in the budget bill that would require limited divestiture of some state pension fund holdings.

Although legislators indicated earlier this year they would seek an opinion on the conflict question from Legislative Counsel Bion Gregory, he has received no formal request and has issued no advice on the question.