Bradley Confident Divestiture Plan Will Be Approved

On the verge of a City Council vote on divestiture, Los Angeles Mayor Tom Bradley and his council allies are confident that their toned-down proposal of economic sanctions against South Africa will prevail, despite fears in City Hall that divestiture is financially imprudent.

The council, scheduled to take up the matter Tuesday, will provide the first, but perhaps not the toughest, test for the divestiture plan. The plan has been softened to placate other city officials who are concerned that divestiture may put more pressure on the city’s finances than on the South African economy.

A policy of divestiture would break new ground for the city’s money managers, who are unaccustomed to using social or political considerations to guide investment decisions.

“Divestiture is terra incognita. No one, at least no one the size of Los Angeles, has been doing it long enough to establish a track record. That’s what makes some people uneasy,” said Andrew Hirsch, a City Council legislative analyst who has been doing much of the research on the divestiture plan.

Adding to the uneasiness is confusion over how certain elements of the plan would work and a concern that the plan would not shut out South African investors from participating indirectly in city contracts.

The city’s divestiture plan, proposed by Bradley in May, charts a middle course, less drastic than the approach taken by cities such as San Francisco but tougher than other plans, notably one adopted in June by the University of California.

The most conspicuous element in the mayor’s original plan that is now absent was a proposed tax on local sales of Kruggerands, South African gold coins. The tax was dropped after the city attorney said it would violate the federal government’s exclusive right to regulate foreign currencies. A proposed ban on new investments in South African-related securities also has been modified.

(Congress currently is considering a bill to prohibit importation of Kruggerands. The bill, stalled in the Senate, also would prohibit American firms from selling computers to the South African government and from selling material used in nuclear power production.)

But the main thrust of Bradley’s original proposal is intact. Over a period of five years, it would rid the city’s pension funds of investments in American companies that do business in South Africa. Those investments, in major firms such as IBM, General Electric and General Motors, represent about 18% of the $4-billion combined market value of the pension funds.

The second major feature of the plan calls for the city to withdraw any of its $1.4 billion in bank deposits and investments from financial institutions that sell Kruggerands or make loans either to the South African government or South African corporations.

City Treasurer Robert Odell has said that only one of the 69 banks used by the city, New York’s Citibank, might have to be dropped because of its extensive dealings in South Africa. Odell said, however, that replacing Citibank might cost the City of Los Angeles up to $100,000 in annual interest and service charges.

While the council has the power to resolve the banking issue, neither the council nor the mayor has authority over the city’s pension funds. Divestiture of those funds requires the consent of the city’s three pension commissions.

Spokesmen for Bradley and City Councilman Zev Yaroslavsky, the council’s leading sponsor of the divestiture plan, believe that a majority of the council will support the plan as it now reads.

And while the City Council cannot force the pension commissioners to divest, Yaroslavsky said it is vital that the council approve the plan in order to send a strong signal to the commissioners.

“I think the commissioners ought to know that the mayor and the council and the entire city family stand behind it (the divestiture plan),” Yaroslavsky said. “We have no power to force the commissioners to divest. But we sure do have the power of persuasion and encouragement, and we intend to use that power.”

Bradley has put pressure on the commissioners to accept his plan.

In May, at a joint press conference here with South African Bishop Desmond Tutu, Nobel Peace Prize winner and anti-aparthied leader, Bradley threatened to fire any pension commissioner who resists his plan.

Ousts Commissioner

True to his word, the mayor late last month replaced one of the most outspoken critics of his plan, lawyer David Woo, who was president of the commission overseeing the $1.8-billion Police and Fire Pension System, largest of the city’s pension funds.

Bradley also formed four lobbying teams, composed mainly of locally prominent civil rights activists, to work for adoption of his plan.

So far, the pension commissioners have not voted on the matter. But the commissioners of the Police and Fire Pension System may vote Thursday on a divestiture plan similar in most respects to the mayor’s proposal.

Bradley aides say the mayor is confident of majority support from both the police and fire pension commissioners and from the commission in charge of the second largest pension fund, the $1.3-billion City Employees Retirement System.

He has the power to hire and fire the majority of the members of those two commissions, but no direct appointment power over the body that oversees the $1-billion Water and Power Employee Retirement System. Bradley is not confident, aides say, that the water and power commissioners will back him on divestiture.

Fear for Earnings

Members of that commission have expressed concern that proscribing investment in the many large companies that do business in South Africa would jeopardize the earning power of the city’s pension assets. About 30% of America’s blue chip corporate giants do business in South Africa, and they would be off limits to pension investments.

About 25,000 former city employees or their families now receive income from the pension funds.

Some pension commissioners have indicated a preference for the approach taken by the University of California, which calls merely for a study to identify possible candidates for divestiture. The purpose of the study is to single out U.S. firms in South Africa that are doing little or nothing to improve the lot of non-white workers.

Bradley and Yaroslavsky contend that their prudent approach to divestiture would allow plenty of time to replace South African-related holdings with other, financially sound, investments.

The mayor’s approach is more moderate than plans adopted by San Francisco, Washington, Boston and Philadelphia, all of which require immediate divestiture of all South Africa-related holdings.

No Divestiture Yet

The Los Angeles plan is modeled on New York City’s divestiture policy, which was adopted a year ago but, to date, has not led to the divestiture of a single stock from the city’s $9-billion pension system.

Assistant New York City Controller Steve Matthews said last week that divestiture candidates are still under study.

Like the New York model, the Los Angeles plan would allow the pension funds to hold, for up to five years, stocks of companies in South Africa that comply with a code of conduct, known as the Sullivan Principles, that requires employers to improve working and living conditions of non-white laborers.

Under the Los Angeles plan, less than one-third of the South Africa-related stocks in the pension accounts would be eligible for divestiture during the first two years the plan was in effect.

Moreover, any stock targeted for divestiture would not be sold if it meant taking a loss, Yaroslavsky said.

Cites Principles

Originally, the city’s plan called for a ban on any new investments in new firms doing business in South Africa. But, Yaroslavsky said, the version going before the council would allow purchases, for up to five years, of stock in firms that are complying with the Sullivan Principles.

In addition, the councilman said, the plan going before the council has been shorn of two other elements originally proposed by the mayor. One was the creation of a nonprofit corporation to fight apartheid which was to be paid for by the tax on Kruggerands. The other was a ban on the city’s purchase of goods and services from South Africa, a proposal that requires more study, Yaroslavsky said.

In other respects, the plan needs clarification.

One area that remains unclear is a requirement to sell holdings in companies that provide goods to the South African police or military.

A 1962 federal law prohibits the sale of armaments to South Africa and President Reagan has signed a bill that proscribes the sale of computers to the South African police.

Question Remains

The question that could remain for Los Angeles is whether to shun firms that sell such products as breakfast cereal or toothpaste to military suppliers. In addition, the city must decide whether to stop investing in firms that sell to civilian wholesalers and distributors, some of whom may not even be based in South Africa but who resell American products to the South African military.

City officials also are trying to cope with a loophole in the proposed plan that would allow American firms, whose stocks are held by South African interests, to enter into contracts with the city.

For instance, bidding to become the underwriter of a $200-million trash-to-energy plant that the city wants to build, the New York investment firm of Salomon Bros. Inc. has revealed that 15% of its stock is owned by South African investors.

City Administrative Officer Keith Comrie, whose staff rated Salomon Bros. as one of the top two firms competing for the contract, argued that Salomon Bros. should not be penalized because, like any firm whose stock is publicly traded, it cannot control who buys its stock.

Ask Disqualification

But divestiture advocates remain opposed to Salomon Bros. and, according to City Hall sources, are lobbying for the firm’s disqualification.

Bradley, Yaroslavsky and black Councilmen Robert Farrell and David Cunningham are also working hard on behalf of the divestiture plan despite their view that the plan is less than perfect.

“Some of us would like to see it (divestiture) happen a lot quicker than the plan calls for,” Yaroslavsky said. “Some of us would like to take a more forceful stand. But the plan is the best we can do at this time, and we think it is well worth doing.”

DIVESTITURE IN LOS ANGELES Under a five-year plan sponsored by Los Angeles Mayor Tom Bradley and the City Council, the city’s three pension funds, worth about $4 billion, would be divested of holdings in firms doing business in South Africa. Among the first stocks to be sold would be companies that do not subscribe to the Sullivan Principles, which calls for employers to improve working and living conditions of non-white South Africans. Here is a look at what would happen to the Fire and Police Pension System, largest of the city pension funds.

POLICE AND FIRE PENSION SYSTEM: $1.8 BILLION CASH $276 million BONDS $615 million, 8% or $49 million STOCKS $909 million, 31% or $282 million COMPANIES AFFECTED Of 319 companies in which the fund holds stock, 81 do business with South Africa. Of those, these 22 could be the first affected by divestiture in Los Angeles: AMR Corp. Air Prods. & Chems. BBDO International Baker International Boeing Co. Diamond Shamrock Corp. Dun & Bradstreet Corp. Emhart Corp. Va. Fruehauf Corp. General Foods Corp. General Signal Corp. Illinois Tool Works Kimberly Clark Corp. Lubrizol Corp. Martin Marietta Corp. Medtronic Parker Hannifin Corp. Square D. Co. Stanley Works Stong & Webster U.S. Steel Corp. V.F.Corp. STOCK PERFORMANCE (From Day of Purchase) All stocks in pension fund +16% Stocks potentially targeted for divestiture +23%