L.A. Council Approves Divestiture : 14-0 Vote Affects Bank Deposits, Company Stocks

The Los Angeles City Council, by a 14-0 vote Tuesday, ordered the withdrawal of city deposits from banks doing business in South Africa, and recommended that the city’s $4 billion in pension funds be purged over a five-year period of stocks in companies with connections to South Africa.

Divestiture of the pension funds also requires the consent of the city’s pension commissioners, who have not voted on the issue.

Although several council members criticized the cautiously worded policy adopted by the council as too mild, the sale of stocks and withdrawal of bank deposits envisioned in the plan could involve at least $800 million. Mayor Tom Bradley, who first proposed a divestiture plan last May, praised the council’s action, saying, “Once again, Los Angeles has shown that she is a beacon for social justice in the world.”

Other members of the council concurred with Bradley’s sentiments.

‘Nail in the Coffin’

“Moderate approach though it may be, it is another nail in the coffin of apartheid,” said Councilman Robert Farrell, the first member of the council to begin working for divestiture.

The city’s divestiture policy is less drastic than the approach taken by several U.S. cities, including San Francisco, which requires immediate divestiture of pension assets. But the Los Angeles policy is tougher than other plans, such as one adopted in June by the University of California Board of Regents, which calls merely for a study to single out as candidates for divestiture those firms that are doing little to improve race relations in South Africa.

The Los Angeles policy is based on a plan adopted a year ago by New York City, which is still trying to identify offending companies and has not divested any stock, according to officials of that city’s controller’s office.

Further Study Ordered

The Los Angeles City Council stopped short of approving an additional proposal--part of the mayor’s original plan--to cease buying goods and services of firms that do business in South Africa. The council voted 10 to 4 to refer that proposal to a committee for further study after Councilman Howard Finn pointed out that the city relies on the products of companies such as IBM and General Motors that have operations in South Africa.

The council’s approval of the divestiture plan empowers the city to begin withdrawal of any of its $1.5 billion in deposits from banks that sell or promote the sale of Kruggerands, South African gold coins, or that loaned money to the South African government or South African companies. The loan provision was made retroactive to July 1. That date, which was not part of the mayor’s proposal, was injected into the plan to let the city do business with banks that have pledged not to renew existing loans to South Africa.

City Treasurer Robert Odell said Tuesday that the city uses only one bank, Citibank of New York, that would be a candidate for divestiture under the plan. Over the course of a year, the city places as much as $120 million in deposits there, Odell said.

Pension commissioners overseeing the city’s two largest pension funds, the $1.8-billion Police and Fire Pension System and the $1.3-billion City Employees Retirement System, are expected to take up the issue at meetings during the coming week.

Bradley aides have said recently that the mayor is confident of the support of a majority of the commissioners, whom he appoints, of the two largest pension funds. In May, Bradley threatened to fire any commissioner who resists the divestiture plan, and last month he replaced Police and Fire Commission President David Woo, who had been critical of the mayor’s plan.

The mayor’s aides said, however, that Bradley is less certain of the backing of the commissioners in charge of the $1-billion Water and Power Employee Retirement System. Bradley has no direct authority over those commissioners.

Officials of all three pension systems were noncommittal when asked whether commission members would vote in favor of divestiture.

‘Won’t Be Unanimous’

“We’ve had the mayor’s proposal since May 7. The board has been discussing and considering it for some time. It certainly won’t be a unanimous vote,” said Gary Mattingly, general manager of the Police and Fire Pension System.

“We’re still faced with the necessity of making major determinations as regards the investment program,” said Jerry Bardwell, general manager of the City Employees Retirement System.

“I frankly couldn’t take a nose count for you right now,” said Rich Goss, general manager of the Water and Power pension system. “Some of them (the commissioners) have said it’s difficult for them to divide their loyalty between political investing and investment solely for the welfare of the employees.”

In the past, those commissioners reluctant to divest have expressed concern that prohibiting investment in the many large companies that do business in South Africa would jeopardize the earning power of the city’s pension assets. About $700 million--or 18% of the funds--are invested in firms doing business in South Africa. And about 30% of the blue chip companies, traditionally favored by pension investors, have operations in South Africa.

“You almost have to close down U.S. business altogether in order to stop our business in South Africa,” said Councilman Gilbert Lindsay, one of only two council members to express serious reservations about the wisdom of divestiture.

Worries About Reaction

Lindsay, one of the council’s three black members, said Tuesday that while he favors divestiture in principle, he worries about its reception by members of the local business community. Lindsay represents the downtown business district.

“I suppose I have more to lose because I represent the business community of the city,” Lindsay said.

Councilman Hal Bernson said he is concerned about “what is going to be the financial impact in terms of dollars on the pensioners.”

Like Lindsay, Bernson voted for the divestiture plan, saying he believes that there is enough “protection” built into the plan to safeguard the pension funds.

By “protection,” Bernson said he was referring to language in the council’s policy stating that no stock will be sold unless the sale is consistent with fiduciary standards.

Councilman Zev Yaroslavsky, a leading sponsor of the divestiture plan, says that means that stocks cannot be sold if it means taking a loss.

About 25,000 Affected

Right now, the city has about 25,000 beneficiaries--former city employees and their families who receive income generated by its pension funds.

“What we are really being asked to do is make a statement,” Bernson said. “The action we take today is not the final step,” he said, referring to the authority vested in the pension commissioners.

Officials of the pension funds told the council Tuesday that, if sold today, South Africa-related stocks held by the pension funds would bring a profit of about $30 million. But the officials said they could not say how well the funds would perform once investments were shifted to stocks that are not connected to South Africa.

“No one knows,” said Mattingly, the manager of the Police and Fire Pension System. “The few public funds that have divested have not had enough experience.”

More than 20 other cities and states have adopted divestiture policies, but all have done so within the last three years. That is not enough time, investment analysts say, to determine how well funds can perform once they are fully divested.

Spread Over Five Years

The city’s plan calls for phased divestiture over a period of five years, beginning in the first year with companies that sell military goods to the South African government.

(This is the same provision that has troubled New York City officials. Federal law has long barred American companies from selling armaments to South Africa. But New York City officials have been trying to determine whether their divestiture plan should apply to companies that sell such military goods as the breakfast cereals that are consumed by South African soldiers. The Los Angeles City Council did not clarify what military goods it meant to cover. Questioned after the council session, Yaroslavsky said the phrase military goods meant any goods sold for use by the South African military.)

Second-year divestiture would eliminate firms doing business in South Africa and that have not signed the Sullivan Principles, a code of conduct requiring firms to improve working and living conditions for non-white employees and to work for the abolition of apartheid laws.

During the third and fourth years, stocks of companies that have poor records of compliance with the Sullivan Principles would be sold. And, in the fifth year, stocks of all companies doing business in South Africa would be sold, regardless of the firms’ compliance with the Sullivan Principles.

Many council members complained that the policy did not go far enough, fast enough.

“What we are really adopting here today is a watered down version . . . window dressing,” said Councilman John Ferraro, who favored the amendment that would ban the purchase by the city of goods and services from U.S. firms with South African business ties.

Times staff writer Jack Jones contributed to this story.