Governor Offers Substitute Plan on S. Africa Funds
Gov. George Deukmejian on Wednesday announced an executive order asking state pension officials to review investments in companies doing business in South Africa and suggesting strongly that they sell those in corporations that do not follow a set of affirmative action guidelines known as the Sullivan Principles.
“The selective investment of trust funds within the control of state investment agencies may encourage corporations to adopt responsible employment policies in South Africa, and thereby hasten the end of that nation’s policies of apartheid,” Duekmejian said, putting California on record for the first time in protest of the Pretoria government’s white-minority policy of enforced racial discrimination.
However, Deukmejian’s action was framed more as a “request” than an order because of legal concern over whether he could issue a directive to retirement systems that are protected by the state Constitution as semi-independent entities.
The governor’s proposal of “selective investment” closely paralleled a policy he voted for last June as a member of the University of California Board of Regents. That policy applied only to the UC retirement system.
But Deukmejian’s order did not go as far as a tough anti-apartheid bill passed by the Legislature earlier this month or divestment actions taken by other state and local governments, such as the City of Los Angeles, which require the actual selling of securities in companies doing business with South Africa.
Deukmejian has warned that he will veto the bill passed by the Democratic-controlled Legislature.
Introduced by Assemblywoman Maxine Waters (D-Los Angeles), that bill would prohibit any new pension fund investments in companies operating in South Africa. The bill also provides for civil and criminal penalties against violators.
State Department of Finance officials said the Waters bill could cost an estimated $50 million annually in lost income by forcing administrators into less desirable investments.
The governor, in his order, said “primary consideration must be given to the safety, rate of return, and present and future opportunities for diversification” in the state’s pension funds, chiefly the $26-billion Public Employees’ Retirement System portfolio and the $16-billion State Teachers’ Retirement System fund.
But he argued that his proposed restrictions on investments in companies operating in South Africa “can be achieved without monetary loss to state trust funds, and can be accomplished in a reasonable and prudent manner.”
Centerpiece of the governor’s policy are the so-called Sullivan Principles, which many corporations have accepted voluntarily.
Corporations signing the Sullivan Principles, named after a Philadelphia minister, the Rev. Leon H. Sullivan, promise to end racial segregation at work sites, promote equal and fair employment practices, provide equal pay for equal or comparable work, initiate training programs for blacks and other non-whites, and increase the number of blacks in management positions.
The governor’s plan asks pension funds to annually review companies in their investment portfolios “on a case-by-case basis” to determine whether they are adhering to the Sullivan code or a similar standard of “good corporate citizenship.”
Companies “making progress” toward meeting the Sullivan standard would pass the test. But Deukmejian wants state retirement boards to consider selling off stocks and bonds in companies that do not meet the code and to make no new investments in such corporations.
The governor’s executive order also urged pension administrators to consider using shareholder resolutions or stock voting rights to exert pressure for responsible corporate policy. He also suggested setting up one or more “South African Free supplemental retirement funds.”
The governor conditioned the policy by saying that pension administrators should take no action that would cause them to violate their fiduciary responsibility to state retirees.
Just what effect the order will have stirred debate.
Assemblywoman Waters called the executive order “window dressing” and complained that the governor “simply requests pension fund managers to take a look at the companies and see if they are being good corporate citizens.”
Like other anti-apartheid activists, Waters charges that the Sullivan Principles themselves would do little to end apartheid. She said that only about 1% of South Africa’s 24 million blacks are employed by U.S. corporations.
However, a top state pension administrator said that the governor’s order could apply to more than $1-billion worth of stock and bond investments.
$5 Billion Involved
Greta Marshall, investment manager for the $26-billion Public Employees Retirement System, said the portfolio contains about $5 billion in investments in companies doing business in South Africa.
Marshall estimates that about 25% of those companies are not complying with the Sullivan Principles.
She and other pension officials said the governor’s order is legally ambiguous, since it “requested” a review, rather than directly ordering a specific series of steps. They said there is some question as to how far Deukmejian can go in forcing pension systems to take action because they are established by the state Constitution as quasi-independent agencies.
“It raises many legal questions,” Marshall said.
Larry Thomas, the governor’s press secretary, conceded that “there is some legal question about the governor’s ability to compel them to act as a matter of law,” and that’s why the governor “requested,” rather than demanded the action.
Thomas, however, said the executive order “carries the full weight of the governor’s office,” and the governor is confident that pension board members, including a number of his own appointees, will follow the policy.