Two years after the Board of Directors adopted a policy to stop city investments in companies doing business with South Africa, the board has ordered a recalcitrant Fire and Police Retirement Board to divest.
The retirement board refused to follow the policy two years ago and as recently as last month voted against selling the stocks, saying the $33-million fire and police pension fund could lose money.
But on Monday the directors said they will tolerate no more and ordered the sale of the stocks within one year.
“What kind of example do we set when we allow employee money to be used to support an institution (South Africa) that discriminates?” Director Loretta Thompson-Glickman said.
“It seems real simple to me,” Director Rick Cole said. “Maybe we can make more money, but that’s not the type of profits I want any part of.”
‘Sole Power’ Over Fund
City Atty. Victor Kaleta said the directors may not have the power to force the retirement board to divest. The City Charter gives the retirement board “sole power and authority” to administer the pension fund.
But the directors do have the power to replace two of the recalcitrant members of the retirement board with others who will obey.
The 5-member retirement board is made up of a city director, a representative from the police and fire departments and two members who are appointed by the Board of Directors.
“That is the final option if the board’s directive is not implemented,” said Director William Paparian, who became the directors’ representative on the retirement board this year. “I would like to think the retirement board will follow through, but if they don’t, either they should resign or be replaced.”
Retirement board Chairman Douglas B. Misch, a police sergeant, said the board will meet Oct. 18 to decide what to do.
The pension fund has $7.6 million, or 23% of its total holdings, invested in companies that do business with South Africa. The money is invested in 14 stocks out of a total of 64 owned by the pension fund, according to Lehman Management Co., which manages the fund.
Major Impact on Fund
Members of the retirement board have long maintained that selling those stocks would have a major impact on the fund, which covers about 450 current or retired members of the fire and police departments.
Last month, William B. Simmons of Lehman Management reported the pension fund could have lost $862,000 last year if it sold its interest in the 14 targeted stocks.
Simmons added that the city’s list of prohibited stocks would remove 49 of 500 companies that Lehman invests in.
The stocks on the list that the fund now invests in include some of the best known companies on the market, including Mobil Corp., Unisys Corp. and Johnson & Johnson Co.
“This represents 10% of our universe but more importantly, these 49 companies tend to be some of the largest, most liquid stocks,” Simmons said.
But several members of the Board of Directors scoffed at the idea that divestment would bring financial disaster to the fund.
Paparian said profit or loss would depend on what stocks replace those that are sold.
And even if divestment did mean a loss, he said the city should be willing to bear that burden rather than support companies that deal with an openly racist government.
“That is the price you pay for taking a principled position,” Paparian said.
The directors adopted a policy in 1986 banning city investment in companies that do business with South Africa.
The directors first applied the policy to the city’s own investments. It had little effect because the city is prohibited by state law from owning stocks. The city did end its relationship with a brokerage house that had an office in South Africa.
The retirement board was informed of the new policy when it was approved, but made no move to divest.
The issue was forgotten until Paparian raised it last month.
Paparian asked the retirement board to divest its holdings, but was turned down in a 3-1 vote. Paparian was the only member to support the proposal.