Unusual Pay Plan for Mayor Aide Weighed

An unusual arrangement devised to pay Los Angeles Mayor Richard Riordan’s chief of staff mainly with private funds has been approved by state officials and awaits a second test by city ethics officials today.

Documents filed in support of the novel compensation package for William G. Ouchi show him spending 80% of his time on research and only 15% running the mayor’s office.

That supports the unusual way in which his pay is funded--an arrangement that the Ethics Commission is expected to evaluate for potential conflicts of interest. Under the Riordan Administration’s plan, taxpayers will contribute only 15% of Ouchi’s approximately $120,000 annual salary for the time he spends as the mayor’s chief of staff, while private sources kick in 80% to support his “action research,” conducted from the chief of staff’s office, on making city government work better.

UCLA, where Ouchi is a renowned professor of management, chips in the remaining 5% for time he spends on administrative obligations there.

The private funds expended on Ouchi’s research so far have been solicited from foundations, individuals and companies--some of which, such as Bank of America and IBM, do substantial business with the city.

These funds were solicited by Riordan or one of the mayor’s former law partners, according to donors and the mayor’s counsel, Karen Rotschafer.

An Aug. 12, 1994, letter from an IBM official highlighted the mayor’s role. The official said his company was making its $5,000 contribution “in response to Mayor Riordan’s telephone call requesting corporate help for the Riordan-Ouchi project.”

Many contributions were larger, some reaching $50,000.

Riordan said he does not remember asking for any of them, but he said he sees nothing wrong with private gifts for a public purpose.

“Every time somebody makes a gift to the city, the L.A. Times or somebody else tries to knock them,” Riordan said. “I think (knocking them) is detrimental to the city.

“Bill Ouchi’s the most honest, competent person I’ve ever dealt with and the city is lucky to have him as chief of staff,” the mayor added. He said taxpayers “should be happy” that someone else is paying the bulk of Ouchi’s salary.

Rotschafer said there is nothing wrong with the mayor having solicited funds, or with Ouchi’s accepting money from companies that do business with the city. Such funds pose no legal conflict of interest for Ouchi, she said.

“But we recognize the fact that some people might think there is an appearance of conflict,” she added.

Accordingly, she said, in the future Ouchi will be shielded from knowing who the contributors are and Riordan will not make solicitations personally.

The arrangement began at the start of the Riordan Administration when Ouchi, a scholar who has made a career of advising corporate executives on how to make sprawling organizations more productive, was ensconced in the mayor’s back office as a mere consultant, helping Riordan devise strategies to tame the city’s government.

Money solicited then was collected by the California Community Foundation, a charity. The foundation in turn passed the money on to UCLA in the form of a research grant. UCLA then paid Ouchi that money.

“Bill wanted to study how a city works and Dick wanted to let Bill use L.A. as a learning laboratory,” said Jack Shakely, president of the foundation.

But once Ouchi took on the formal role of chief of staff Aug. 1, the mayor’s office and Shakely’s board wanted an opinion from the state Fair Political Practices Commission that the arrangement would remain lawful.

“Before, he was basically a volunteer and on the fringes of the office,” said Rotschafer, the mayor’s counsel. “This time he is a government official. He has been given more power to influence decisions. . . . That’s why we felt it was prudent to get the FPPC involved.”

Riordan personally retained an attorney who was a former member of the FPPC to research the matter and prepare a request, Rotschafer said.

In its ruling early last month, the FPPC agreed that the arrangement poses no conflict of interest for Ouchi. The agency said that under an exemption that applies to academics, Ouchi does not have to disqualify himself from taking part in government decisions that have financial impact on donors to the fund that pays him.

That is because, as far as the law is concerned, Ouchi is being paid by UCLA--not by the individual donors--in return for his research, the commission said.

While waiting for the FPPC to rule, Riordan and his former law partner, Jeffrey Glassman, stopped asking for donations, according to records and interviews. The fund gave UCLA enough to pay Ouchi only through October before running out of money. UCLA has been covering Ouchi’s salary since then.

Now, with the FPPC approval, the fund is being reconstituted. Although Ouchi will not know who the new donors are, he said his understanding is that solicitation efforts will focus on “dead people’s money.”

“From a philosophical point of view,” he said, “I think it would be unwise . . . to solicit from companies whose livelihood comes from doing business or getting permissions from the city.”

Rotschafer said new contributions, in addition to paying Ouchi, will be used to repay the old fund for its disbursements to UCLA from August to October and to repay UCLA the amount it has been covering since then.

The old fund, which was also used to pay consultants and others working with Ouchi, had collected more than $550,000. Contributions came from banks and oil companies such as Arco and Chevron, Citibank, Wells Fargo and First Interstate, as well as the Mattel Foundation, the Milken Families Foundation, the Weingart Foundation and some wealthy individuals such as executive pay consultant Peter Mullin.

UCLA pays Ouchi--both its own share and the funds funneled through the foundation--at the rate of about $100,000 per year, Rotschafer said. Ouchi will earn another $18,000 or so from taxpayers, but has collected none of that while awaiting FPPC approval.

Ouchi, who achieved commercial success with his best-selling book “Theory Z,” detailing how U.S. companies could learn from Japanese management techniques, still consults for two companies with no city ties. But he said he has lost substantial income while working for the city because he has had to give up lucrative speaking engagements and has not been able to devote much time to private consulting.

He said he was drawn to the complicated pay arrangement because it allowed him to remain active at UCLA and still serve the city and Riordan, an old friend. He said an alternative--taking a leave of absence from UCLA so he could accept a regular city salary--was unacceptable because it would have required him, under university rules, to give up responsibility for supervising doctoral students he had recruited and to whom he feels an obligation, as well as to give up responsibility for special programs for minority faculty and students that he has nurtured. “If a faculty champion goes away, a program dies,” he said. “I don’t want to go away for a couple of years and come back to nothing.”

Ouchi’s job description as chief of staff is also unconventional. “Dr. Ouchi is the visionary, the one looking at reinventing government, redesigning departments, the creative source,” said Rotschafer. She said most of the administrative responsibilities that traditionally go with the title have been taken over by Deputy Mayor Michael Keeley, a former Riordan law partner, who was recently named assistant chief of staff.