Harman Wealth Creates New Conflict Issues

By PAUL JACOBS

May 26, 1998 12 AM PT

TIMES STAFF WRITER

When gubernatorial candidate Jane Harman’s husband threatened to pull his company’s manufacturing plant out of Los Angeles, city and state officials put together a multimillion-dollar incentive package to keep the assembly lines--and hundreds of workers--in place.

Most of the money came from a controversial state job training program that a legislative leader describes as “corporate welfare.”

The 1995 rescue plan worked: Harman International Industries’ audio equipment facilities stayed in Northridge.

But the interplay between corporate interests and government shows the potential for conflict that might lie ahead for the Rolling Hills congresswoman if she becomes governor.

How would a state agency or a city government--both dependent on state tax revenue--deal with a crisis affecting the personal fortunes of a sitting governor?

In modern times, few candidates for the state chief executive’s post have been as wealthy as Harman and her husband, Sidney, who built a worldwide company that is famous for its high-end audio equipment.

The couple have a net worth of about $200 million, including more than $50 million in Harman International stock. In an ordinary year, that would easily make Harman the wealthiest candidate in the field. But this is no ordinary year. One of her Democratic rivals, former Northwest Airlines executive Al Checchi, is worth more than $700 million.

A Times review of Harman’s personal finances--based on income tax returns, government filings and court records--affords a financial perspective on the candidate and the kind of ethical problems she might face as leader of the nation’s most populous state.

These documents also reveal disputes the Harmans have had with artisans they employed and with a landlord they rented from when Jane Harman returned to California to run for Congress. And the records document millions of dollars in charitable contributions.

Wealth Poses Fewer Problems in Congress

The Harman fortune is huge by any measure. The couple reported gross income of $6 million on their 1997 tax returns. That was a significant drop from the previous year’s $63 million, an amount that largely resulted from capital gains after the sale of more than 2 million shares of Harman International stock.

As a member of the House of Representatives, where she has only one vote out of 435, the holdings of Harman and her husband present relatively few problems. But in the state Capitol, where a governor carries the biggest stick of all, she would be required to propose budgets, sign or veto bills, run the bureaucracy and approve regulations. And in some cases it might be impossible to avoid a conflict of interest.

Recognizing the problem, Harman is prepared to put her own assets into a blind trust. However, the couple are still deciding how to handle her husband’s even larger holdings, although they are unlikely to finalize a plan until after the June 2 primary.

“I will jump off that bridge when we get to it,” said Sidney Harman, attributing the quip to Adlai Stevenson. “I will encourage and support . . . as clean a separation as possible, as total a removal from conflict of interest as could be managed.” The goal, he said, would be to “insulate the company from the administration and the administration from the company.”

The couple report investments in hundreds of stocks--from aerospace firms and banks to food service and technology companies. State and federal rules don’t require candidates and officeholders to disclose the precise value of their holdings, but among those in the “$250,001 to $500,000” category are the McDonald’s, Boeing, and Transamerica corporations, which have a large California presence.

The largest of the couple’s investments is more than 1 million shares of Harman International, worth in excess of $50 million. The company, which traces its roots to a business co-founded by Sidney Harman in 1953, makes sound equipment for homes and automobiles, including Harman Kardon, JBL and Infinity speakers. It has sales of $1.5 billion a year, from plants in California, Indiana, Japan and Europe. Sidney Harman is chairman of the board and the firm’s largest shareholder.

In 1995, the company’s lease on its Northridge plant, which employs more than 1,500 workers, was up for renewal and it was considering pulling out of the city. “We did what any good business ought to do,” said Sidney Harman. “Northridge is not likely to be on the top of everybody’s list as the most convenient place to have a factory.”

Consultants began scouting for other locations, including neighboring states--prompting fears among government officials that the company might abandon California.

In a recent interview, Harman said he had no plans to abandon the state, primarily out of loyalty to the employees at the Northridge site. “We gave it no real consideration at all,” he said.

But with Southern California still emerging from a prolonged recession and the 1994 Northridge earthquake, the city’s business team and the state’s Trade and Commerce Agency mobilized special “red teams” to persuade the company to stay.

At one point, city records show, the company contended that it could save $11 million in labor and utility costs by moving to Fullerton or Carson.

Mayor Richard J. Riordan became personally involved, talking and writing to Harman to encourage him to renew the lease and to expand his facilities in the city.

The final package of incentives to keep the company totaled $4.8 million and included tax reductions, investment tax credits and utility rate discounts.

State and regional agencies offered advice on how to cut the plant’s toxic waste emissions; the Los Angeles Police Department promised to deal with transients and day laborers who gathered near the plant; and the city gave assurances that a nearby earthquake-damaged apartment house would finally be repaired.

The biggest sweetener was a state Employment Training Panel grant of $2.7 million to retrain the work force at the Harman plant.

The grant came after a similar $1.2-million contract completed just a few years earlier.

The chairman of the Assembly’s Labor Committee, Dick Floyd (D-Wilmington), has dubbed the job training program “corporate welfare.” He argued that big companies should pay for their own retraining programs.

Employment Training Panel officials point out that the funds come from an annual $7-per-employee payroll tax on employers. The money, a panel spokesman said, is available to any qualified employer, not just those who are considering a move out of state. “It is an incentive to upgrade skills,” the spokesman said. “Technical changes are coming so rapidly that it is a constant need.”

Seeking Solutions to Financial Questions

How should Harman--or for that matter, Checchi--handle these and other potential conflicts with the governor’s duties, should one of them win election?

“We now have the problem, not of the politician himself or herself, but of spouses,” said Michael Josephson of the Josephson Institute of Ethics in Marina del Rey. He acknowledged the special difficulties of governors, who are not permitted by law to recuse themselves--unlike members of Congress, who can simply abstain from voting--when a potential conflict arises.

Much of the answer for the Harmans lies in full disclosure, Josephson said.

“When the governor’s husband is applying for something from the state . . . there should be no special advantages,” Josephson said. “And we have to believe that daylight is the healthiest solution.”

But requiring Sidney Harman to divest himself of his holdings “would be poisonous” because it could have the effect of preventing a qualified candidate from running for office, Josephson said. Instead, the use of a blind trust for some assets, together with full disclosure of financial holdings, should eliminate any problems, he said.

“In a democracy, we don’t want to exact too high a price for public service,” he said. “We want the least amount of restriction to accomplish that goal.”

A detailed review of court and property records shows that the Harmans have been involved in a series of disputes with people they have had personal business with.

In 1991, the Harmans, who had been living in Washington, rented a house in Brentwood so that Jane could run for Congress the next year. When they moved a year later to a house in her future congressional district, “they left a mess,” contends the owner of the property, attorney Leonard Sands. Sands said some walls were marred, but his biggest complaint was that the Harmans had pulled out a built-in stereo system that they installed but promised to leave behind when their lease was up.

After the move, the Harmans sued to recover their $14,500 security deposit; Sands and his wife sued for damage to their property and breach of contract. An arbitrator ordered the Harmans to pay almost $24,000, including the deposit, records show.

An architect who had worked on the Harmans’ Washington home went to small claims court in 1991 and recovered $600 that they owed him. Three years later, an interior decorator won a $1,000 judgment for bills that had not been paid.

In 1994, a landscaping company that had worked on the couple’s Rolling Hills home slapped a $3,618 lien on the property to recover unpaid bills.

In an interview, Jane Harman objected to any suggestion that there was a pattern to these disputes.

“We’re not litigious people,” she said. “We have good relationships and long relationships with employees. . . . Our beloved housekeeper, who was in California and moves around with our family, has been with us for 17 years.

“We’re law-abiding, nice folks, and anyone can get into a dispute occasionally about minor matters.”

Another side to the Harmans emerges from their records: substantial giving to charitable causes.

In 1996, the family donated $20 million in stock to a charitable remainder trust and the Harman Family Foundation. Among the donations reported in recent years: $2,500 to Planned Parenthood of Los Angeles, $5,000 to the Simon Wiesenthal Center and $10,000 to the Los Angeles Urban League.

Times staff writer Dan Morain contributed to this story.

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Harman’s Investments

Along with her husband, Democratic gubernatorial candidate Jane Harman has an estimated net worth of $200 million--making her one of the richest individuals ever to run for governor in California. The couple’s largest holding is stock in Harman International Industries, a $1.5-billion-a-year company built by Sidney Harman, who remains chairman of the board and has about $57 million in stock. The company has facilities in Northridge. The corporation, which manufactures high-end car and home audio equipment, has been awarded millions in employment training grants from the state. Other holdings of the Harmans include:

$500,001 to $1 million

Wells Fargo & Co.

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$250,001-$500,000

Boeing

Caterpillar

Citicorp

Lockheed Martin

McDonald’s

Mattel

Monsanto

Sprint