Divestment report being questioned

By Benjamin Parke
Daily Bruin Reporter

SAN FRANCISCO “”mdash; The investment consultant for the UC Board
of Regents ““ which is considering the exclusion of tobacco
stocks from its portfolio ““ performed a 1997 study on tobacco
divestiture that was funded by Philip Morris, according to a
document from the cigarette company.

In “Philip Morris’ Response to Divestment
Proposals,” the tobacco giant makes several arguments in a
six-page document as to why its stock should not be excluded from
institutional portfolios.

One of those arguments is based upon the results of a study it
commissioned from Wilshire Associates ““ which is now the
regents’ consultant for UC’s $53 billion investment
portfolio. The regents are scheduled to consider today whether to
exclude tobacco stocks from the UC portfolio.

While Wilshire Associates has not made a recommendation one way
or another as to how the regents should decide, it did warn of a
“slippery slope” that could make index funds in the UC
portfolio difficult to manage if more and more types of stocks are
excluded.

But the firm stated if tobacco stocks alone are excluded the
impact on the portfolio would be “very marginal.”

Regent Judith Hopkinson, the chair of the investment advisory
committee to the regents, said at Tuesday’s advisory
committee meeting that she expects the stocks to be excluded, but
cautioned: “nothing is ever a foregone conclusion when the
regents vote.”

The Philip Morris document, dated February 2000, was included
with background material provided by officers of the Alameda County
Employees’ Retirement Association to its board of directors
““ which was considering divesting its own portfolio of
tobacco stocks last year.

According to the document, the Wilshire Associates study
“found that tobacco-free portfolios have generally
under-performed the broad market indices such as the S&P 500
without any meaningful improvement in risk levels or
volatility.”

A footnote in the document says that the study was funded by
Philip Morris.

“It obviously raises questions,” said Kirk
Kleinshmidt, director of advocacy for the American Heart
Association.

The president of the heart association’s western
affiliate, Fred James, went before the regents in November to argue
for the exclusion of tobacco stocks. Other groups, such as the
American Cancer Society, the American Lung Association and the
Council for Responsible Public Investment have joined the call.

But Stephen Nesbitt, senior vice president of Wilshire
Associates, said the prior relationship had no affect on their role
in the UC’s divestment decision.

“We work with hundreds of companies and hundreds of
governmental entities,” Nesbitt said.

He added that his firm has gained their clients’ trust and
its integrity.

“If we couldn’t, our clients wouldn’t hire us,
and we wouldn’t be a major consulting firm,” Nesbitt
said.

Additionally, Nesbitt and Hopkinson said the consulting firms
role in the matter was limited.

Hopkinson said he knew of the prior relationship between
Wilshire Associates and Philip Morris but wasn’t troubled by
any conflict.

“This was a totally analytical decision,” said
Hopkinson, adding that the firm had no financial stake in the
outcome of the matter.

Twenty-two percent of UC’s investment portfolio is moving
into index funds ““ which include the tobacco stocks ““
from the active management of the UC treasurer’s office, in a
restructuring recommended by Wilshire Associates.

Philip Morris would not provide a copy of the 1997 study, saying
it wasn’t necessarily publicly available, and that it would
have to be obtained through Wilshire Associates.

Wilshire Associates doesn’t release work done for
clients.

Tim Kellog, director of financial communications for Philip
Morris, was unable to provide any details of the circumstances in
which the study was commissioned, or any information about the
document which refers to it.

“The problem is that the report is getting old,”
said Kellog. “The nature of those sorts of things is that
they get out of date.”

A source close to the university said Wilshire Associates did
not give an official opinion on whether UC should divest from
tobacco stocks, although “everyone has thrown their two cents
in” with unofficial opinions. The source said the issue was
looked upon as an internal debate between regents.

The UC Office of the President is advising the regents to divest
in the stocks because of the university’s prior history on
such issues, according to Joseph Mullinix, senior vice president of
business and finance.

Mullinix also cited “incredibly complex financial
considerations,” liability, and the public health issue as
reasons to divest.

“We believe it is desirable to invest in an index which
excludes tobacco stocks,” he said.

Stanton Glantz, a UC San Francisco professor of medicine who has
done research on the tobacco industry and public policy, was
critical of Wilshire Associates’ previous work for Philip
Morris.

“If I as a member of the faculty engaged in purchasing
decisions with that level of conflict of interest, I’d run
into some problems,” said Glantz.

The professor was the subject of an unsuccessful lawsuit against
UC last year brought by a group partially funded by the tobacco
industry. The suit alleged that he had used public funds for
political advocacy.

Regent Markell Kohn, a San Diego surgeon who sees the exclusion
of tobacco stocks as a public health issue, said he wasn’t
too troubled by the Wilshire study for Philip Morris.

“I’m not sure that I necessarily see it as a
conflict of interest,” said Kohn, who added that the
consultant’s job is to provide financial data on each option
the regents have to choose from.

“That issue comes down to numbers-crunching,” Kohn
said.

PHILIP MORRIS’ RESPONSE TO DIVESTMENT
PROPOSALS

In presenting its case that public funds should not exclude
tobacco stocks, Philip Morris made use of a study it commissioned
from Wilshire Associates – now the UC investment consultant.

SOURCE: Phillip Morris

Original by VICTOR CHEN/Daily Bruin Web Adaptation by HERNANE
TABAY/Daily Bruin Senior Staff