HOUSE BILL REPORT

EHB 823

BYRepresentatives Wineberry, Grimm, Nelson, Allen, Locke, Hargrove, Heavey, Jacobsen, Niemi, Bristow, Appelwick, Walker, O'Brien, Holland, Belcher, Brekke, Crane, Dellwo and Todd

Requiring divestiture of investments in firms doing business with countries with apartheid policies.

House Committe on Ways & Means

Majority Report:     Do pass.  (23)

     Signed by Representatives Grimm, Chair; Bristow, Vice Chair; Allen, Appelwick, Basich, Belcher, Braddock, Brekke, Ebersole, Grant, Hine, Locke, Madsen, McMullen, Niemi, Peery, Rust, Sayan, H. Sommers, Sprenkle, Taylor, Valle and Winsley.

Majority Report:     Do not pass.  (7)

     Signed by Representatives Fuhrman, Holland, McLean, Nealey, Schoon, Silver and B. Williams.

House Staff:Peter Cutler (786-7140)

AS PASSED HOUSE MARCH 18, 1987

BACKGROUND:

Apartheid is defined as an official national policy of racial segregation with a view of ascendancy and supremacy of the Caucasian race.  The countries engaged in this policy are the Republic of South Africa and Namibia.

Most investment in the state is conducted by the State Investment Board, the state treasurer and institutions of higher education. The State Investment Board is responsible for investment of retirement funds, trust funds, and permanent funds.  The state treasurer is responsible for cash management and investment of the funds and accounts in the state treasury.  The state institutions of higher education invest endowment and other funds under institutional control.

RCW 43.33A.110 requires the State Investment Board to "establish investment policies and procedures designed exclusively to maximize return at a prudent level of risk."  The members are also subject to the following standard:

"All investments... shall be made with the exercise of that degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation but for investment , considering the probable safety of their capital as well as the probable income to be derived. (RCW 43.33A.140)

This is the "prudent man" rule and it is a primary application of the fiduciary responsibility of the members.  Federal law defines investment and federal agencies strictly enforce and prosecute alleged violations.  Fiduciary responsibility pertaining to public sector retirement fund investment, however, is not as clear-cut, particularly with regard to the practice known as "social investment" which includes divestiture.

SUMMARY:

The state treasurer, and the state institutions of higher education are prohibited, effective January 1, 1988, from making or holding any investments in companies doing business in a country with an apartheid policy (South Africa, Namibia), or having business arrangements with such a country.  This prohibition also applies to banks and financial institutions that make loans to companies headquartered in South Africa, or to the government of South Africa.  The State Investment Board is required to reduce by one third every year it's investments in such business firms and financial institutions and to neither make nor hold any such investments after January 1, 1991. The board shall also file an annual report on state funds invested in the business firms subject to the bill.

Invest is defined as the purchase of stock, bonds, securities or other evidence of indebtedness or ownership.  In determining whether an activity constitutes doing business, reference may be made to lists compiled by the Investor Responsibility Research Center, Inc. or similar organizations.

Investment of state pension and trust funds is guided by requirements for prudence, diversification and maximization of return.  These requirements are modified in the case of investments affected by the bill.

In order to qualify as a public depository of the state treasurer, a state agency, or institution of higher education, a financial institution must certify that it does not provide certain services to the government of South Africa.

Fiscal Note:    Attached.

House Committee ‑ Testified For:     Dr. Nmumzan, Delegate to the United Nations from African National Congress.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     The government of South Africa depends on foreign corporations to provide the capital and advanced technology which are necessary to maintain the apartheid system.  States should take whatever actions they can to pressure companies to withdraw from operations in South Africa.

House Committee - Testimony Against: None Presented.