The Berkley Blog

Following what he wrote in the previous posting, I asked CPA William Quinton to help me understand more: Don't we already have some standards other than pure profit for Presbyterian corporate investments (see MRTI website)? We don’t invest in tobacco. We are divested from companies like Boeing and General Dynamics because of their major profits from military hardware. I don't think we'd have invested in Mustang Ranch in Nevada (a legal brothel), no matter what the returns. What keeps those decisions from violating prudent investor policies?

Again, Bill had helpful answers:

You have mentioned one of the thornier problems: When does socially responsible investing become inconsistent with the trustee's fiduciary responsibilities?

In socially responsible investing, organizations deliberately constrain their investment managers from investing in the stock and bonds of certain kinds of companies. The most typical examples for organizations like churches are investments in cigarettes, alcohol, and munitions.

By limiting the investment possibilities, it logically follows that the investment returns will probably be lower. (Generally, historical records on socially responsible investing show a slightly lower investment performance and slightly higher expenses associated with implementing and maintaining the socially responsible investment policy, as compared to non-social investing).

Socially responsible investing is completely appropriate in the context of an organization being consistent with its principles and philosophy, as long as the majority of beneficiaries of that invested money agree with the social objective and with the cost in terms of lower investment returns.

There's the problem. When the investment in question is a cigarette company, virtually no beneficiary has a strong desire to own the cigarette company or receive its profits. General consensus is easy to reach.

However, it is hard to imagine that the vast majority of beneficiaries will want to divest from Israel. There are probably some beneficiaries with very strong feelings to the contrary. There is no consensus.

Therefore, what the General Assembly views as a socially responsible divestment may be viewed as a deliberate conflict of interest with the Board of Pensions’ and
Presbyterian Foundation's fiduciary responsibilities by some of the beneficiaries and/or trustors.

And remember, most of the money in question is not the PCUSA's money. This is money that either belongs to someone else (pastors, church secretaries, janitors, etc.), or has been given to the PCUSA in trust for a restricted purpose.

Socially responsible investing works as long as the beneficiaries are in agreement with its purposes. But trustees can never forget that their first allegiance is the stewardship of the money for the benefit of the beneficiaries and/or trustors. We who would make decisions about it must never forget that it is not our money.

So, then, other than calling G.A. back into session to rescind their resolution, what CAN be done when a poor decision like the divestment one is made?

Well, if it becomes a choice between trying to follow a General Assembly directive or obeying the law, I would think that cooler heads would allow federal law to prevail here. Thus if the direct effect of the General Assembly resolution simply CANNOT be fulfilled legally, then I would hope that reasons for that would be spelled out loud and clear and right up front by General Assembly Council, who were given the responsibility to carry out the General Assembly directive.

Once this is done, and the implications are terribly clear, G.A. commissioners would seem to have a decision to make: do they come back together in a special session to either change or reaffirm their resolution (in a doable form), or do they simply concede that they made a mistake with their resolution and allow the necessary solution to occur in spite of what they once decreed?

It would seem wise that the wide-open, plain-to-see, fully disclosed nature of any undoing of the resolution be emphasized. The process definitely shouldn't be done by unknown persons in back rooms who hope no one is paying attention.

It is great to learn from people smarter than I am, and I get plenty of opportunity!

Today, one of those folks, elder William C. Quinton of Parkway Presbyterian Church in Corpus Christi, Texas, took the time to provide some excellent background information on situations such as our Israel divestment issue. He has given me permission to pass on to you the counsel he gave me, and I do so with pleasure.

Bill writes:

I am a CPA and CFP. I am also a financial advisor. As such, I wanted to try to shed a little light about the comments of the Board of Pensions (BOP) and the Presbyterian Foundation. I don't pretend to be a lawyer, but I have a little bit of knowledge about fiduciary responsibilities.

Current U.S. Pension law, ERISA, makes it illegal for any conflict of interest to creep
into an investment decision. All decisions must be made solely in the interest of participants and beneficiaries and exclusively to provide them benefits. Under the old Prudent Man rule and the new Prudent Investor rule, a trustee must be free of conflicts of interest in managing a trust's investments, and must act solely in the interest of the beneficiaries.

The BOP echoed these rules in a paragraph in the BOP divestment discussion letter: "Even if there were such a policy, the Board of Pensions must, under current law, act for the sole and exclusive benefit of Plan participants. That is, the Board of Pensions manages a portfolio so that Plan members can and will receive the benefits to which they are entitled. That is our goal as fiduciaries of benefit plan money. The Board of Pensions, while free to adopt principles of socially responsible investing, cannot manage the portfolio entrusted to it with any end in mind other than ends related to the future availability of benefits to participants."

So, you see, their position saying that they may not be able to carry out the instructions of the G.A. is not whimsical on their part. What they are not saying, but what the very real problem is, is that the divestment decision may cause them to violate their sworn duty as directors. In other words, carrying out the G.A. directive may cause them to violate the law.

This is why the Board of Pensions and Presbyterian Foundation are using "genteel" language about how the divestiture may never happen—they may not be able to carry out what appears to them to be an illegal instruction. There may be no way for them to follow the divestment directive without exposing everyone to lawsuits for violating their fiduciary responsibilities.

If the General Assembly were to stick to their guns and force a massive divestiture, then I would imagine the board of directors would resign en masse. I also imagine that the PCUSA would be hard pressed to find anyone to serve as a director in those
circumstances.

The question that is probably being debated in the MRTI committee and on the boards is: "Can there be any way to do a small divestiture that will not damage portfolio returns, or cause us to violate our fiduciary responsibilities?" There may be, but my personal opinion is that any divestiture of anything will trigger immediate lawsuits from some of the beneficiaries and/or trustors. It is just too hot a topic
politically.

What the GA and most everyone else may be forgetting in this whole process, is that very little of this money is the PCUSA's money. Most of it belongs to others, or has been given to the PCUSA in trust for a restricted purpose.

There is nothing wrong in doing divestitures using one’s own money. The only one who can get hurt is oneself. However, it is horrible stewardship to do divestitures using other people's money.

This brings up some obvious questions that I’ll cover in the next posting.

This year, General Assembly initiated "a process of phased selective divestment in multinational corporations operating in Israel" for action by the General Assembly Council. Like it or not, this is what commissioners voted to do, and divestment is what is supposed to result from this action.

But ever since, wheels have been in motion to soften, frustrate, or ignore the action. I have written about one-sided Möbius Decisions and the dearth of true options available to change the decision. Two agencies would eventually need to do the divestment: the Board of Pensions and the Presbyterian Foundation. We have now heard from both, and neither sounds like it will do any such thing.

The Board of Pensions's reply was first reported. I commented on their statement on August 26. They obviously don't plan on divesting any time soon, if at all. That's one strike.

Now, we have a comment from Mark Klemm, senior vice president of development for the Presbyterian Foundation. He is quoted in a Layman Online news story as saying, "The fact is, nothing may come of all of this," referring to the G.A. instructions on divestment. That's strike two.

So what is the case? We have two entities, thought to be under the authority of the General Assembly, the highest ecclesiastical authority in our denomination. Both now are essentially saying that they cannot be governed by a General Assembly resolution. With only two entities that can carry out the will of the Assembly, the two strikes means that G.A. has struck out.

I am left wondering two things: First, if indeed the Board of Pensions and the Presbyterian Foundation do not need to follow the command of General Assembly, why wasn't G.A. told this BEFORE they made the resolution that has caused all the uproar? If the resolution is essentially toothless and unenforceable, it is worthless. And if it is worthless, why subject the denomination to the international avalanche of criticism and ill will--and angry parishioners showing up at their pastor's door? If G.A. cannot control the actions of either subordinant entity, why weren't we told at General Assembly that this divestment part of the resolution is nothing more than a broad hint to the Board of Pensions and Presbyterian Foundation?

Second, if General Assembly CAN dictate to the Board of Pensions and Presbyterian Foundation what they are to do, then what is going to be done about what appears to be the beginnings of failure to respond appropriately by both entities? Can a subordinant entity in effect thumb their nose at General Assembly and simply get away with it? And if they are now, what is the process to bring them back into line and effect what General Assembly willed? It would be good to hear from our Stated Clerk about this.

Why is this important? I have said before that I don't personally agree with the decision of the Assembly about divestment. I think it was a poorly rendered decision. But if in this case staff and subordinant entities are able to reverse or ignore a resolution the General Assembly has made, what is to keep them from doing the same with policies on ordination standards, per capita payments, same-sex marriage, sexuality curriculum, re-imagining, and any number of other hot-button items?

The truth is that General Assembly intentions are at times ignored or hindered. The Washington Office has been terribly remiss in removing our name from letters opposed to the Federal Marriage Amendment. Curriculum publishing very adroitly delayed mandated revisions of the sexuality curriculum until years later, when it found an Assembly it could convince to allow them to delay indefinitely, which they have done. Some presbyteries routinely walk all over our ordination standards and get away with it, no matter how G.A. votes.

This is wrong and must cease. We cannot allow the hard-won decisions of General Assembly to be simply ignored, whether we like them or not. Thus, I'll keep before you the various ways that this Israel divestment issue is handled in our process. It's a good case in point, whether one is delighted that it is being blunted or appalled.