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UC regents toughen moonlighting rules for top executives

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UCSF chancellor Sam Hawgood (left) and UC Davis acting chancellor Ralph Hexter attend a meeting of the University of California Board of Regents to consider an amendment of a policy on outside professional activities of top university management officials in San Francisco, Calif. on Thursday, July 21, 2016.
UCSF chancellor Sam Hawgood (left) and UC Davis acting chancellor Ralph Hexter attend a meeting of the University of California Board of Regents to consider an amendment of a policy on outside professional activities of top university management officials in San Francisco, Calif. on Thursday, July 21, 2016.Paul Chinn / The Chronicle

Senior executives at the University of California who want to serve on corporate boards, consult for companies or otherwise moonlight must first explain how UC would benefit from the work, under conflict-of-interest rules that the system’s Board of Regents approved Thursday.

The regents also approved 3 percent raises for 19 top executives, a day after several UC workers staged a protest over wages they said were so low that many have had to skimp on meals and give up city apartments.

The revised conflict-of-interest rules apply only to executives who request permission to do outside work from now on. About 50 of UC’s 165 senior executives already have such gigs and are exempt from the new rules.

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Twelve moonlight with for-profit companies, including UCSF Medical Center’s chief executive, Mark Laret. He sits on the boards of two businesses that together have sold millions of dollars worth of products to his hospital and have paid him more than $5 million in cash and stock awards.

The Chronicle revealed this week that the public medical center has spent $6.8 million on products from Varian Medical Systems of Palo Alto since Laret joined its board in 2007, and has spent nearly $1 million with Nuance Communications, a Massachusetts software company, since Laret joined its board in 2010. Laret receives an average of $556,000 annually in cash and equity from the companies, on top of the $1.6 million he earns at UCSF Medical Center.

He referred questions to a spokeswoman, who said in a statement that Laret makes no purchasing decisions involving the companies and that his work complies with UC policy.

Lingering concerns

Even so, ethics experts and union officials representing hospital employees called Laret’s arrangement problematic — not only because the companies became suppliers to UCSF Medical Center after Laret joined their boards, but because his role as a corporate board member is to maximize profits, while his role at the hospital is to keep costs down.

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The new rules, proposed by UC President Janet Napolitano, still permit executives to serve on the boards of companies that do business with their campuses.

Yet the regents said their intention in revising the policy was to address conflicts of interest “actual and perceived.” Regent Bonnie Reiss, who heads the compensation committee that handled the changes, told the board during its meeting in San Francisco, “We take this very seriously.”

To UC Davis alumnus Paul Medved, however, it was “unbelieveable” that the regents would continue letting executives sit on the boards of companies that sell to their campuses.

“Please understand that the right number of allowed outside affiliations between senior managers and for-profit entities is zero,” Medved said during the public comment period. He urged the regents not to exempt executives like Laret who already have outside gigs.

“You wouldn’t grandfather in employees from a new sexual harassment policy, would you? So don’t allow that here,” he said.

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The revised rules require UC executives to get permission for all new outside work from two bosses rather than one. Outside work will also be capped at two activities instead of three. And executives are now barred from any work that might “diminish the reputation” of UC.

The rules also require executives to submit a statement saying how the work would benefit the university, but provide no standard for measuring such benefits.

“It would seem that all an individual has to do in filling out the new forms is to use the language from the policy itself,” said Judith Wilde of the George Mason University School of Policy, Government, and International Affairs in Virginia, who has studied university leaders’ presence on corporate boards. “It doesn’t seem like good public policy to just accept a statement of benefits at face value.”

UC officials said they expect to work out those details soon.

CEO’s work defended

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In Laret’s case, UCSF spokeswoman Barbara French said in a statement that his work on corporate boards has helped him gain financial and management discipline. It has also helped him introduce board colleagues to the university, “many of whom have elected to receive their health care (there) and/or give philanthropically to the university,” French said.

A spokesman for Varian said that the company had made grants amounting to less than $30,000 for UCSF’s continuing education program for doctors and nurses, and that it would have given the money regardless of whether Laret was on the board. Nuance did not respond to requests for comment.

Napolitano proposed strengthening the conflict policy after UC Davis Chancellor Linda Katehi’s problematic service on two corporate boards came to light this year.

The Sacramento Bee reported that in February, Katehi accepted a $170,000-a-year seat on the board of DeVry Education Group, a for-profit college that the federal government had sued a month earlier for allegedly making deceptive claims about graduates’ job-placement rates and wages. In March, the Bee reported that Katehi served on the board of textbook publisher John Wiley & Sons and was paid $420,000 in stock and fees.

Katehi resigned from the boards and apologized. Napolitano then suspended her in April pending an investigation into other possible conflicts.

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How does it help?

In approving UC’s state funding for 2016-17, the Legislature called on the university to specify how executives’ outside work “furthers the public mission” of UC and to hold a public hearing each year to consider executives’ requests to serve on boards.

UC spokeswoman Dianne Klein said there will be no public hearings. Instead, executives’ bosses will make the decisions in private and issue a public report to the regents, she said.

The regents’ separate vote to grant 3 percent raises to several chancellors and other top executives will cost the university $227,500 annually. The 19 administrators receiving raises include Chancellor Sam Hawgood of UCSF and Chancellor Nicholas Dirks of UC Berkeley, whose base salaries grew to $795,675 and $531,939, respectively.

The raises came a day after UC clerks, hospital schedulers, librarians and other employees protested on day two of the three-day meeting and told the regents their wages were too low to make ends meet. Represented by the Teamsters union, their labor contract expires in November.

Nanette Asimov is a San Francisco Chronicle staff writer. Email: nasimov@sfchronicle.com Twitter: @NanetteAsimov

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Nanette covers California's public universities - the University of California and California State University - as well as community colleges and private universities. She's written about sexual misconduct at UC and Stanford, the precarious state of accreditation at City College of San Francisco, and what happens when the UC Berkeley student government discovers a gay rights opponent in its midst. She has exposed a private art college where students rack up massive levels of debt (one student's topped $400k), and covered audits peering into UC finances, education lawsuits and countless student protests.

But writing about higher education also means getting a look at the brainy creations of students and faculty: Robotic suits that help paralyzed people walk. Online collections of folk songs going back hundreds of years. And innovations touching on everything from virtual reality to baseball.

Nanette is also covering the COVID-19 pandemic and served as health editor during the first six months of the crisis, which quickly ended her brief tenure as interim investigations editor.

Previously, Nanette covered K-12 education. Her stories led to changes in charter school laws, prompted a ban on Scientology in California public schools, and exposed cheating and censorship in testing.

A past president of the Society of Professional Journalists' Northern California chapter, Nanette has a master's degree in journalism from Columbia University and a B.A. in sociology from Queens College. She speaks English and Spanish.

She can be reached at nasimov@sfchronicle.com.