Taking Stock in Tobacco: Fight Smolders at Big Pension Fund

Armed with a war chest of $650, a handful of retired professors is trying to make one of the world's largest private retirement funds - with assets of $50 billion - give up its investments in the tobacco industry.

This David and Goliath matchup begins next month when the Teachers Insurance & Annuity Association-College Retirement Equities Fund, known as TIAA-CREF, mails out proxy statements to its 1.43 million members in advance of its Nov. 11 annual meeting. Included in the proxy is a shareholder proposal that CREF, which invests in stocks, stop buying tobacco shares and start to divest itself of $1.5 billion in tobacco investments.

The educators' efforts will likely get a publicity boost in October when C. Everett Koop, the former US Surgeon General, endorses the effort in Washington. The press conference is being co-sponsored by the American Medical Association and the Campaign for Tobacco Free Kids. "They are a bit underfunded," Bill Novelli, leader of the Tobacco Free group, says of the pro-divestment group.

The CREF battle is not unique. In New York, managers of the state and city pension funds are under pressure to eliminate tobacco investments. In Massachusetts, the attorney general has called for divestment, and Maryland's state employees pension fund is selling its tobacco holdings.

The antitobacco undertaking at CREF is no doubt an uphill battle. For competitive reasons, CREF won't give the professors a list of colleges and universities whose faculty are shareholders. Even if they had such a list, they wouldn't have enough money for postage to reach each of the shareholders.

Instead, the antitobacco professors hope to get the word out via the press. Last week they sent 1,200 college newspapers a press release about the forthcoming battle.

"It's something we'll be looking into," says Becky Mollenkamp, editor of the Journal at Webster University in St. Louis. But Hans Chen, editor of Columbia University's Spectator, says he doesn't think he'll cover the dispute. But "that could change," he adds, after he talks to his news editors.

So far, many professors are unaware of the brouhaha. "I'm not familiar with the proposal," says David Wertheimer, business law professor at La Guardia Community College in Long Island City. But "I think it's a good idea, and I'd vote for it."

Some shareholders don't read the proxy material. "I never vote on that stuff," says Bob Nelson, a Columbia University public affairs specialist and CREF shareholder.

And it's not certain that the group can get the votes even if it begins to reach shareholders. Peter Sargent, dean of the College of Fine Arts at Webster University in St. Louis, says he would vote against the proposal. "I would like to see CREF get the highest return on its investments, and ... the tobacco industry gives a high return."

This is not the first year the proposal has surfaced at CREF. For the past two years, Walter Moore, a retired professor of chemistry at Indiana University, made a similar proposal. Last year, his proposal won 20 percent of the vote.

Sponsors hope to do better this year. "He is a chemistry professor with very little media savvy," says Douglas Kelley, a co-sponsor of the divestment proposal and a retired professor of public affairs and politics at the University of Michigan, Flint.

Even getting 20 percent of the vote is an achievement. "In a typical company, management will be very upset by that," says Ken Bertsch of the Investor Responsibility Research Center in Washington.

CREF spokeswoman Claire Sheahan says the company, which offers members a "Social Choice" fund (no tobacco), is constrained from making any comment about the issue under Securities and Exchange Commission rules. Last year, CREF recommended that its members vote against the proposal. CREF argued that selling its holdings would result in a loss of diversification and that it could have more influence on tobacco-company management if it kept its holdings. In the second quarter, CREF reduced its Philip Morris holdings by 2.2 million shares but still had $1.25 billion invested in the company. In New York, Philip Morris had no comment on the proposal.

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