Stem cell agency seeks to weaken conflict-of-interest rules

Directors of the $12 billion California stem cell agency have moved to weaken conflict of interest provisions affecting its governing board — eliminating “leave-the-room” requirements that are used by most private nonprofits to assure the integrity of their operations.

The Governance Subcommittee of the agency’s board unanimously approved the changes Wednesday with no discussion during a brief meeting. The alterations will go to the full board for ratification at a meeting Oct. 19 that will be open to the public for comment.

Currently, the bylaws of the stem cell board stipulate that when one of the 35 members of the board has a financial conflict of interest involving a matter to be discussed at a board meeting that person must leave the room. The requirement has been in place since the early days of the agency, officially known as the California Institute for Regenerative Medicine (CIRM).

State law requires that the leave-the-room requirements be followed by elected officials but not by public officials appointed by elected officials

BoardSource, a national organization supporting good governance, says the practice is common among private, not-for-profit enterprises.

“Most boards require that the board member in question leaves the room altogether before any deliberation begins to allow for a free and unencumbered exchange of opinions,” says BoardSource. 

State law requires that the leave-the-room requirements be followed by elected officials but not by public officials appointed by elected officials, according to CIRM, which has been dogged by conflict of interest issues since its inception.  Generally speaking, conflict of interest regulation in California government is much more stringent than in the private sector because taxpayer funds are involved.

During Wednesday’s meeting, the CIRM staff presented no other justification for removing the longstanding “leave-the-room” language (see below)  beyond this phrase, “Removes requirement that board members leave the room, in light of remote meetings.”  Normally, proposed changes in such things as CIRM regulations and bylaws are accompanied by more than a five-word justification, i.e. “in light of remote meetings.”

“Further, board members still do not vote on applications in which they have an institutional or personal financial interest.” — CIRM

Meanwhile, local governments in California are being told that they cannot use online meetings as a justification to avoid compliance with “leave-the-meeting” provisions. Officials must leave meetings “virtually,” according to city attorneys.

Asked for comment following the subcommittee action, the agency issued the following statement:

“The Governance Subcommittee voted to approve a procedural adjustment to reflect how meetings are run.  It is not a change in substantive policy and has no effect on what constitutes a conflict.  Further, board members still do not vote on applications in which they have an institutional or personal financial interest.  Nor are they able to comment on such applications.”

Conflict of issue problems are nothing new for CIRM. They arose during the ballot campaign that created it in 2004.

In 2007, the California Stem Cell Report disclosed a case in which a CIRM board member “attempted to overturn a decision by the agency’s staff that ultimately resulted in the loss of a $638,000 grant to his research institution.” The matter also involved the board chairman at the time,Robert Klein, who recommended that the board member lobby the CIRM staff.

Klein, a wealthy real estate developer and an attorney, sponsored both the 2004 initiative and the ballot measure last year that refinanced CIRM with $5.5 billion.

The study said the composition of the board makes it neither “independent” nor capable of  “oversight.”

In 2008, the journal Nature, in an editorial, warned about “cronyism” on the board. In 2012, a blue-ribbon study by the National Academy of Medicine (then known as the Institute of Medicine or IOM) recommended major changes to deal with conflict of interest issues at the CIRM.

The report, which cost CIRM $700,000, said,

“Far too many board members represent organizations that receive CIRM funding or benefit from that funding. These competing personal and professional interests compromise the perceived independence of the ICOC (the CIRM governing board), introduce potential bias into the board’s decision making, and threaten to undermine confidence in the board.”

The study said the composition of the board makes it neither “independent” nor capable of  “oversight,” although the board is legally dubbed the Independent Citizens Oversight Committee (ICOC).

In 2018, the San Francisco Chronicle reported,

“Records obtained by The Chronicle showed that board members abstained from voting on grants roughly 1,770 times since 2006 due to reported financial conflicts. Tens of thousands of additional recusals were triggered by a CIRM policy that bars certain members from weighing in on any application.”

Representatives from nearly all the California institutions that stood to benefit were given seats at the table where spending plans are approved and awards handed out.

In 2020, an analysis by the California Stem Cell Report disclosed that 80 percent of the billions handed out by CIRM have gone to enterprises linked to past and present board members. 

Other examples could be cited as well. The conflicts were built in by Proposition 71 of 2004, which created the agency and dictated the composition of  CIRM’s then 29-member board. In 2012, CIRM’s former general counsel and who is still a consulting attorney for CIRM, James Harrison, described the situation as “inherent conflicts of interest.”

Under Proposition 71, representatives from nearly all the California institutions that stood to benefit were given seats at the table where spending plans are approved and awards handed out. Directors are not allowed to vote on specific awards to their institution. But they control the direction of the agency and what CIRM calls “concept” plans, including specific elements and budgets for the award rounds. Some of those rounds run into hundreds of millions of dollars.

Below is the language that the Governance Subcommittee voted to strike from the CIRM bylaws. Normally, such subcommittee actions are routinely approved by the full board. However, the board now has many different members than a year ago and has been enlarged from 29 to 35 members.

“Section 7. (Manner of Disqualification)

“A member of the Governing Board shall leave the room when a member of the Application Review Subcommittee requests a discussion of a particular application for funding under the following circumstances:

“(a) The member has a financial interest, as defined by Government Code section 87103 and Health and Safety Code section 125290.30(g), in the application under discussion by the Board; and

“(b) The applicant has self-identified either by submitting written comments to the Board or the Application Review Subcommittee regarding the application in advance of the meeting or by offering public comments regarding the application during the meeting at which the application is being considered.”

The Application Review Subcommittee (ARS) is a subset of the full board. It was created in the wake of the $700,000 study of CIRM. It effectively bars 15 members of the board from voting or discussing applications. Nonetheless, conflicts of interest continue to occur.
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Editor’s Note: David Jensen, editor and founder of the California Stem Cell Report, is a retired newsman who has covered CIRM since its inception.