Pat Dollard | Young Americans

Gov. Arnold Schwarzenegger addresses the United Nations.

LAT:

SACRAMENTO — As the world watched for news of Iranian President Mahmoud Ahmadinejad in New York, Gov. Arnold Schwarzenegger, who also happened to be in town, prepared to steal some of the spotlight by announcing that California would sever ties with companies doing business in Iran.

Schwarzenegger, who like Ahmadinejad went to New York to address the United Nations, told The Times in a written statement that he would sign legislation requiring California’s multibillion-dollar state pension funds to divest from the country.

The move, pushed by a diverse coalition of activists who argue that the federal government has not done enough to keep multinational corporations out of Iran, puts California at the forefront of a national movement.

The bill, AB 221, which the governor plans to sign when he returns to California, passed the Legislature with no opposition and follows the state’s divestment from Sudan last year.

“California has a long history of leadership and doing what’s right with our investment portfolio,” the governor said in his statement. “Last year, I was proud to sign legislation to divest from the Sudan to take a powerful stand against genocide. I look forward to signing legislation to divest from Iran to take an equally powerful stand against terrorism.”

Schwarzenegger announced his decision as politicians from across the country jockeyed to outdo one another in condemning the Iranian president, who is scheduled to address the United Nations on Tuesday. Ahmadinejad, whom the U.S. government accuses of leading a terrorist regime that arms Iraqi insurgents and is developing nuclear weapons, has called the Holocaust a “myth” and said Israel should be “wiped off the map.”

New York Mayor Michael R. Bloomberg denied Ahmadinejad’s request to lay a wreath at ground zero, site of the 2001 terrorist attack on the World Trade Center. Jewish leaders hoped to gather as many 20,000 protesters outside the U.N. today to protest the Iranian president’s visit. And Columbia University is facing intense pressure to withdraw an invitation that Ahmadinejad accepted to speak at a university forum.

Schwarzenegger’s decision to sign the disinvestment bill “will keep him in the limelight,” said Jonathan Aronson, professor of communication and international relations at USC. But Aronson is skeptical that the policy will do much to deter Iran from terrorism and human rights violations.

“These kind of things are helpful to the politicians doing them,” he said. “Whether it is helpful to the State Department as it tries to deal with Iran, which is already as difficult as can be, is less clear.”

Supporters of the measure, however, contend that it could ultimately lead to the withdrawal of billions of dollars of investment from Iran, forcing the country’s leaders to reconsider how they rule. California’s public pension funds, worth more than $350 billion, are the retirement accounts of teachers and other government employees.

“No one should underestimate the clout of the state of California and its pension funds,” said Danielle Pletka, vice president for foreign and defense policy studies at the American Enterprise Institute, a conservative Washington think tank that has helped lead a bipartisan push for divestment. “This is an enormous amount of money. Divesting from companies that do business in places like Iran will be a powerful message.”

Pletka said California’s bill would enact a law similar to one in Florida. Divestment legislation is being weighed by a dozen other states, as well. In Missouri, the state treasurer was able to enact such a policy on her own authority. And at least five divestment bills are pending in Congress.

Pletka said the legislation was necessary because pension funds, however well intentioned, often are unaware of the holdings of every company they put money into — especially as the funds invest more globally.

The California legislation would require the pension managers to hire a research firm to comb through every one of their investments, rooting out links to companies involved in any way with the Iranian defense or nuclear industries.

California’s pension fund leaders, who will be charged with implementing the bill, fought the measure.

Officials at the funds say it will cost the state tens of millions of dollars in staffing and lost profits. And they maintain that it will ultimately diminish the state’s clout over rogue companies that might otherwise be persuaded to change their investment policies.

“Our philosophy is you don’t have a voice if don’t own the stock,” said Pat Macht, spokeswoman for the California Public Employees Retirement System.

Macht said the bill would preclude the fund from lobbying a company to change its practices because it requires the state to divest immediately upon learning a company has business ties to Iran.

“Our preference is to use divestment as a last resort, not a first resort,” she said.