The chief executive of UCSF Medical Center sits on the boards of two companies that together do millions of dollars of business with his hospital and have paid him more than $5 million in stock awards and cash fees since 2007, a review of company filings shows.

For his board service, CEO Mark Laret has received an average of $556,000 annually in cash fees and equity from Varian Medical Systems of Palo Alto and Nuance Communications, a Massachusetts software company. That’s on top of the $1.6 million he earns at UCSF as the UC system’s ninth highest-paid employee.

UC’s policy on “outside professional activities” for senior managers permits such arrangements if the executives do the extra work on personal time, and if it presents no conflict of interest or the appearance of one. Executives need to get approval each year from their immediate boss, which in Laret’s case is UCSF Chancellor Sam Hawgood.

UCSF says there is nothing improper about Laret’s corporate board work and that he has done everything by the book.

“Laret fully complied with UC policy in obtaining approvals,” UCSF spokeswoman Barbara French said in a statement on behalf of Laret, who declined to be interviewed. She said Laret works for the companies on his own time and has no involvement in UCSF purchasing decisions involving Varian and Nuance products.

Appearance of conflict?

Several ethics experts and union officials representing UC employees, however, said Laret’s role on the board of companies that do business with UCSF gives the appearance of a conflict, given that Laret’s main role on the boards is to maximize profits for two companies that sell products to UCSF. Since he joined those boards, UCSF has given Varian and Nuance nearly $8 million in business.

Critics also raise the question of how the university benefits from Laret’s board work.

On Thursday in San Francisco, the UC Board of Regents will consider strengthening its policy on executives’ outside work — including a new requirement that they explain how the moonlighting helps the university. But the proposal would not cover Laret because it would apply only to future cases that don’t involve an executive’s current activities.

UC President Janet Napolitano proposed the changes 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 took a $70,000-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, at a time when students and lawmakers have tried to lower the cost of textbooks and expand free options online.

Katehi resigned from the boards and apologized. Napolitano then suspended her in April pending an investigation into other possible conflicts. Katehi has hired a lawyer and public relations team to fight for her job.

‘Independent’ status

Of UC’s 171 senior managers, Laret and Katehi were among 12 who served on for-profit corporate boards in 2014, according to the university’s most recent annual report on outside compensation for those executives.

Laret, 62, became UCSF’s chief executive in 2000 and joined Varian’s board in 2007. Company documents filed with the Securities and Exchange Commission at the time said that because Varian had done no business with UCSF during the previous three years, Laret was “independent” under New York Stock Exchange rules and Varian’s corporate governance guidelines.

The stock exchange encourages putting independent directors on corporate boards to reduce the potential for conflicts of interest, and suggests several criteria for establishing a director’s independence. A director is not considered independent, the exchange says, if he or she is an “officer of an organization that has a relationship with the company.”

Since Laret joined the Varian board, UCSF has purchased nearly $6.8 million worth of products from the company, UC records show. Yet Varian still identifies Laret as independent, according to SEC documents.

Varian spokesman Spencer Sias said the company does so because Laret makes no purchasing decisions for UCSF involving the firm.

Laret is also considered an independent director at Nuance, which did not respond to several requests for comment.

Bringing discipline

In her statement, UCSF’s French said Laret’s corporate board work has “helped him bring private sector financial and management discipline to a very large public sector enterprise.” She cited Laret’s oversight of the UCSF Medical Center at Mission Bay, a $1.5 billion hospital complex that opened in 2015 “on time and under budget.”

However, Laret was no stranger to financial and management discipline before he joined the boards. French’s statement noted that UCSF Medical Center was losing $60 million a year when Laret arrived in 2000, and said that by 2005, “he had turned it into a $70 million gain.”

By serving on the boards of Varian and Nuance, Laret has “been able to introduce fellow board members and business leaders to UCSF and UC — many of whom have elected to receive their health care (there) and/or give philanthropically to the university,” the statement said.

Asked for specifics, a UCSF spokeswoman said Laret “knows of one donor and several who have become patients.”

Varian’s SEC documents say the company has made “charitable donations to UCSF Medical Center and the regents of the University of California in the past.” Sias said the grants amounted to less than $30,000 for UCSF’s continuing education program for doctors and nurses, and that the company contributes to many similar programs elsewhere.

He said Varian would have made the grants regardless of whether Laret was on the board.

Questionable claims

Most university executives who serve on corporate boards say their work leads to significant new donations to the campus — “but there is little evidence to support that strong, global claim,” said James Finkelstein, professor emeritus of George Mason University School of Policy, Government, and International Affairs in Virginia, who, with colleague Judith Wilde, has conducted three studies of university leaders’ presence on corporate boards.

Critics say the reason university executives join such boards is plain: raising their income.

“This would be a very different conversation if we were talking about a private institution — not a university that goes to the state Legislature with its hand out every year,” said Todd Stenhouse, spokesman for the American Federation of State, County and Municipal Employees, which represents patient care workers, custodians and other employees throughout UC.

“One of the biggest beefs the public has had is this exploding level of executive compensation,” Stenhouse said. “But apparently that’s not enough? Running a world-class public university isn’t a full-time job? Moonlighting with companies that are doing business with UC is troubling.”

Asked for his view of Laret’s situation, Ed Howard, senior counsel with the UC San Diego Center for Public Interest Law, said, “You shouldn’t sit on a board that does business with the university. Period.”

Little in it for UC

“What value do you get from your CEO being on the board of a supplier?” said James Balassone, who ran business ethics programs at Santa Clara University’s Markkula Center for Applied Ethics for a dozen years until retiring last year.

“There’s a reason the supplier wants him on the board — to be a more effective supplier to the hospital,” Balassone said.

Laret has no role in purchasing decisions of less than $5 million, French said. Records show that the most UCSF has spent on a single purchase from either company was $3.8 million for a linear accelerator from Varian in 2012.

If the price had been above $5 million, Laret would have recused himself, French said.

Even so, said Balassone, “it’s not an ideal situation. There’s this appearance of a conflict of interest.”

Before joining UCSF, Laret was CEO of UC Irvine Medical Center for five years and held leadership positions at UCLA Medical Center for 15 years before that.

Big business

In the nine years since Laret joined Varian’s board, UC’s five medical centers have spent more than $34 million with the company on such products as radiation oncology supplies, mainframe software and radiosurgery equipment, UC records show. Of that, $26 million came from UCSF and Laret’s former employers, UCLA and UC Irvine.

Since Laret joined the Nuance board in 2010, UCSF has spent $907,273 on the company’s products such as voice software, microphones, documentation programs and other equipment. UCSF previously purchased similar software from J.A. Thomas and Associates. Nuance bought J.A. Thomas in 2012.

Two other UC medical centers have also done business with Nuance since Laret joined the company’s board: UCLA ($955,670) and UC Irvine ($219,094).

“It would be unusual for these (UCSF purchasing) decisions to come to the attention of Laret,” French said in her statement. “The other four UC medical centers make purchase decisions independently.”

Assembly hearing

In April, the state Assembly’s Higher Education Committee held a hearing on “conflicts and abuse” in the outside employment of UC and California State University executives, prompted by Katehi’s positions on the boards of DeVry and Wiley & Sons. Among the speakers were the researchers Finkelstein and Wilde, who told lawmakers that about a third of university presidents nationwide serve as a director of at least one corporation and supplement their income by an average of $148,000 a year per board.

They said moonlighting — preparing for board and committee meetings, going to and from meetings, joining in conference calls — also eats up time. The 43 university presidents who served on boards and were included in their last research study in 2010 spent an average of 12 days a year on meetings for each board they were on.

That’s about the same number of eight-hour workdays that Laret told UCSF that he worked last year for Varian (99 hours) and Nuance (97 hours). About half those hours were docked from his vacation time because he took calls or went to meetings during business hours, according to his report on outside work. He reported doing the rest of the work on personal time.

Regardless of how time is accounted for, board work should support universities’ missions, Finkelstein and Wilde told members of the Assembly committee.

Changes coming

State lawmakers and UC officials are making some changes, but it’s not clear what effect they will have.

The 2016-17 state budget, approved two months after the Assembly hearing, calls on UC and CSU to specify how outside work “furthers the public mission of the university,” and to hold a public hearing each year to consider executives’ requests to serve on boards.

Although CSU has to abide by the new state regulation, UC, an autonomous public university, does not. Yet the proposal under consideration by the regents appears to strengthen UC’s policy, say ethics experts, though it includes no public approval process.

Wilde and Finkelstein called the proposal an improvement over the existing policy.

“But this is still a case of senior executives approving of one another’s service on these corporate boards,” Finkelstein said. “You have to assume these people are acting in the public interest. However, the best assurance of that is transparency.”

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

UC’s proposed changes

The University of California Board of Regents will consider several changes this week for UC executives who want to do outside work. Among them:

A second layer of approval would be added, so someone above the executive’s manager — a campus chancellor, laboratory director or UC’s president — would also have to sign off on the request.

The executive would have to submit a statement describing the benefits to the university.

The prohibition against “apparent” conflicts of interest would change to “perceived” conflicts.

Outside work such as corporate board memberships would be capped at two activities instead of three.

Penalties for violating the policy — ranging from a letter in the personnel file to firing — would be specified.