The California agency's board is wrestling with recommendations for changes in its membership and its authority over the spending of its $3-billion endowment.

Compromise, defined as the art of getting part of a loaf when the whole loaf is out of reach, comes in many forms. But surely the strangest of all is what comes of trying to compromise with yourself.

That's what California's stem cell agency is attempting to do. And judging from its record of pioneering new ways of funding and managing scientific research, you can rest assured that the results will be fraught with interest.

What's at issue is how the agency's board wrestles with recommendations for changes in its membership and its authority over the spending of its $3-billion endowment in state bond funds (that's $6 billion, including interest). The recommendations came last month from a panel of the Institute of Medicine, an arm of the National Academy of Sciences. The stem cell agency, which is formally known as the California Institute for Regenerative Medicine, or CIRM, paid the academy $700,000 for this exercise in high-level scrutiny.

After 17 months of deliberation, the panel, which was chaired by Harold Shapiro, a former president of Princeton University, concluded that the CIRM board members were saddled with "almost unavoidable conflicts of interest, whether actual or perceived." That's because by law, 23 of the 29 members must be representatives of California institutions eligible for CIRM grants or of disease advocacy groups with their own interest in steering money toward their particular concerns.

As a remedy, the panel proposed eliminating some board slots reserved for grant-receiving institutions by Proposition 71, the 2004 initiative that created the agency. The idea was to fill those slots with truly independent members free of any stake in CIRM funding, even indirectly.

The panel also recommended removing the entire board from any role in approving or rejecting individual grant applications. That function should be left wholly up to CIRM's expert scientific reviewers, the panelists said. Given the embarrassing hints of cronyism that have afflicted some of the board's deliberations, that would be a wise move.

No one who has witnessed CIRM in action will be surprised to hear that those most far-reaching recommendations have been rejected — the board gave the same cold shoulder in 2009 to very similar proposals from the state's good-government watchdog, the Little Hoover Commission.

Here's the board's counterproposal, drafted by CIRM Chairman Jonathan Thomas: The 13 board members who represent funding-eligible institutions, including five UC campuses and other California research institutions, will voluntarily abstain from voting on individual grants in the future.

Yet they'll still participate in all discussions on individual grant applications. As for changing the board's membership, which would require action by the state Legislature or possibly the voters, that's not in the cards at all.

Thomas told me his proposal dealt with even perceived conflicts of interest on the board in such "definitive fashion" that it won't be necessary to bother the Legislature, much less the voters, with such big changes as remaking the board with a majority of independent members. He pointed out, not without some pride, that one board member called his proposed changes "draconian." The board gave them preliminary approval anyway, by a vote of 23 to 0 with one abstention. A final vote will be held in March.

Let's stipulate that Thomas has, in CIRM terms, moved a mountain by jostling the board even this far. Since its inception, the board has set records for arrogance. That's a direct legacy from Proposition 71, which exempted the stem cell program, uniquely among California government bodies, from any practical oversight by the Legislature or elected officials.

Some of the board's veteran critics are astonished that it's gone even to this length in acknowledging the Shapiro panel's recommendations.

"In the past, their tendency has been to circle the wagons and say, 'You're all wrong,'" observes John Simpson, who follows CIRM for Consumerwatchdog.org. "It now seems that they get it that they have a problem."

One reason for CIRM's new flexibility, such as it is, may be its desire to live beyond its bond funding, which will be running out in the next few years. The agency may then have to ask voters for more money. At that point, however, the voters may ask whether its program still makes sense. After all, President George W. Bush's ideological attack on embryonic stem cell research, which inspired California to step up to the plate in the first place, is a historical relic today.

What persists are the conflicts of interest identified by Shapiro's group, and which Proposition 71 wrote into California law. Of CIRM's $1.7 billion in research outlays thus far, more than 90% have gone to institutions with current or past representation on the board. (The calculation comes from David Jensen of the indispensable California Stem Cell Report.)

The Shapiro panel said it didn't find any instances of inappropriate behavior by board members or specific conflicts, but there are two reasons for that: It didn't search for any, and Proposition 71 defined certain conflicts out of existence. The measure states that it's no conflict for a board member to also be an officer of an academic institution or private corporation that might be applying for grants.

One of the CIRM board's enduring self-delusions is that its conflicts of interest are purely a matter of "perception." But there have been documented instances of favoritism shown to well-connected grant or loan applicants, and at least one overt attempt by a board member to overturn a rejection of his institution's project. So much of the board's discussion takes place behind closed doors or informally that the opportunities for mutual back scratching are incalculable.

Thomas' "draconian" proposals won't change this state of affairs. Special interests will still dominate the board. Will barring 13 members from voting on grants while giving them full rein to participate in discussions really eradicate even the perception of conflicts? You'd have to be terminally naive to think so.

Shapiro told me from his Princeton office that Thomas' proposals were "a significant step in the right direction, which at least indicates that they haven't ignored the report." But he doesn't share Thomas' view that voluntary recusals solve the conflict of interest problem. That can be done, Shapiro said, only by replacing stake-holding board members with independents.

"The more you can reduce the inherent conflicts, the better off everyone is going to be," he said. The board will "have to go further over time, in my view."

The CIRM board has never done more than pay lip service to its duty of public accountability. Yet CIRM can't dodge the Shapiro panel's criticisms as lightly as it did the Little Hoover Commission's: CIRM asked for the Shapiro report and paid $700,000 for the results.

Shapiro's recommendations showed CIRM the path to cleansing itself of its aura of connivance and influence trading. That the board can't even bring itself to place the proposals before the voters or their elected representatives only shows how much money it's willing to waste to keep living in its own little world.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at [email protected], read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.