On the Kerry website is a copy of a letter notifying him of his honorable discharge. It refers to Title 10, U.S.Code Section 1163 and says that a board of officers was convened pursuant to that statute to determine whether a reservist should be kept in the reserves. There is a DOD regulation that explains how this works. It is at 32 CFR section 100.5. At the beginning it states:
(a) Unsatisfactory participation in the Ready Reserve.
...
(3) When a member of the Selected Reserve is identified as an unsatisfactory participant and considered a possible candidate for involuntary transfer to the IRR or for discharge, a board of officers shall be convened, as required by 10 U.S.C. 1063 to consider the circumstances and recommend appropriate action.
Since this statute (10 USC 1063) is referenced in the honorable discharge letter one must assume that this regulation as it existed in 1978 was the one under which the discharge was granted. In other words he was discharged for being an unsatisfactory participant in the reserve.
Here is a link to the regulation:
http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/cfr_2002/julqtr/pdf/32cfr100.5.pdf
One other point however: The Bainbridge manpower center at the time was the place that maintained the files on members of the INACTIVE ready reserve. If you were in the inactive ready reserve (as I was in the 60's at the end of my obligated service) your records were held there until your discharge date and there were no requirements to attend drills or to do anything.
Given that, I am hard pressed to understand the reason for the letter Kerry got referring to the board of officers.
Believe me - as a retired O6 in the reserves - the rules and organization of the Naval Reserve are quite complex. Don't surmise what you don't know.