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Old Today, 02:19 PM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
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Major Restructuring of CalPERS Investment Committee Could Become a Reality
A plan would reduce investment committee members and the number of meetings. It is being objected to by at least one board member.
A plan to restructure the investment committee of the California Public Employees’ Retirement System (CalPERS) would remove as many as six of the current 13 members and more than cut in half the 11 annual meetings.

The plan is scheduled to be discussed today at the CalPERS governance committee meeting and comes as the result of a year-long governance project.

Currently, the CalPERS board and investment committee are the same 13 members, and most months they meet one day as investment committee members and another as board members. It is the only CalPERS committee that all board members sit on. Most other committees, such as the governance committee, have seven members.

CalPERS Board President Henry Jones told CIO that the plan is aimed at improving the governance processes of the board and investment committee, with the ultimate goal to enhance the investment program at the nation’s largest pension system.

“We want to be more effective,” he said.

At least one board member, Margaret Brown, objects to the plan. She maintains that the proposal in part is an effort to remove her from the investment committee. Brown was elected to the CalPERS board two years ago.

She says the plan is also aimed at former board member J.J. Jelincic, who is running in an election against Jones to rejoin the board. If Jelincic wins, the new board president could deny Jelincic a seat on the investment committee.

“CalPERS doesn’t want dissent,” said Brown, who on occasion has been at odds with fellow investment committee members on the pension plan’s investment policies.

Jelincic, in a separate interview, said he did not know if the restructuring was part of an effort to deny him a seat on the investment committee. He said he had other concerns: that the investment staff with fewer meetings could do what they want in terms of making investments with less oversight.

“You will have less supervision than they have now, which is what the investment staff wants,” Jelincic said.

More than 40% of CalPERS’s $350 billion-dollar plus portfolio is internally managed, plus the investment staff hires dozens of outside investment managers. Much of the investment activity takes place without the approval of the investment committee, since the CalPERS investment staff has wide latitude to make investments, up to $2 billion in many cases, without investment committee approval.

In addition to being a long-term board member until he decided not to run for reelection in 2017, Jelincic had worked for CalPERS as an investment staffer in the pension plan’s real estate asset class.

The new plan would restructure the investment committee to make it similar in size to other CalPERS committees, though the CalPERS board would still have final approval of investment committee matters.

The plan also has investment committee meetings reduced to quarterly, with one yearly retreat meeting. Currently, the system has nine monthly voting meetings for the investment committee. It also has two board retreat meetings, in which votes are not normally taken.

A yearly stakeholder meeting would also be added to the meeting schedule where, for example, CalPERS board members would discuss the pension system’s views on climate change issues related to investments.

Additional investment committee meetings would be added as needed.

The restructuring plan began a year ago following a board member survey and individual meetings with board members on how the board and investment committee could function better, Jones said.

He refused to elaborate further, saying he wanted to make his comments at the governance committee meeting, not in the press.

At a CalPERS retreat meeting on July 17, Cari M. Dominguez, a corporate governance expert who is a faculty member at the National Association of Corporate Directors, said relative to corporations, typically a committee is a subset of the board. She said a third of the board members would be on a committee and those individuals would be assigned based on their expertise with a particular subject matter.

Dominguez did not narrow down her remarks to pension plan governance.

Sacramento-based CalPERS’s neighbor, the California State Teachers’ Retirement System (CalSTRS), also has all of its board members serve on the investment committee. CalSTRS does, however, have fewer investment committee meetings than CalPERS, usually holding such meetings once every two months.

CalPERS staffer Anne Simpson, who has been assigned by CalPERS Chief Executive Officer Marcie Frost to work on the board reorganization program, said the investment committee revisions could result in a streamlined process. She questioned at the July 17 meeting whether the investment committee was able to adequately review the 511 separate items of information that have been given to them as committee members in the last two years.

Simpson suggested fewer meetings and fewer members, along with the use of informational technology tools, could better help investment committee members sort through investment material.

She said the structure would allow investment committee members to take “deeper dives” into investment committee topics. She said the current structure, in which all 13 board members are investment committee members, is “our jumbo shrimp.”

She cited CalPERS Chief Investment Officer Ben Meng, who had previously told the investment committee that a 30-day cycle of reporting by the investment staff to the investment committee for monthly meetings “was very short-term.”

Meng, who joined CalPERS in January, has stressed repeatedly that CalPERS needs to behave like a long-term investor.

Brown said restructuring would result in the remaining investment committee members not being able to do their job.

“There is no way we could do our fiduciary duty in maybe four, five, or six meeting a year,” she said. Brown said investment staff would either “give us less information or bury us with information,” so staff could make investments with less scrutiny.

In a separate matter, on Monday, Brown demanded that CalPERS make public the results of an internal investigation examining whether board members are leaking confidential closed-door session information to the press. She also denied she is responsible for releasing the information.

The board governance committee today is also expected to vote on a code of conduct for board members. One area of discussion is expected to be what penalties should be imposed on CalPERS board members who violate the code of ethics.

Brown has called the code too vague and says it could be used to target her and other board members who speak out.
CalPERS Heads Toward Restructuring Investment Committee
Board’s governance committee gave first approval Tuesday night to a plan that reduces the size of the investment committee and the number of meetings.
Board members sitting on a key California Public Employees’ Retirement System (CalPERS) committee have approved a plan to reduce the system’s investment committee to nine members from 13 as well as to cut the number of investment committee meetings from 10 to six per year.

The plan also reduces the number of CalPERS retreat meetings at hotel resorts outside of Sacramento—CalPERS headquarters—from two a year to one.

The 6-1 governance committee approval of the plan puts it on a path for likely approved by the 13-member full board, possibly as soon as the next board meeting Sept. 18.

The committee did not act on another plan to create a code of conduct for board members after committee members disagreed on a number of provisions for two hours, including whether board members who leaked information to the press should be charged with a criminal felony. The plan was tabled for at least a month.

As far as the restructuring of the investment committee, most governance committee members agreed with a CalPERS consultant, Cari M. Dominguez, a corporate governance expert, that less investment committee members and less meetings would be more effective.

Currently, all 13 CalPERS board members serve as the 13 investment committee members. One day they act in their capacity as investment committee members, another day they are board members.

Dominguez, who is a faculty member at the National Association of Corporate Directors, told the governance committee Tuesday night that a smaller committee setup would allow for more in-depth analysis of investment matters.

What seemed to win over governance committee members that voted in favor of the investment committee restructuring was another assertion from Dominguez. She stated that having fewer investment committee meetings would give CalPERS Chief Investment Officer Ben Meng and his staff more time to concentrate on investments and less time on preparing for the almost monthly investment committee meetings.

The subject is a particularly sensitive one for board members. The $350 billion-plus CalPERS, the largest US defined benefit plan, saw a 6.7% return in the fiscal year ending June 30, missing its 7% assumed rate of return. The pension plan is only 70% funded, and future returns under 7% would cause the pension plan’s funded status to drop ever further.

Board member Theresa Taylor told the governance committee Tuesday that it takes a week for investment staff to prepare for the investment committee monthly meetings.

“So, let’s be clear that it is very time consuming, and it does take our staff away from their job,” she said.

Board member Margaret Jones, the biggest critic of the restructuring plan, said the real problem was investment staff turnover and leaving key positions unfilled. She said that has resulted in a lack of focus on investment matters by staff, not the preparation needed for investment staffers to brief the investment committee.

“I mean of course they [are] stressed,” Brown said. “You don’t have enough staff to do the work.”

“You had no private equity [managing investment director] for two years,” she went on. “You had a stand in, but you didn’t have the real manager in there. We had the turnover of the CIO. We had a turnover in board consultants. We had a turnover in asset managers, so all these turnovers caused disruption and more work for the staff. So, it’s not the monthly meeting that’s causing the problem. It’s all this turnover.”

Taylor and Brown are not on the governance committee but sat in on Tuesday’s meeting.

The reduction in investment committee members was a compromise by governance committee members on Tuesday. The original CalPERS investment committee restructuring plan called for four investment committee meetings a year, but governance committee member Jason Perez advocated a compromise of six meetings a year.

Perez was the sole “no” vote Tuesday on the governance committee for the restructuring plan after committee members became intent on reducing the size of the committee.

The meeting Tuesday lasted four hours, the last two dealing with the code of conduct for board members.

The code of conduct initially became an issue after a CalPERS retreat meeting on July 17 because of a controversial clause under the heading “Integrity” that states “when action is taken by [the] committee or the full board, all board members will support the actions regardless of their individual vote on the policy.”

After several board members complained about the clause, a revision sent to board members on July 26 eliminated it.

The issue of what to do with board members who leak confidential closed-door board material to the press still remains a center of controversy under the code.

Governance committee members could not agree Tuesday on what penalties should be imposed on board members who violate the policy and whether making the offense a criminal felony charge was the right approach. It also was unclear who would prosecute such charges and whether they would ever hold up in court.

In a separate twist, Brown earlier in the week had demanded that CalPERS make public the results of an internal investigation examining whether board members are leaking confidential closed-door session information to the press. She also denied she is responsible for releasing the information.

CalPERS officials have not responded to Brown’s assertion.
CalPERS’ Secret Investigation of Hiring Practices Shows Glaring Deficiencies; Has the Board Been Kept in the Dark?
According to CalPERS, any dirt must be swept under the rug, even when California’s strong transparency statutes say otherwise.

The wee problem with CalPERS’ cover-up approach is that the rug is not just getting to be awfully lumpy but is even starting to move.

The latest example is CalPERS’ blowing off the results of an unfavorable audit of its hiring practices. Whistleblowers allege that CalPERS has refused to implement its recommendations. That also means it is likely that CalPERS executives have also failed to tell the board about the fact of the examination, let alone its results.

A CalPERS unit was tasked with auditing CalPERS pre-employment screening. Readers may recall that we exposed that then Chief Financial Officer Charles Asubonten, had made many misrepresentations on his resume and Form 700, leading to his dismissal. We then determined that CEO Marcie Frost had made several important misrepresentations during her hiring, most importantly of her educational attainment, implausibly representing herself as pursuing a non-existent dual bachelor’s/master’s degree when she had never matriculated in any higher educational program. Those misrepresentations continued after she joined CalPERS, and were in documents like press releases and official bios that she would have reviewed.

CalPERS hired a consultant, MRG, LLC to review the hiring process after these high profile fiascoes, involving a law firm, Van Dermyden Maddux, which likes to call itself “an investigations law firm” in an effort to characterize the report as attorney-client privileged and therefore not subject to disclosure under the Public Records Act. As we’ll discuss shortly, merely getting a lawyer into the mix does not render a matter attorney-client privileged. For instance, communications with a lawyer hired to negotiate the purchase of a business would not be attorney-client privileged if the client had set the deal parameters and was not seeking legal input.

Select pages from the consultant report, which we have embedded at the end of this post, not surprisingly show glaring deficiencies. Yet not only is CalPERS impermissibly attempting to hide this report by making a false claim that it is attorney-client privileged which even insiders recognize as bogus, but it is also refusing to implement the consultant’s findings.

From a whistleblower:

This is another example of CalPERS evading the law to cover up their wrongdoing and fiduciary failure. The consultant report is pretty damning on CalPERS processes. It doesn’t qualify for attorney protection. In addition, the HR department refuses to implement the consultant’s suggestions.

Here are the key pages:

The juicy ones are the second and the fourth image. We’ll discuss them in reverse order.

The “in progress” marks for CalPERS look to be a consultant concession to CalPERS’ pretending it might Do Something in those areas, since if CalPERS was actually doing something now, the consultant would have assigned a percentage score. How hard is it to start verifying education? This isn’t something that requires a bureaucracy, fer Chrissakes.

In other words, it presumably would have been too embarrassing to CalPERS to give it a deserved blank or a zero and CalPERS may have been able to pull out a handwave about plans or “vision” to give the consultant cover.

So look at what CalPERS, even after the Frost and Asubonten scandals, was not doing, and per the whistleblower account, is still not doing even for senior hires:

Current and prior employment verification

Verification of degree and/or education

Professional licenses. This one is particularly rich. CalPERS could hire a phony lawyer!

Drug screen

Driving record

Press check

Online public profile review

One can debate the merits of the last five; there’s a lot not to like about some employers’ obsession with digging into applicants’ social media histories. But not verifying the employment history and education? It looks like CalPERS likes to buy empty boxes, or worse, in this case, hire frauds.

Pray tell, why did anyone give Marcie Frost a pay raise when she sees fit to run CalPERS like a candy store? Or does she intend to hire in her less than upstanding image? She certainly did that with Charles Asubonten.

The importance of the second page is it shows the scope of the report, and that makes it clear that any claim of attorney-client privilege is bogus.

As we said earlier, hiring an attorney does not make his work product or that of his subcontractors privileged. The client has to be seeking legal advice. In this case, it’s pretty clear that CalPERS was seeking professional advice on hiring. The only aspect of hiring where legal considerations might come into play would be ones designed to prevent discrimination and assure compliance with California civil service rules. Benchmarking against other similarly-situated organizations is awfully hard to construe as legal advice.

Some readers may point out that regardless of the scope of the report, CalPERS might have attempted to work in some legal pretenses in its engagement letter with MRG. Court precedents don’t favor eyewash. From a California attorney:

Under 2,022 Ranch v. Superior Court (2003) 113 Cal.App.4th 1377 [7 Cal.Rptr.3d 197] (2,022 Ranch) the determination of privilege turns on the “dominant purpose” of each communication. Clark relies on the portion of the 2,022 Ranch opinion in which the court stated: “In certain instances it is difficult to determine if the attorney-client privilege … attaches to a communication, particularly where there may be more than one purpose for that communication: `”`Where it is clear that the communication has but a single purpose, there is little difficulty in concluding that the privilege should be applied or withheld accordingly. If it appears that the communication is to serve a dual purpose, one for transmittal to an attorney “in the course of professional employment” and one not related to that purpose, the question presented to the trial court is as to which purpose predominates. …'” [Citation.]’ (Travelers Ins. Companies v. Superior Court (1983) 143 Cal.App.3d 436, 452 [191 Cal.Rptr. 871], italics added.) This `dominant purpose’ test not only looks to the dominant purpose for the communication, but also to the dominant purpose of the attorney’s work. [Citations.] Clark v Superior Court (2011) 196 Cal.App.4th 37, 50;

The test is “dominant purpose”. The table of contents makes clear the “dominant purpose” of this exercise was most assuredly not legal advice.

One wonders why this report was requisitioned at all. Were Frost and General Counsel Matt Jacobs so naive as to think they could get a pliant consultant to bless, or at least not ding much, CalPERS’ obviously deficient practices? Or perhaps even though CalPERS is appallingly unprofessional in how it goes about hiring, they thought a study would show to is everyone in government, and therefore there’s no reason to blame anyone at CalPERS, let alone try to do better? The far right column, of the performance of local governments, should put the vastly better staffed CalPERS to shame.

Finally, we wonder if the board has gotten any whiff of this study’s findings. We haven’t seen any closed session notices that look like they would correspond to a discussion of this document. If there were any closed session review, this would constitute yet another violation of the Bagley-Keene Open Meeting Act, since as we discussed previously, its litigation exemption is very narrow. Similarly, it would be more than a stretch to attempt to depict this study as a personnel matter, since that’s construed to amount to information about particular employees, and not personnel department practices.

We hope that some alert board members will demand to see this document. If push comes to shove, they could put in a Public Records Act request, as we have, since this document can’t legitimately be kept secret.


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