STUMP » Articles » California Crazy: Governance and Management Problems at Calpers

California Crazy: Governance and Management Problems at Calpers

by meep

24 May 2018, 12:58

I do not apologize for a lack of a Wednesday post… I had way too much fun at the spring meeting of the Actuarial Club of Hartford & Springfield, and evidently a few of those actuaries read this blog (howdy, y’all!)

Don’t worry – I will continue my look at Wisconsin pensions next week.

But today, I want to cover a really screwed up situation: Calpers and its governance.

CFO OUT AT CALPERS DUE TO QUESTIONABLE RESUME

I will start with the anodyne take of an industry site:

CalPERS CFO ‘No Longer with’ Pension Fund

Departure comes after scrutiny over credentials, past work experience.

Just eight months after he was named the chief financial officer of the California Public Employees Retirement System (CalPERS), Charles Asubonten has departed following a controversy over his qualifications.

“Charles is no longer with CalPERS but it’s a personnel matter, so I can’t say anything more,” CalPERS spokeswoman Megan White told CIO in an email.

Sources say Asubonten was asked to leave the retirement system after a review concluded he had overstated his work experience on his resume, including his job as managing director at a private equity firm.

….
CalPERS CEO Marcie Frost was also quoted in the press release, noting that “Charles’ strong leadership capabilities and experience demonstrate his ability to manage CalPERS’s complex financial operations that will benefit the fund over the long term.”

The blog Naked Capitalism first questioned Asubonten’s qualifications in April. Naked Capitalism said it found no evidence he had directly worked at the private equity firm and questioned his list of accomplishments at a South African mining company.

…..
It is unclear what due diligence CalPERS officials or the executive search firm it hired to check Asubonten’s stated qualifications before he was hired did.

CalPERS contracts with nationally known executive search firms to hire top executives. It was not immediately clear what executive search firm CalPERS had hired in the CFO search.

Just an FYI, Naked Capitalism is a site that has very interesting (and detailed) content, [similar to Zero Hedge… but from a different political slant] which I often read but rarely link (because some of it is too inside baseball for even me (imagine that), and sometimes I wonder about their sources.)

They did the heavy lifting here, which makes one wonder why nobody at Calpers bothered to dig:

I put the last one out of chrono order, because I want to excerpt some bits.

CalPERS’ Checkered History in Filling Its Chief Financial Officer Position

CalPERS established a Chief Financial Officer position in 2012 to give the manager handling budget and financial operations a stronger policy orientation. The first individual to fill the position, Cheryl Eason, had professional qualifications consistent with the job description for her replacement.
….
The job specs also set forth educational requirements (a BA in accounting or a related field) and state a preference for a CPA or a CFA certification.

Eason left CalPERS on January 6, 2017. CalPERS then suffered the self inflicted wound of naming a new Chief Financial Officer, only to have him withdraw.

CalPERS board member Richard Gillihan accepted the the offer to become Chief Financial Officer in early June. CalPERS announced that he would be joining, as you can see from this Sacramento Bee article.

Before CalPERS announced Gillihan’s appointment, former board member JJ Jelincic pointed out that Gillihan had what is called a “1090 problem.” California Government Code Section 1090 prohibits government officials from having a financial interest in any contract they made. Gillihan had been involved in the wage-setting for the CFO position, which meant in taking the job, he would have benefitted from his previous action.

Even though CEO Marcie Frost and General Counsel Matt Jacobs initially waved off Jelincic’s warning, other lawyers confirmed his concerns, leading to further investigation of the issue. Gillihan decided he did not want the legal exposure and withdrew his acceptance.

CalPERS had already done a salary survey in connection with the CFO search and the preparation of the brochure below in January 2017. They were not redone when the search resumed in June. Asubonten accepted the job offer on September 12 and joined October 2. That is a long enough time lapse that it suggests that CalPERS did not simply take the second or third place candidate from the earlier search, since they presumably would have gotten the offer out sooner.

…..
What Does This Fiasco Say About CalPERS and Heidrick & Struggles?

This is not the first time that CEO Marcie Frost has tried to put someone lacking in needed skills in a senior position. She tried bringing in an unqualified crony from her former home, the Washington State pension fund, in the critically important role of Chief Actuary. Bear in mind that the Chief Actuary position at CalPERS is seen as the second most difficult in the US, exceeded only by the Chief Actuary of the Social Security Administration, by virtue of CalPERS administering over 2200 pension plans.
…..
If you look at the Chief Financial Officer job description below, you can see how little space it gives to professional skills and how much to touchy-feeley attributes. One industry professional remarked it was almost as if the people who wrote this document either didn’t know or didn’t care much about what a CFO did.

Yeah, that’s an issue.

I want to remind you that Calpers is the largest non-federal pension fund in the U.S.

Only the U.S. Federal Retirement Thrift fund is larger, but even so, Calpers is the 7th largest pension fund IN THE WORLD.

Okay? This is a very large, very important pension fund.

Additional straight news reporting of the situation:

Sacramento Bee: Pension fund’s CFO ‘no longer works’ for CalPERS after hiring review
Michael Hiltzik at LA Times: After questions raised about CalPERS CFO’s background and experience, he’s ‘no longer with’ the pension fund
Wall Street Journal: Calpers CFO Becomes Latest Official to Exit Largest U.S. Public Pension

CALPERS MANAGEMENT: A RUN DOWN

By the way, let us keep in mind who different people are, and what they’re responsible for.

There’s a CFO – chief financial officer – who is supposed to oversee the finances of the funds…. but not in charge of managing the investments directly. So they need to oversee cashflows in, out, financial reporting, etc. The first CFO of Calpers has this description of duties:

Responsible for the management and control of the CalPERS financial reporting, budgeting, treasury management, asset liability management, compliance and enterprise risk programs. As CFO, provide briefings, expert consultation and advice to CalPERS Board of Administration and executive management.

There’s a CIO – chief investment officer – who is in charge of the investment management for Calpers. The current one has decided to retire this year:

Upon CIO’s Departure, CalPERS Has some Big Shoes to Fill
Eliopoulos’ leave comes at a crucial time for the mega pension fund.

The California Public Employees’ Retirement System (CalPERS) will be looking for its third chief investment officer (CIO) in less than 10 years with the announcement Monday that Ted Eliopoulos will be stepping down due to family reasons.

Eliopoulos, who became CIO in September 2014, served less than four years before announcing his departure at the May 14 CalPERS Investment Committee meeting.

The departure comes at a crucial time for CalPERS, the largest public retirement plan in the US with almost $350 billion in assets under management.

Ya think they may have difficulty finding legit takers?

I can imagine so.

There’s a CEO – chief executive officer – who is the main “manager”. This person, Marcie Frost, has the following background:

Frost’s career spans executive level positions in public pension administration, human resources, and information technology.

She joined [Washington state pension fund] DRS in 2000 and held leadership roles in human resources, information services, and operations. She was deputy director for the retirement systems for four years before being appointed director in 2013. She also serves as an ex officio member of the Washington State Investment Board.

She began her public service career as a Benefits Administrator with the Washington State Department of Labor and Industries managing compensation and benefit programs for public employees across 26 locations.

Frost is a native Washingtonian and is pursuing dual bachelors and master’s degree in public administration from Evergreen State College.

Eh? Pursuing?

Look, I’m fine with people not having college degree (my husband Stu doesn’t have any college degree), and definitely fine with people not having a masters degree. Sure, she has experience… in Washington.

How big is the Washington pension funds? Going by the Washington state page at Public Plans database, I see four different funds overseen by DRS, and it totals $65.5 billion, covering 394 thousand participants.

Calpers is much larger: almost $300 billion, covering 1.9 million participants.

And Evergreen State… well… wiki entry on Evergreen State:

The Evergreen State College is a public liberal arts college and a member of the Council of Public Liberal Arts Colleges, located in Olympia, Washington, U.S. Founded in 1967, Evergreen was formed to be an experimental and non-traditional college. Full-time students enroll in interdisciplinary academic programs instead of classes. Programs typically offer students the opportunity to study several disciplines in a coordinated manner. Faculty write narrative evaluations of students’ work in place of issuing grades.

Evergreen offers a Bachelor of Arts in Liberal Arts and Bachelor of Science, Master of Environmental Studies, Master of Public Administration, and Master in Teaching. As of 2016, there were 4,089 students, 3,787 of whom were undergraduates, and 229 faculty members.²

In 2017, Evergreen received wide attention with protests against professor Bret Weinstein, which eventually ended with him leaving the college and getting $500,000 in compensation. [3]

Not sure you want the manager of the largest pension fund in the U.S. just getting around to getting degrees from a hippy-dippy school, which is the nicest characterization I can think of. The Bret Weinstein thing is …well, here ya go. “Enjoy”.

Finally, there’s a Board of Trustees – they’re supposed to provide oversight of the fund management.

Let’s check out what’s going on with the Board of Trustees.

STOP OPENING OTHER PEOPLE’S MAIL

We last checked in with Calpers’s Board on May 11, where outsider Board member Margaret Brown was talking about her mistreatment in general – locked out of offices, not being given access to information Board members should receive, etc.

Well, here’s an additional piece of info that has come to my attention: Margaret Brown objects to her mail as Board member being opened and read. Seems pretty clear to me – don’t open other people’s mail if they haven’t authorized you to do it, eh?

Naked Capitalism, April 16: CalPERS’ Priya Mathur Opens, Reads, Even Answers Mail of Board Member Margaret Brown, Denies Her Access to Transcripts of Past Meetings.

If you were harboring any doubts as to how deeply corrupt CalPERS is, the latest incidents offer yet more compelling evidence. CalPERS’ board president Priya Mathur has directed the employees of the CalPERS Board Services unit, an administrative team, to open and read the mail addressed to board member Margaret Brown. Mathur reserves the right not to send the correspondence to Brown and to answer on her behalf.

Even worse, when Brown e-mailed CalPERS CEO Marcie Frost to tell her this practice had to stop immediately, Frost acted as if she lacked the power to intervene. This is nonsense. All of the members of the Board Services team are CalPERS employees, meaning Frost is their boss. The fact that Frost is unwilling to stop a clearly illegal procedure says she is not fit to be CEO.

On top of that, as we’ll discuss later in this post, Mathur, via the same Board Services group, has also been denying Brown access to transcripts of past board meetings. This is another flagrant abuse. As law professor and white collar criminologist Bill Black stated, a board member is entitled to see any document of the organization they oversee.

Brown’s attorney James Moody sent a sternly-worded letter to Mathur telling her that these practices and other forms of interference with Brown performing her duties of office must stop. We’ve embedded Moody’s missive at the end of this post.

You can read the whole thing over there.

The more recent item, May 17: CalPERS Board Members Say They Don’t Want to Do Their Jobs, Can’t Be Bothered With Dealing With Their Mail

It’s hard to believe how terrible the CalPERS board is until you make yourself watch some open sessions. The most stunning part is how they regularly and openly show their lack of interest in understanding complex issues, their willingness to cheerlead staff for merely doing their jobs, and their eagerness to escape work whenever possible.

….
On Monday, the Board Governance committee took up the matter. All the members of the committee, save Brown and the the state Treasurer John Chiang’s deputy, Steve Juarez, said they didn’t want to deal with their mail and were perfectly content to let staff deal with it on their behalf.

….
This is a slap in the face to all CalPERS beneficiaries and California taxpayers. For those officials that are elected (six members, by beneficiaries, plus the two statewide officials, the Treasurer and Controller), this is a firm and loud statement that they can’t be bothered with pesky constituents.

……
But there are other reasons to be appalled by this practice:

Undermines Brown’s performance of her duties of office. Brown is a California elected official. Brown is also a fiduciary. Mathur has no legal basis for usurping her authority.

Perpetuates corruption. Less than a decade ago, CaLPERS’ CEO Fred Buenrostro and former board member Al Villalobos were indicted for bribery and other charges. Buenrostro had, among other things, taken $200,000 in cash in paper bags. Villalobos committed suicide. Buenrostro is serving a four and a half year sentence in a Federal prison. One current board member resigned and two who were close to Villalobos did not run for reelection.

Again, let me reiterate: CALPERS IS THE LARGEST (non-federal) PENSION FUND IN THE U.S.

That’s a big, juicy target for corruption, and one need not even have the relatively recent outright corruption to demand extremely strong governance and management.

If Margaret Brown asks for her mail to be handed to her for her to deal with, they should just plain do it. If others would like the staff to sort through junk mail, etc., and not bug them with the mail, then fine with that, too [I don’t have an issue with that, unlike Yves Smith, the author of the piece.]

The mail is addressed to her, it should go to her. As Brown remarks, she is not an employee of Calpers – it’s not like Calpers owns her mail as a director of the board.

It makes me really wonder what they’re trying to hide if they won’t do even the “Fine, here’s your giant pile of mail” move which would be fairly easy for them to do. She can kick pieces back to them that really should be addressed to Calpers staff.

If Calpers wondered why Calpers participants (especially retirees) keep electing representatives like Margaret Brown, just doing this stuff will get you more Margaret Browns. You may outnumber the Margaret Browns, but there is going to be a reckoning.

Cut out the rinky-dink crap, guys.

Do due diligence, allow board members to provide oversight, and stop opening up other people’s mail.

STUMP » Articles » California Crazy: Governance and Management Problems at Calpers » 24 May 2018, 12:58

California Crazy: Governance and Management Problems at Calpers