Could CalPERS have avoided the current corruption scandal if, like CalSTRS, it had adopted a staff recommendation in 2007 requiring private equity firms to disclose fees paid to “placement agents” like Alfred Villalobos?
A member of a small group that formed lasting relationships while serving with Villalobos on the CalPERS board during the 1990s, Kurato Shimada, chaired a committee that bottled up the staff recommendation, never bringing it up for a vote. (CalPERS corruption: the cabal and the culture « Calpensions)
Things might have gone differently had CalPERS acted on my my petition dated September 18, 2006. Back then I asked for amendments to California Code of Regulations, Title 2, and any statutes necessary, to place strict limits on campaign contributions, fromthe types of firms doing business with CalPERS, of no more than $250 and meals and gifts valued at no more than $50 as I had done earlier on February 21, 1998.
Additionally, I asked that CalPERS require through regulations that members of the board of administration must comply with the same governance standards CalPERS attempts to impose on corporate boards. The old guard has passed from CalPERS. The current board commissioned a Report of the CalPERS Special Review that reveals systematic abuse of the public trust by a few board members over many years, as well as by the former CEO.
CalPERS is now endorsing legislation to severely limit gifts and to place further restrictions on post-employment opportunities of civil service money managers. CalPERS board member J.J. Jelincic, who I consider a good friend, has expressed his concern to Pensions & Investments that money managers may leave if the laws are enacted (CalPERS trustee claims staffers prepared to bolt, 3/21/2011).
Jelincic makes many good points. CalPERS may well loose valuable staff under upcoming legislation. Yes, $108,000 is on the low side for an investment officer but that is before bonuses and the last time I checked CalPERS bonuses were much like options… all upside, no down. Outperform in any area, you get an increase. Perform below your benchmark in any area, it doesn’t count against you. (see my post on how to reform CalPERS Bonuses) Although I should note, bonuses can only add about $15,000; this isn’t Wall Street, even though CalPERS staff performs the same kind of work as those getting far more.
Public employees have been used to getting paid a lot less than their counterparts in the private sector. Thank god for what former and now current Governor Brown once called “psychic” income. It doesn’t pay the bills but working for the public good does have its own reward and, despite all the problems at CalPERS, they have done a lot of positive work… especially when it comes to shaping corporate governance.
It is heartening to see the current Board taking these lessons seriously as they look at their own internal governance. If the per diem is too low in high expense areas like New York, CalPERS should seek changes in the law that allow them to pay more. Ending potential conflicts of interest is more important than missing the occasional meal because ethics rules get in the way.
The proposed two year ban may mean fewer money managers will go to work for CalPERS and use it as a training ground, knowing they can double their salary when they leave. That might be a good thing. I’m not a religious person but I am reminded of a verse from the Bible: “For what is a man profited, if he shall gain the whole world, and lose his own soul?” With the old guard gone, CalPERS appears to be taking steps to ensure future boards don’t stray from the ethical path.
See also, Placement agents threaten to cease work with CalPERS, CalSTRS, Central Valley Business Times, 3/25/2011.