Fair and Balanced at CalPERS

Fair and Balanced at CalPERS?

Fair and Balanced was the motto of Fox News. In 2017 they moved to a slightly more accurate “Most Watched, Most Trusted.” Most boards of directors, especially pension funds, like CalPERS, with a fiduciary duty to members that elect some directors and influence the election of others, want to at least appear fair and balanced in their decisions. I argue below that a recent decision by the Finance and Administration Committee fails that fair and balanced test.

I knew when I proposed that CalPERS consider moving from a majority vote standard for electing directors to ranked-choice voting (RCV) it would be an uphill climb. After all, current directors elected by members had been successful using the majority vote standard, sometimes after a run-off. Why should they change to an option that might be riskier for their own re-election? Similarly, publicly elected ex-officio members and appointees have a stake in the current system. We presented our proposal to the Committee in April.

Committee members expressed their doubts that adopting RCV would be a good idea. However, they instructed staff to come back in September with an objective evaluation of election methods, including RCV. No, the Committee did not use the words “fair and balanced.”

When their report was presented in September, it was praised by several Committee members as being thorough, reflecting excellent work, although maybe not totally accurate.

The analysis of Steven Hill (Steven Hill Response to CalPERS Election report) discussing many flaws in staff reports and our testimony failed to sway the Committee. However, we can come back in five years to try again. (Generally, CalPERS takes up election code issues that would require rulemaking only during nonelection years, since the same staff work on both elections and election rulemaking.) I will be octogenarian by then but the topic is now on my calendar, so that I don’t forget.

Fair and Balanced Elections: Background

Arguably the most important decision members of a pension fund can make is deciding who to elect to the board. Similarly, in corporate governance, the most important item on the proxy is who to elect to the board.

At Corporati0ns

When I started CorpGov.net in 1995, most corporate director nominees were chosen by CEOs. We have made some progress but corporate elections still resemble civil elections in North Korea. Vote for the board’s slate or withhold your vote. Fair elections? I didn’t and still don’t think so.

My friends toiled mostly in socially responsible investments, focused on double bottom line impacts and precatory proposals to address social and environmental issues. I concentrated on corporate governance. We needed at least some directors to be nominated and elected by shareholders, not hand-picked by the CEOs they were supposed to evaluate or by insulated board oligarchs.

I petitioned the SEC in 2002 to allow shareholders access to the corporate proxy for their director nominees.  CII said our petition “re-energized” the “debate over shareholder access.” After many iterations and eight years, proxy access became a legal reality. Soon companies put up barriers, such as bylaws limiting nominating groups of shareholders to 20 members. As a result, proxy access has only been used in one case (helping a founder return to the board).

We also worked for decades getting the SEC to adopt regulations allowing a universal proxy, which allows shareholders to split their vote between board and shareholder nominees without attending the annual shareholder meeting in person.

However, like proxy access, the promise of UPC is now being thwarted by companies erecting prohibitive barriers, this time in the form of advance notice bylaws. I filed shareholder proposals at 30 companies for the 2023 season, hoping to safeguard this newly won right.  See Fair Elections Under Universal Proxy Rules. That effort continues.

At CalPERS

I have worked with CalPERS boards over the years, cooperatively whenever possible. For example, I initiated candidate forums. CalPERS refused the use of their auditorium, so I rented a hall the first year and used the CalSTRS auditorium the second. CalPERS finally agreed. We now have candidate forums facilitated by the League of Women Voters. I also won rule changes beginning in 2002, requiring board members to be elected by a majority vote (see section 554.8 Ballot Counting and Runoff Election) Prior to that initiative, plurality voting resulted in one CalPERS board member being elected with 5.5% of the vote.

I have also taken more aggressive action. I overturned two regulations CalPERS adopted illegally [one on gifts (1999 OAL Determination 18), another on elections (2007 OAL Determination 1)]. In 1997, when Congressman Schiff was a State Senator, I testified before his committee on corruption at CalPERS and the need for certain confidential documents to be released to the public after time sensitivities lapsed so officials could be accountable. Senator Schiff’s hearings accelerated investigations and eventual prosecution of CalPERS officials.

In 1998, I challenged the CalPERS Chairman in an election. In my ballot statement, I noted that the Chairman “had accepted gifts from those doing business with CalPERS.” For the first time in history, the Chairman was allowed to amend his own ballot statement after the deadline to respond to me. The Chief Counsel told me the Chair’s “free speech” rights trumped CalPERS regulations.

In 1999 the Board voted 9-4 to restrict future ballot statements to “a recitation of the candidate’s personal background and qualifications” — and nothing more. Incredibly, board members even voted to delete a proposal by their staff that would have allowed ballot statements to include “candidates’ opinion or positions on issues of general concern to the system’s membership.” I worked tirelessly to get that decision overturned. Much of the credit goes to an editorial published by the Sacramento Bee.

“Google” the term “CalPERS corruption,” and you will find about 125,000 results. Of course, many are old and/or duplicative.

With that background, and the Committee’s direction to staff to provide a more thoroughly researched report, I expected to at least work with staff a little to ensure they were aware of important facts and materials. There were no opportunities to work together.

Fair and Balanced Elections at CalPERS

The curious reader can find the agenda item at CalPERS Board Election Methods and Stakeholder Engagement. CalPERS also posted the attachments (I don’t know how long the URLs will hold):

  1. Attachment 1: Ranked Choice Voting in Practice: Implementation Considerations for Policymakers
  2. Attachment 2: Demographic Disparities Using Ranked‐Choice Voting? Ranking Difficulty, Under‐Voting, and the 2020 Democratic Primary
  3. Attachment 3: Link to Alameda County School Board Election article
  4. Attachment 4: CalPERS Board of Administration Election Voting Methods – Review of Findings

As indicated above, the analysis of Steven Hill (Steven Hill Response to CalPERS Election report) and his testimony discussed many flaws in the staff reports. His focus was on the staff report, Attachment 4. Mr. Hill, a widely recognized authority on ranked choice voting (RCV), provided testimony to the Committee both in his written report and in testimony over the phone.

CT Weber also provided testimony over the phone. He touched on things not covered in Steven Hill’s report. After New York City adopted RCV, a majority of the 51-member city council are women and 25 of them are women of color. Weber noted the current CalPERS contractor is located out of state and provided the cost information for RCV services they don’t provide.

He suggested that staff could contact FairVote regarding California vendors and for other information about RCV.  He also mentioned that the Oscars use RCV to determine the best picture.

I was there in person and highlighted just a few items from Hill’s report and my own observations.

  • Contrary to the staff report, CalPERS would not need shift back and forth between plurality voting when elections involve two people and RCV when more are involved. The same ranking procedures work equally well, for two candidates as for more than two.
  • Yes, one of their reports said that some voters found ranking choices more difficult than simply indicating their top choice. With RCV, voters can simply indicate their first choice and leave the rest of the candidates unranked. However, that would be throwing away a chance to influence the election if their top choice didn’t win outright. Yes, it takes more effort and older people are more likely to grump about it but that doesn’t mean they can’t follow the instructions. In my experience, older voters, especially at CalPERS, are more likely to vote and to study the candidates. They are probably more likely to feel a little guilty if CalPERS moves to RCV and they don’t research all the candidates.
  • The staff report says, “there are multiple means to tabulate RCV results.” That’s evidence that they didn’t touch base with the Secretary of State on California’s rules for tabulating RCV. CalPERS would just need to cite those rules in any RCV contract.
  • Yes, I understand many on the Committee may be against RCV because they didn’t like the way the Alameda school board elections turned out. I didn’t like the way federal elections turned out when “spoilers” kept candidates like Al Gore from being elected. One of the Committee members said that was due to the Electoral College, not to “spoiler” candidates. Both were probably contributing factors. No election system will guarantee our favored candidate gets elected but RCV ensures winners have broad support, reduces the impact of spoilers with no real chance of winning, encourages more candidates to run, and fosters positive campaigning. It also avoids the expense of holding runoff elections.

The main point that both Mr. Hill and I made was that the inflated cost estimates for administrating RCV appear to have come from the current CalPERS contractor, which has never provided services for an RCV election and which had a direct conflict of interest, biasing them in favor of the existing rules. I reminded the Committee of my prior experience addressing corruption at CalPERS before they were elected. I expressed my doubt staff was corrupt. However, if they were, the report could easily contain similar flaws. Our offer to work with staff before the report was issued went unanswered.

While the staff is to be commended for its work, their report contains many glaring inaccuracies that could have easily been addressed prior to issuance. I believe the Committee and the Board are making a mistake if they rely on the flawed staff report as the basis for their decision.

How can a staff report on RCV be considered fair and balanced when staff didn’t consult with the petitioners? Is it fair and balanced to get RCV cost estimates from the current conflicted contractor with no experience, instead of a provider of RCV services? Did the current contractor tell staff RCV couldn’t be done using a phone? Why not ask an RCV contractor? These are just a few of the questions Committee members could have asked but did not.

Fair and Balanced at CalPERS? No, at least not when it comes to objectively considering the use of RCV in future Board elections. Stay tuned. In 2028 I will again raise RCV as a possible alternative at CalPERS.

Fair and Balanced Elections: Epilogue

Why didn’t the staff do a better job? Several of my friends, who follow activities at CalPERS more closely than I do, claim that staff controls the Board. Directors are provided with hundreds of pages of material to review, but they don’t read or question those materials based on their own independent knowledge and experience. I don’t know to what extent this is true or not.

I do know that for decades I wanted to be on the Board to reshape corporations, address inequality, climate change, and other systemic social/economic issues. I was excited about transforming the economy to work more democratically from the bottom up and the middle out, representing CalPERS at corporate annual meetings, the Council of Institutional Investors, the SEC, etc. However, CalPERS members are more interested in their healthcare options, what impact moving will have on their healthcare choices, and a myriad of constituent service-related topics that I find less interesting. I am sure I would have studied proxy voting policies much more carefully than other topics I am less interested in. Being on the Board is a tough job.

In the case of RCV, I think the Board really took the lead in retaining their existing policy. When our petition was presented, no Board member was inclined to favor it, although at least one appeared to be open to learning more about the topic. My assumption is that consciously or unconsciously, staff gave them exactly what they wanted… a poorly researched justification for maintaining their current voting process.

I really do think the more widespread use of RCV in politics, corporate governance, at the Oscars, etc., would facilitate more constructive engagement, less divisiveness, and more consensus on the myriad issues facing us all. Elections should bring us together instead of polarizing us into camps. Most of us agree that our institutions need to be more democratic. However, it appears there is more resistance to new models, such as RCV, that have resulted in more diversity and inclusion, as well as less divisiveness. Five years from now, many more jurisdictions in the US will have adopted RCV, so we will have more results to study. Hopefully, the CalPERS Board will be more open to exploring the option at that time.

Fair and Balanced Elections: Related Posts

CalPERS

CalPERS Petition for RCV

 

CalPERS Should Adopt IRV for Board Elections

CalPERS Election Rules: Comments

Federico Buenrostro Pleads Guilty

, , , , , , , , , , , , , , , , , , , , , , ,

No comments yet.

Leave a Reply

Powered by WordPress. Designed by WooThemes