Ethically Challenged Funds Push Diversity!
SEPT. 28, 2011
By STEVEN GREENHUT
The nation’s two largest pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), have been plagued by problems and allegations of mismanagement and even corruption in the case of CalPERS, and yet these systems continue to lecture the private sector on ethical corporate governance. The latest nonsense, released earlier this week, is a plan funded by the two systems to promote “diversity” in board rooms, by which they mean diverse ethnic and gender backgrounds rather than diverse viewpoints about the sanity of the current pension system.
The two funds launched something called the Diverse Director DataSource, which is designed to help companies find “untapped talent to serve on corporate boards,” according to a statement from the pension funds.
“This is a milestone in the development of 3D,” said Anne Simpson, CalPERS senior portfolio manager, said in the statement. “We’re inviting people to now submit their information so that GMI can build this powerful resource for supporting board quality through improving diversity. 3D is an innovative resource that opens the door to finding candidates whose fresh ideas and new perspectives can help companies generate lasting, sustainable value and provide a check against the kind of ‘group think’ that played a significant role in the financial crisis.”
State Controller John Chiang agrees: “Investors and directors alike know that a strong and diverse set of skills, experiences and perspectives make for a stronger corporate board. I’m pleased to see today’s announcement of the DataSource project because it gives publicly-held companies a new tool to improve their management structure. It gives managers another resource to find new talent, improve corporate governance, and ultimately improve financial performance of publicly-held companies. ”
Despite the talk about improving financial performance and providing new, diverse ideas on corporate boards, this project seems to be mostly about affirmative action in the nation’s boardrooms. This isn’t about diverse ideas — something one rarely finds from the union-dominated, taxpayer-backed pension funds — but about putting as many liberal activists on corporate boards as possible. Diversity is great, but one wonders about this standard-issue diversity approach that focuses on skin color, gender and ethnic background. This has become code language for people who look different but think alike.
Former Orange County Treasurer Chriss Street asks, “Is the CalPERS and CalSTRS initiative racial profiling? This is especially tricky given the crony capitalism of the pension plans and Solyndra.” He’s right. This is about two public-sector union organizations using their immense financial clout to meddle in the governance structure of whatever remains of this nation’s private sector. The public sector unions have created havoc in the world of government, as unfunded liabilities are leading to higher taxes and reduced services. Now they want to take their expertise and apply it to the nation’s already hobbled private sector.
The two funds have quite a bit of moxie for doing this given the lack of diversity in their own ranks. For fun, I looked at the board of directors of CalPERS and CalSTRS. Not surprisingly, these organizations don’t live up to the standards they are foisting on everyone else.
CalPERS lists 13 board members (including ex-officio members). I count 10 older white guys, one older black guy, a woman and the state controller, John Chiang, who is of Chinese descent. More significant, every one of these board members is a public employee, a retired public employee, a “private” contractor who works for public employees or an elected official. How diverse is that group by any standard imaginable? The CalSTRS board is dominated by white women and, for obvious reasons, all members are public employees. These are two of the least-diverse groups of officials I have seen in a long time. And yet CalPERS and CalSTRS is lecturing the rest of the country on how to operate an effective and diverse corporate board.
This hypocrisy is nothing new. Here is my column about CalPERS’ rates of return. As I argued, “When the taxpayer is backing up the entire liability for the pensions received by members of the California Public Employees Retirement System, then CalPERS officials are exuberant about the stock market. They insist that a predicted rate of return of 7.75 percent is perfectly realistic. When their own funds are on the line, however, CalPERS can be extremely conservative as it embraces one of the lowest annual return rates imaginable: 3.8 percent.”
CalPERS has been running up enormous unfunded liabilities that ultimately must be paid for by the state’s taxpayers. The higher the rate of return that CalPERS predicts, the lower the predicted debt levels. So CalPERS embraces unrealistic return rates so that it can continue to give its employees and its members millionaires’ pensions without undue notice from the taxpayers. But when localities want to exit the plan, and CalPERS must use its own funds to pay off the liabilities, it uses a much lower rate of return — 3.8 percent, to be exact, which is even below the rate suggested by a Stanford study the pension funds still malign.
Both pension funds are awash in unfunded liabilities. The nation’s businesses ought not to be taking economic advice from these folks. Of course, most businesses can’t count on a taxpayer bailout for their bad investment decisions. Unfortunately, in this day and age, more businesses have become like extensions of the government. They follow the government rules, appoint government-oriented directors and then turn to the taxpayer to bail them out when things go underwater. The nation needs more entrepreneurship, not further meddling in the private sector by government bean counters, bailout artists and unions.
On the governance side, CalPERS and other pension funds seem corrupt. This is from a San Francisco Chronicle report in March:
The report was about CalPERS, but Khinda said the details could apply to funds throughout the United States. Regarding former CalPERS CEO Fred Buenrostro, the Chronicle reported: “While running the nation’s largest pension fund for six years, until 2008, he was having his wedding paid for by a placement agent, getting free chips at a Las Vegas casino, allegedly forging documents and pressing investment staff ‘to pursue particular investments without evident regard for their financial merits.’ But with much regard to what his staff called ‘friends of Fred.’”
I suppose CalPERS is a diverse organization — one with diverse views on ethics and who should pay for Vegas gambling episodes.
Here’s an article by California Watch about CalPERS’ enduring hypocrisy. As former Democratic Assemblyman and Stanford Professor Joe Nation told that reporter, “The question we need to ask is: Should CalPERS be as concerned about these governance problems elsewhere, or the social interest issues they take on? … Perhaps, he said, CalPERS’ focus should be on ‘earning the rate of return they need to fully fund their system.’”
That question should be asked again in the wake of CalPERS’ and CalSTRS’ new diversity agenda.
In case you think CalSTRS is exempt from CalPERS’ disgusting pay-for-play scandal, here is a letter from CalSTRS supporting CalPERS’ shady ethics, which suggests that CalSTRS shares the same ethical system. And this is from the Los Angeles Times regarding CalSTRS:
And yet both funds are lecturing everybody else. They are now lecturing corporate boards about diversity without any obvious shame about their own boards’ lack of diversity and their own organizations’ myriad ethical scandals. That perhaps is a definition of chutzpah. The real long-term scandal is that these pension funds are backed by taxpayers, so we pick up the pieces for their greed and political correctness.
May 18, 2013