Board Member Reveals That CalPERS Engages in Systematic Violation of California Open Meeting Statutes

Heretofore, we’ve focused on only one of CalPERS’ monthly board committee meetings, that of its Investment Committee, because that is the CalPERS forum that intersects most directly with our efforts to expose private equity misconduct and how limited partners like CalPERS justify and even enable it.

That focus has uncovered signs of serious shortcomings in CalPERS’ governance, such as the refusal of staff in open board sessions to answer questions posed to them by board members, as well as the fact that CalPERS for years awarded its CEO’s bonus and pay increases in secret, or what is called “closed session,” in violation of California’s Bagley-Keene Open Meeting Act. (Credit where credit is due: CalPERS did correct its compensation award process after we called the board’s attention to it.)

However, as we will discuss later in our new series on a recent CalPERS private equity workshop, the giant pension fund engaged in a fresh set of transgressions in how it handled efforts of members of the public to provide input on the workshop. Bear in mind that Bagley-Keene articulates and implements the broad language of the California state constitution regarding transparency in government.

However, these abuses pale in comparison to systematic, flagrant, and apparently long-standing violations of Bagley-Keene, that of having an appreciable amount of the Board’s business conducted out of the public eye, via a procedure known in law as “serial meetings.” This practice was revealed at a meeting of CalPERS’ Governance Committee, during an hour-long session of complaints about board member JJ Jelincic’s practice of asking detailed questions during open board meetings and requesting documents.

Board member Michael Bilbrey unwittingly described how CalPERS as part of the routine for its regular board meetings, engages in the “serial meeting” violation. From the most recent Governance Committee meeting:

Board Member Michael Bilbrey: We have briefings for a reason. And usually in those briefings, you ask questions and questions are answered, and of course sometimes questions will come out of that between the briefing and the meeting. But when you ask questions in a briefing and are [sic] answer to those questions, I don’t understand why those same questions have to be answered again in the open meeting just because there’s two different situations. I mean, I think that’s where half of the questions sometimes come again and waste our time, when you’ve already asked them, either in the briefing or at any time, staff has made it abundantly clear if there’s ever a question, don’t hesitate to ask in whatever it may be. I think we have lots of opportunities to ask questions and they don’t always have to be in an open setting. I know sometimes the idea you know is that others may have that question or others may want to know the answer, well, there’s a lot of opportunities for people to ask questions, so, ah, I don’t always think it has to be these repeated questions all the time.

These statements are very troubling for the following reasons:

CalPERS engages in brazen violations of transparency requirements mandated by statute. It’s not clear how many board members participate in these pre-board meeting briefings, since Bilbrey at one point indicates that he’s heard questions that were asked in private be answered again, and later indicates that he surmises that questions are asked because the questioner imagines others want to hear the answer too, which would suggest the pre-meeting briefings were largely or entirely one-on-one. But either way, both case law and state attorney general guidance, in the form of a 2004 brochure he published on the Bagley-Keene Act make clear that this activity is prohibited. We will quote the the 2004 attorney general’s guidance at some length to make clear why this conduct is against the law:

The issue of what constitutes a meeting is one of the more troublesome and controversial issues under the Act. A meeting occurs when a quorum of a body convenes, either serially or all together, in one place, to address issues under the body’s jurisdiction. (§ 11122.5.) Obviously, a meeting would include a gathering where members were debating issues or voting on them. But a meeting also includes situations in which the body is merely receiving information. To the extent that a body receives information under circumstances where the public is deprived of the opportunity to monitor the information provided, and either agree with it or challenge it, the open-meeting process is deficient.

Typically, issues concerning the definition of a meeting arise in the context of informal gatherings such as study sessions or pre-meeting get-togethers. The study session historically arises from the body’s desire to study a subject prior to its placement on the body’s agenda. However, if a quorum is involved, the study session should be treated as a meeting under the Act…To the extent that a briefing is desirable, this office recommends that the executive officer prepare a briefing paper which would then be available to the members of the body, as well as, to the public.

Let’s stop right here. Clearly, the CalPERS staff is not providing the information given to the board members in written form so the public can have access to the same information. The staff is instead giving private briefings, verbally, which each one almost certainly contain the same talking points. As the attorney general’s statement warns, this denies the public the opportunity to monitor whether the staff is providing the board with accurate and unbiased information.

The attorney general later makes clear that providing the same or essentially the same information to a quorum of board members constitutes a “serial meeting” whether the quorum is addressed all together or separately. Given Bilbrey’s complaint that board members are asking questions about material presented to them before the board meeting, and they could have asked, or might even actually have asked, the questions privately that they are posing in public, it is a virtually certainty that all board members (or their staff members acting as their proxies) are briefed before the board meetings, hence constituting a quorum. Again from the attorney general’s guidance:

The Act expressly prohibits the use of direct communication, personal intermediaries, or technological devices that are employed by a majority of the members of the state body to develop a collective concurrence as to action to be taken on an item by the members of the state body outside of an open meeting. (§ 11122.5(b).) Typically, a serial meeting is a series of communications, each of which involves less than a quorum of the legislative body, but which taken as a whole involves a majority of the body’s members. For example, a chain of communications involving contact from member A to member B who then communicates with member C would constitute a serial meeting in the case of a five-person body. Similarly, when a person acts as the hub of a wheel (member A) and communicates individually with the various spokes (members B and C), a serial meeting has occurred.

The briefing by the staff of individual members is a textbook example of the “hub of a wheel” scenario. Even worse, Bilbrey reveals that he expects and even sees as desirable that the expressly prohibited “collective concurrence” be reached before the open session. He clearly regards asking questions that could have been answered privately as a waste of time, as if efficiency were more important than having the board obey the law by exposing differences of view and allowing the public to have the same access to information so that they can provide input that staff might have omitted by accident or design.

CalPERS’ staff is almost certainly using these private briefings to steer decisions. These illegal private sessions may go beyond merely educating the board about the more technical aspects of pending agenda items. Given that meeting board members one-on-one is a far less efficient use of staff time than meeting them all at once, in public, as the law requires, one has to surmise that the staff is using these sessions to advance its agenda.

At a minimum, this is a classic “divide and conquer” strategy. The board has been conditioned to give preference to dealing with staff, each in isolation, rather than working together as a body to develop a common view by extracting and clarifying information from staff and having that information also subjected to examination and correction by the public. The pre-meeting briefings also serve to cement board members’ view of a matter, making it much harder for members of the public to influence the board in open sessions, no matter how erroneous or self-serving the staff’s position is.

Even worse, CalPERS’ staff may be engaging in open advocacy in these private briefings, telling board members how they think they should vote and why. But bear in mind that, in a private process, the same outcome can be achieved through subtler means, via slanted and selective presentation of the issues and cherry-picking information. As we will demonstrate in our long-form discussion of the private equity workshop, that pattern was pervasive, strongly suggesting that the staff seldom deals with the board as a bona-fide decision making body, and instead engages routinely in bad-faith conduct to manipulate the board to rubber stamp the staff’s desired outcomes.

This abuse explains the curious passivity and lack of inquisitiveness of the board (which numerous readers have criticized when we’ve published videos of board meetings), as well as Investment Committee chairman Henry Jones’ high-handedness, even rudeness, in trying to silence board member JJ Jelincic when he asks questions in open session.

Bilbrey has laid bare an ugly truth: the board, save Jelincic, has accepted the idea that the public board meetings are frequently nothing more than pro-forma “show trials.” This governance theater allows CEO Anne Stausboll and her staff to control the organization’s levers of power. The result is an abject failure of adequate oversight and a conspiracy to deny the public the right to observe and provide input into policy decisions.

This post, and our related one today on CalPERS’ recent selection of a fiduciary counsel with a long history of allegations of corruption, strongly suggest that CalPERS’ leadership, in particular its CEO Stausboll, regards the agency as above the law. This attitude is completely unacceptable in a government body, particularly one with a recent history of criminal conduct by its CEO and almost certainly in need of taxpayer support to meet its obligations.

I strongly urge readers to voice their concerns to the state Treasurer and Controller, both of whom sit on CalPERS’ board and are therefore share in the responsibility for these dubious actions. Their contact details:

Mr. John Chiang
California State Treasurer
Post Office Box 942809
Sacramento, CA 94209-0001
(916) 653-2995

Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
(916) 445-2636

In addition, if you are a California citizen, please contact your state Assemblyman and Senator, and demand that they look into this serious lapse of governance. You can find you Senate and Assembly representatives here.

Please also alert your local newspaper and television station, as well as the Sacramento Bee. Tell them you think this story is important for all California taxpayers and urge them to take it up. You can find the form for sending a letter to the editor here.

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  1. Lambert Strether

    Sort of amazing this is the amuse-bouche to the main course.

    And if you saw this kind of stuff happening at your town council, you’d know exactly what was going on. It’s not difficult.

    “Ask us anything you want — especially one-on-one and in private!” I mean, come on. The Los Angeles Times story on CalPERS in Links today has a picture of CalPERS headquarters in Sacramento. Very beautiful building the architect should be proud of, even if it does remind me of a gilded pleasure dome. It’s all glass and transparent — exactly what CalPERS is not.

  2. Assolonius

    Ever since the latest CIO inherited his role, the number of closed sessions and time spent by the board in these private meetings has increased exponentially. What are they trying to hide? And how hypocritical of calpers to not practice what they preach, but what would you expect from the elitist knowitalls occupying the exec offices there.

    CEO mAnn Stausboll and CIO Harry Eliopolus, those two great legal scholars and part-time social justice activists, have been best buds ever since the days of Angelides’ treasurers office, do you think they are colluding now to shield themselves from something very salacious or illegal? After all under whos watch did the PE shenanigans occur, oh thats right, Stausballs

  3. Greg Taylor

    Do strictly enforced open meeting laws lead to better governance? Is there empirical support for this notion? Sunshine may be a disinfectant but too much could easily create an environment where fear trumps trust and governance is impossible. Will 24-7 sunshine enhance or detract from an organization’s ability to attract and retain high quality board members? Will it make it easier or harder for new board members to get up to speed and make positive contributions? Will it enhance or detract from the board’s ability to ask tough questions and make a positive impact on strategies? If executive changes become necessary, will sunshine make it easier or harder for the board to obtain the information needed to take action?

    Getting high quality board members who are willing to ask potentially embarrassing questions for the first time in a public forum is going to be very difficult for most organizations. Journalists and regulators might have such skills but I’m not sure they’d be the only folks I’d want hiring the chief executive and building a leadership team. Most other potential board members have been successful in their careers by handling delicate situations in a more tactful and discreet way. They aren’t going to start behaving like journalists when placed on a board.

    Board members might be more likely to get information that staff would rather keep out of the sunshine in non-public forums where they have a chance to develop trust with staff. That information might be critical to the board and the organization. Trust building may be incompatible with strict open meetings laws.

    1. inode_buddha

      This makes no sense to me. As a member of the public, closed meetings set off alarm bells inside me — the very opposite of trust. Sometimes when you are paranoid, they really *are* out to get you — or your money.

    2. Lambert Strether

      It certainly did in Maine when we were fighting a landfill. The balance of power shifted when we got an open hearing with people under oath. And we never would have gotten to that point without FOIA and lots and losts of meetings.

      As for “Trust building may be incompatible with strict open meetings laws,” I would ask: “Trust-building between whom?”

      Finally, you seem to equate doing one’s fiduciary duty as a board member with acting like a journalist. That seems odd, not least because you seem to view acting like a journalist as pejorative.

      1. Greg Taylor

        This is one of a series of posts showing that Calpers is a poorly governed public sector pension fund. Many staff and board members do not appear to be up to the task. As frequently mentioned on this blog, Calpers approaches are often considered best practices among peers. Therefore, we can reasonably conclude that the US public sector manages its pensions ineffectively.

        Why is this? What can be done? Is the public sector capable or should we privatize this task? Without concrete suggestions for governance improvements for this sector, these blog posts are making privatization a plausible solution. Of course, private sector pension management could be even worse. Hard to say.

        When I see dysfunctional organizations, I tend to wonder why they got that way and what can be done to fix them. Calper’s pays staff enough to attract good talent. Apparently, trust is an issue at Calpers.

        When I mentioned trust in the above comment, I was referring to the trust between board, executive, and staff. Public scrutiny of every question and comment between these groups can’t be healthy for the organization’s culture. That’s the antithesis of trust. When new board members are being acclimated, they need to be able to ask questions without fear of having something stupid turn into an overnight You-Tube sensation.

        Your posts have shown board members not saying anything or not asking probing questions in meetings. You conclude that many are incompetent or not acting as responsible fiduciaries. Perhaps so. My previous comment provides a possible explanation – the fear that comes with sunshine.

        I spent many years on public sector boards and work in the public sector today. While there may be some upside to 24-7 sunshine, there’s a huge downside including the loss of creativity, risk-taking and innovation.

        It’s now feasible to put body cams on every public servant and record everything we say or do. That’s just a natural extension of sunshine laws. Police have them, why not others? Wouldn’t you love to work in such a culture? That’s the opposite of trust. I can’t imagine such organizations being remotely effective. Complete 24-7 sunshine would destroy the public sector.

        I don’t mind having some sunshine and ensuring the people are informed about what’s going on in public institutions and why. I have no problems with open meetings when boards vote and provide rationales.

        However, when it comes to forcing all but narrowly defined communications between boards and staff to be public – I just can’t see it working well anywhere. Laws or no laws. We’ll end up with a dysfunctional public sector where nobody wants to work.

        1. Lambert Strether

          So, your argument is that Bagley-Keene should be abolished, and that the California Constitution should be amended?

          * * *

          Language note: Silicon Valley’s recent problems with valuation show that “creativity, risk-taking and innovation” aren’t the be-all and end-all in business, let alone in government, at least as these shibboleths are operationally defined by Silicon Valley funders and founders. I’m extremely leery of any thesis that depends on them.

          For example, Uber’s essential innovation is to enter markets by breaking the law. CalPERS seems to be innovating in exactly the same way: By breaking the law. Is that the reason you support the current “innovative” practices on the Board?

        2. Yves Smith Post author

          Henry Jones, is that you? (Sorry if you don’t get the joke: Henry Jones is the chairman of CalPERS investment who regularly shuts down fellow board member JJ Jelincic for asking too many questions about private equity, apparently because it stands in too much contrast to the passivity of the rest of the board).

          You discredit yourself by your aggressive and persistent use of bad faith argumentation, which is a violation of this site’s written policies. In particular, you straw man our position repeatedly. You also raise all sorts of extreme hypotheticals (since when is having a government agency comply with open meeting laws that embody the requirements of the California constitution tantamount to requiring cops to wear body cams 24/7, which by the way, no one has ever suggested that cops do either).

          Your posture strongly suggests you could not make a credible case if required to.

          Moreover, you bizarrely suggest that having CalPERS comply with the clear requirements of California law would make the board less effective and cohesive. Need I point out that the board is utterly ineffective now? And that this divide and conquer strategy employed in the illegal “hub and spoke” briefings has been a very effective vehicle for persuading the board to cede authority to staff? Not all that long ago, the board had four direct reports, meaning four people it could fire. It agreed to give up all but the CEO. Tell me how likely the board is to fire the CEO absent a major scandal? And before you try telling me that boards should not be that interventionist, I need to remind you that CalPERS is not remotely like either the penny-ante school boards you’ve been involved with or even corporate boards. CalPERS is managing hundreds of billions of dollars and members of the board are PERSONALLY liable. That is because the board members are fiduciaries, and thus are held to a much higher standard of oversight than corporate directors.

          Similarly, one of our companion posts today shows staff in the process of engaging in what is called the mushroom treatment (keep them in the dark and dump shit on them) in how it reduced the amount of information it gave the board to decide on who to hire as its fiduciary counsel. Mind you, this is not the board approving of an advisor to CalPERS; the fiduciary counsel (in theory) works for the board to protect its interests, which are not identical to those of CalPERS. You see a few board members objecting to the change in procedure, yet they are blandly steamrolled by staff, which relies on the ludicrous “lowest common denominator” argument that “California law says you don’t have to have any more information in order to hire an attorney,” and the trained-to-be-passive non-lawyers on the board.

          And as to the board members not asking questions…the only reason not to is that they are afraid of exposing themselves as incompetent or being unwilling to spend the time to get up to speed to do their jobs properly. So you are perversely arguing against transparency because lazy and/or incompetent officials deserve to have their precious images go untarnished.

          Anyone in public office knows that public scrutiny is part of the job. As Harry Truman said, “If you can’t take the heat, stay out of the kitchen.”

          Finally, you also conveniently ignore the fact that our founding fathers believed strongly in a system of checks and balances in government. Transparency and oversight are critically important mechanisms to serve this function, particularly for agencies like CalPERS. It requires specialist knowledge of finance to evaluate how well it is doing. Members of the legislature don’t have that. Expert members of the broader public do.

          1. John Zelnicker

            Yves – Did you have more to say in your comment? The next to the last paragraph seems to be left dangling, and the last sentence seems to be the beginning of a series of points you wanted to make.

            1. Yves Smith Post author

              Had some text from an earlier effort at a response, which I thought I had deleted but hadn’t and it was sitting at the very end. So I’ve now excised that.

        3. Eric Patton

          I don’t mind having some sunshine and ensuring the people are informed about what’s going on in public institutions and why.

          Let me correct this for you. Here is what you are actually saying:

          I don’t mind having some darkness and ensuring the people are not informed about what’s going on in public institutions and why.

          I do not know who you are, but I do know this: You are a libertarian a-hole.

    3. flora

      “Even worse, CalPERS’ staff may be engaging in open advocacy in these private briefings, telling board members how they think they should vote and why. ”

      No doubt smart phones and social media may have made board members more skittish in open meetings. Still….only abusive staff and PE general partners would benefit from closed meetings.

    4. tegnost

      “Will 24-7 sunshine enhance or detract from an organization’s ability to attract and retain high quality board members?”
      You’re basically describing a soft coup. If we don’t have advice from unaccountable insiders how will we know how to proceed in a way that the insiders will approve of? Your high quality talent, you don’t describe what their talent is and why they shoulld be unaccountable, you seem to say “someone might not like what they’re doing and complain”, or “what if they’re breaking the law and someone catches them, why then they’ll be liable!”…Actually I think that is the point of open meetings don’t you?
      “Getting high quality board members who are willing to ask potentially embarrassing questions for the first time in a public forum is going to be very difficult for most organizations ”
      I’d bet it would be pretty easy.
      I think the focus is definitely to have board members (oops, talent) who will not ask embarrassing questions and the pre- meetings are a way to ensure that happens.

  4. flora

    “I don’t understand why those same questions have to be answered again in the open meeting just because there’s two different situations. …” -Bilbrey

    right. the CalPERS pension contribution groups and California public could access the open session discussions. They might hear things that don’t add up.

    But, hey, we’re modern, we’re in the know. Those antiquated 1915, 1920, and 1935 laws designed to shut down cronyism, corruption, govt malfeasance and defrauding the public are no longer needed. Right?

    Thanks for these posts.

  5. TheCatSaid

    Thanks for the important discussion regarding transparency, and in particular providing the details of the CA laws (forbidding hub & spoke, serial meetings, etc.)

    The arguments posed by Greg Taylor are routinely given in Ireland as the rationale for the existing policy of “Cabinet confidentiality” (including no recourse to FOIA requests). Citizens, therefore, never know who said what in cabinet meetings, who promoted what policies, what arguments or choices were put forward (and what points of view went uncontested or unmentioned). Where’s the democracy in that? How does one know whether a minister was competent or not, or sense on whose behalf they were acting or what interests they might be protecting?

    One hears the rationale about how privacy is needed in order to discuss freely–and this is repeated any time the subject is raised, always without objections. It’s no wonder people come to believe this perspective.

    Also, there is rarely an alternative. (For example, in Estonia I believe cabinet meetings are published online within 24 or 48 hours.)

    This issue is crucial. Unfortunately, whether in government or in private enterprises, I suspect the common situation is that of key players having private chats on the golf course (or equivalent).

    Transparency in decision making is crucial for accountability and for transforming our culture in general into one that more genuinely serves the public rather than a small inner circle–whatever the context.

  6. TheCatSaid

    A related matter to open meetings–especially non-public meetings–is who takes notes and what they do or don’t include.

    As a participant on the Management Committee of a small European-based project, on one occasion I was asked to take notes. Subsequently the chairperson made copious suggestions on what to include and what not to include.

    On the one hand there is genuine diplomatic skill involved, on the other hand the “simple” matter of what detail is included in minutes is important in ways I’m not sure I’ve ever seen discussed.

    (For example, think how the now-famous CalPERS investment Board meeting could be minuted in a way that would completely obscure or play down the significance of questions/answers/discussions that occurred.)

    The ways in which minuting can be used to create and control an organization and its decisions and actions, supports the importance of open meetings in organizations that are meant to serve the public interest.

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