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
Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
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.