Reform Candidate for CalPERS Board, Margaret Brown, Beats Incumbent Handily; Staff and Board Apparently Shell-Shocked

As the Sacramento Bee reported, In an upset, a CalPERS critic wins a seat on the pension board:

Margaret Brown, a Southern California school district administrator, unseated incumbent Michael Bilbrey in a runoff election to win a seat on the California Public Employees’ Retirement System Board of Administration.

Her victory on Tuesday marks an upset over Bilbrey, who had the backing of nearly every state public employee union and a well-funded campaign account. Unions contributed more than $150,000 to help him retain his seat while also touting him in newsletters to their members.

This is a tremendous victory and Brown deserves all your congratulations. She won 53% to 47%, She not only beat an incumbent who had vastly more endorsements (Brown did have the support of two retiree organizations, as well as a police union), but with vastly less funding (a mere $28,000) and a non-secret ballot that looked designed to suppress votes by union members who might dare to oppose the official pick. Brown having unearthed dodgy election practices and raising alarms about them may well have played a role in her victory.

Another factor that Brown believes worked in her favor is that more and more beneficiaries are worried about CalPERS’ underfunding and see the board as too willing to coddle underperforming staff rather than ask tough questions.

And on top of that, Brown prevailed even though her opponent ran a particularly dirty campaign.

I didn’t want to discuss the smeara against Brown because a lot of cognitive research shows that trying to debunk something can actually wind up reinforcing it. However, the Sacramento Bee ran a hit piece against Brown, depicting her as the reason a school district for which she had worked wound up paying over $1.2 million in settlements to four discharged workers. Note that Brown was not responsible for their termination. When they were set to be laid off, they accused her of harassment and discriminating against them as men. If you read the actual files, the substance of their beef was that Brown would sometimes delegate supervisory tasks to her direct report, who happened to be female. A investigation exonerated her in full. Two years later, one of the four sued the school district for which he and Brown had both worked and named her, accusing her of a new angle on his old theme. The district entered into settlements with all four even though only one had targeted Brown, yet the Sacramento Bee, picking up on the messaging of her opponent, made it sound as if she was somehow connected with all four settlements. And the one actual suit? Brown was removed from that suit before the settlement and never signed a release (which she would have done had she been a party to the settlement), which means the Bee had engaged in flagrantly inaccurate reporting. 1

CalPERS appears not to be taking at all well to the fact that an outspoken critic will soon be joining its board. Even though CalPERS announced election results at 1:30 PM Pacific time, only two of the thirteen board members and no staff members had called her to congratulate her as of late evening. That’s ill-mannered but typical of CalPERS’ pettiness and amateurism.

The support of the retiree organizations was key to Brown’s victory. Retiring board member JJ Jelincic and the candidate for the other open seat, Michael Flaherman, were important advisers to Brown and deserve credit for helping her win. And we would like to think we helped too. Brown provided a fundraising post for us, How Naked Capitalism Got Me to Run for Office:

In late January of this year, I read the post that CalPERS was trying to eliminate its most effective Board member, JJ Jelincic. I was outraged. How could legal counsel allow this to occur? And how could other Board members allow this to occur? Why wasn’t someone shutting this down? Why wasn’t someone helping JJ Jelincic? And that’s when it hit me. I could help him. I could run for the Board and help him. I could run for the Board and help others.

Once I committed to running, I knew I had to find a way to meet and talk to Yves Smith…She wanted to know my plan to win, and she wanted to make sure I had thought out what I was trying to do. She was tough, critical, and so very helpful..

The blog and I share the same goal, which is to build up and strengthen CalPERS. We also share the same belief that this goal can only be achieved if CalPERS does a much better job of executing its fiduciary duties. The first step is for CalPERS to acknowledge that the status quo, which Naked Capitalism has painstakingly chronicled, is not acceptable.

We ask all California readers to support Brown in her efforts. Your letters and calls to board members, particularly its two elected officials, the State Treasurer and State Controller, have had an impact by making them see that the public is keeping close watch on their votes at CalPERS. So keep up the good work by helping Brown help you!

1 Consider this example of how biased the story was: “She did not return phone calls seeking further comment.” This implies that Brown didn’t provide further comment. In fact, Brown was responding to the reporter by e-mail on the instructions of her lawyer, and the reporter Adam Ashton replied, so he can’t claim he missed getting her messages.

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  1. The Rev Kev

    Hmmm. A big win for a moderate Democrat in Alabama. Brown’s win in California to get a CalPERS seat. I’m starting to smell blood in the water.

  2. Adam

    Congratulations to Margaret! She is extremely impressive, so it doesn’t come as too much a see her win (although definitely some shock because the voting process changes seemed like a perfect way to skew the results). Hopefully JJ will run again for the 2019 position!

  3. Clive

    Only people who live in the US can really pull off weh-hey’ing and whoop-whoop’ing, but I’ll do my best from here — great stuff Margaret Brown, give ’em hell. I know you will !

    The mealy-mouthed non-congratulations congratulations from the coterie of Board flunkies speaks volumes.

  4. Kokuanani

    Does “backing of nearly every state employee union” [supporting Bilbrey] mean union LEADERS or actual members? I can’t imagine folks being thrilled to learn how their pensions may be reduced via CalPERS’ incompetence & chicanery.

    I.e., why did the unions support him, if they did?

    1. Yves Smith Post author

      Virtually all the unions officially endorsed Michael Bilbrey. That meant among other things, that their funding and their get out the vote apparatus was behind him. I don’t know how the decisions were made, since the bigger unions like SEIU have staff in addition to the leadership who likely participated in the decision to endorse Bilbrey. However, even though the unions have better access to the press and much more of an operational apparatus than the retirees, there are more retirees in aggregate than union members (current employees), so it could very well be that union members followed their leadership but were outvoted by retirees.

  5. Jim Haygood

    Brown believes … that more and more beneficiaries are worried about CalPERS’ underfunding

    As they should be. In fact, if so many beneficiaries weren’t deceived by panglossian assumptions of 7 percent annual returns, they ALL would be worried.

    Next Monday the investment committee meets in both closed and open session. Reportedly they will review a proposal presented in November to reduce Calpers’ equity allocation (as we near the pinnacle of Bubble III) and hike its fixed income weighting.

    This is enormously unpopular among municipalities because it implies — based on obsolete 20th century historical equity returns — that portfolio returns will decline, and therefore employer contributions must painfully rise.

    In reality, if Calpers can sidestep a portion of Bubble III’s eventual collapse, its returns will not be adversely affected. They may even improve compared to the frightening wreckage that an equity top-heavy portfolio reliably delivers in a major bear market.

    Go, Margaret, go!

  6. ChiGal in Carolina

    Bravo, Margaret ?

    Naked Capitalism: Making a difference in the Real World

    (how’s that for a bumper sticker?)

  7. tegnost

    Fantastic news that should inspire. Thanks for all the CalPers posts, the elite in the US have gotten away with so much they’ve grown used to impunity (see leaked fcc video for confirmation). Here’s to the anguish I hope to see more of, sore losers seem to flourish in Cali, can’t even make a phone call? How pathetic. Is Flaherman still in the race, I don’t understand how the election process works,? It would be great to get another voice on the board.

    1. B1whois

      Flaherman lost his bid for a seat in the regular election, the one in which Margaret Brown came close enough to trigger a runoff with the incumbent. This election was that run off. Woohoo woohoo woohoo! This on top of the win in Alabama is giving me shivers this morning!

    1. Yves Smith Post author

      Yes, and with the benefit of hindsight, Flaherman didn’t present his record as a reformer clearly enough, and his opponent was able successfully to paint the fact that he had Wall Street experience as implying that Flaherman wanted to cut pensions. When people discuss public pension “reform,” they are usually right wingers who want to cut pensions. That isn’t what Brown stands for plus her opponents didn’t use that as a line of attack. They focused on the personal smears.

  8. Sluggeaux

    It’s gratifying to see that state and local employees and retirees turned out an incumbent even in the face of an illegal non-secret ballot and false propaganda being spread by McClatchy’s Bee. People will show up if they think that they’re going to see a real change.

    There can be no doubt that the dogged work of Yves Smith shined a light on CalPERS’s problems. There can also be no doubt that staff will attack a lone dissenter on its board, and continue to weaken transparency and oversight. Now is the time to ratchet up the pressure, not to do victory laps.

  9. XXYY

    Really nice. These kinds of wins are not only vital for their own impact, but also for providing hope and encouragement that the good guys can triumph in what sometimes seems to be an increasingly corrupt world.

    Great work, Margaret; I know you will inspire other Margaret’s by your fabulous example.

  10. Sid Finster

    Now, let us watch what the reform candidate actually does while in office.

    These actions (even if the reform candidate is everything hoped for and more) will teach us much about what means the establishment uses to get its way.

  11. RUKidding

    YAY!!! What a great day! Finally.

    I did my bit and voted for Ms. Brown. Congratulations to her and good luck working with what appears to be a very corrupt and intransigent board. I am so grateful that Ms. Brown wishes to take this job on.

    Thanks, as always, for keeping us posted on CalPERS, Yves. As a current CalPers contributer and future annuitant, it is particularly important for me. But what happens with CalPERS can have an affect across the nation… hopefully for the good.

    BTW there were quite a few yard signs around Sacramento for both Brown and Bilbrey, but very anecdotally, I think Brown possibly had more signs up in my area of town (Land Park, South Hills, Greenhaven/Pocket).

  12. Dana Smith

    Met our new advocate at the LA meetup. Thought she had a clear aim and no nonsense attitude. We are heading toward a more sensible approach and have NC to thank and appreciate for helping give voice to the least powerful.
    Dana Smith

  13. WJ


    I am pretty sure I am not the only person in America whose knowledge of CalPERS has been almost wholly informed by your own investigative reporting and analysis. I hope I do not seem to flatter if I suggest that among the other factors contributing to Brown’s victory, your own writing on the corrupt practices of CalPERS’ existing board is surely one of the most significant.

    So congratulations to you, too, and to Naked Capitalism as a whole. It takes more a little courage to become the best known (in my Midwest circles at least) public opponent of an entity such as CalPERS, which however parochial and incompetent still wields a considerable amount of financial, social, and perhaps even political power. It is good to know there are still people in the world who remain both principled and uncowed. All that is needed now is for you to move to California and run for CalPERS yourself! ;)

  14. Saylor

    NC/Yves…,as it is apparent that the Bee (and likely many other media outlets) will continue with their slanted attacks, I/we all hope you will stay on top of it. I am not/will not be a recipient of CalPERs, but oddly enough, I do care about what is right. May you be quoted in the main stream media so frequently as to become a household name.

  15. none

    I still don’t understand why SEIU endorsed Bilbrey. Are they corrupt too? IIRC they also endorsed Clinton in the 2016 Dem primary. Before that I thought they were one of the “good” unions.

    1. Yves Smith Post author

      In a word, yes. The unions greatly prefer weak board members and little transparency because they get to throw their weight about as insiders. If there was proper governance, they’d have far less influence. This way, they get to call the CEO, weigh in, and get info.

  16. Optic7

    A few thoughts on this news:

    First, great to hear, and congratulations to Brown.

    Second, thank you to Yves for shining a light on the issues at CalPERS, and more importantly, for highlighting these candidates that would help do something about those issues. Me and my spouse voted for both suggested candidates, thanks to the reporting here on Naked Capitalism.

    Third, some people in the comments are wondering why the big unions supported the incumbents. My own union did. In my admittedly limited knowledge and understanding of the issues, I believe that the dynamic at play was that it benefitted the unions to maintain the illusion that everything was hunky-dory with the purported investment returns at CalPERS. This delayed any possibility of needing to ask CalPERS contributors to contribute more money or needing to reduce future benefits if those returns could not be maintained. Any such increase in contributions would have been seen by the unions as a threat to their membership numbers.

    Imagine this sequence of events: 1) CalPERS begins to do some proper accounting to assess the fund’s financial status; 2) This accounting makes them realize (admit?) that the investment returns plus contributions are not sufficient to cover all the liabilities; 3) Because of that, they need to either increase contribution amounts, reduce benefits, or both; 4) Any such change would make many union members upset that their union did not do more to stop more money from being sucked out of their paychecks; 5) A significant amount of these disenchanted union members may have quit their membership, stopped contributing to the union, or stopped helping the union in other ways.

    In short, I think that admitting the problems at CalPERS would have probably, eventually have made the unions look bad in the eyes of their members. The unions realized this and wanted to delay the reckoning as much as possible, even at the cost of the whole thing imploding.

    Retirees, on the other hand, are working from a different set of conditions, since they both no longer contribute to CalPERS to maintain their benefits and at the same time are immediately and thoroughly dependent on those same benefits. They are interested in maintaining those benefits at whatever cost necessary, including increasing the amount that active members need to contribute.

    I feel that this neatly explains the difference between the retirees’ and unions’ endorsements.

    1. Sluggeaux

      I think that there is an additional element: the unions are deeply enmeshed in Democratic Party politics, and politically the Dems have major headaches with CalPERS underperformance.

      Democrat elected officials don’t want to have to increase employer contributions at the expense of delivering goodies to their various constituencies, after having taken an employer-only “pension contribution holiday” during the tech bubble.

      Additionally, Democrat lobbyists have been funneling money taken in the form of private equity placement fees into candidate coffers which the Dems don’t want scrutinized. Private equity wasn’t simply bribing the now-imprisoned CEO in order to get CalPERS to take on their crappy heads-I-win/tails-you-lose asset-stripping schemes. Others improperly benefitted who don’t want the kimono parted by nosy board members.

  17. Kim Kaufman

    This is fantastic news. Congratulations and thanks to Margaret and Yves for their work on this. I am sure Margaret is going to be a fantastic board member – which means she will be loathed by all the right people. :)

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