Over the last two days, we’ve described how CalPERS’ recently-hired CFO Charles Asubonten made many misrepresentations on his resume and also gave conflicting and inflated descriptions of his activities in private equity.
In this post, we will discuss why, even if Asubonten’s resume had been accurate, he is not qualified for the Chief Financial Officer position at CalPERS. That in turn raises troubling questions as to why CalPERS and its search firm, Heidrick & Struggles, let him advance to a finalist in the selection process and then on top of that, failed to do adequate vetting of his claims about his background.
But before we turn to those issues, some context is relevant.
CalPERS’ Checkered History in Filling Its Chief Financial Officer Position
CalPERS established a Chief Financial Officer position in 2012 to give the manager handling budget and financial operations a stronger policy orientation. The first individual to fill the position, Cheryl Eason, had professional qualifications consistent with the job description for her replacement. From the Chief Financial Officer recruitment brochure at the end of this post:
Candidates must have worked in sophisticated and complex businesses with a specific focus on large pension funds, global financial institutions, asset managers, and other diversified financial services companies…The CFO must be a seasoned and respected professional with at least 10 years of experience in a large pension fund or financial institution managing complex financial operations.
The job specs also set forth educational requirements (a BA in accounting or a related field) and state a preference for a CPA or a CFA certification.
Eason left CalPERS on January 6, 2017. CalPERS then suffered the self inflicted wound of naming a new Chief Financial Officer, only to have him withdraw.
CalPERS board member Richard Gillihan accepted the the offer to become Chief Financial Officer in early June. CalPERS announced that he would be joining, as you can see from this Sacramento Bee article.
Before CalPERS announced Gillihan’s appointment, former board member JJ Jelincic pointed out that Gillihan had what is called a “1090 problem.” California Government Code Section 1090 prohibits government officials from having a financial interest in any contract they made. Gillihan had been involved in the wage-setting for the CFO position, which meant in taking the job, he would have benefitted from his previous action.
Even though CEO Marcie Frost and General Counsel Matt Jacobs initially waved off Jelincic’s warning, other lawyers confirmed his concerns, leading to further investigation of the issue. Gillihan decided he did not want the legal exposure and withdrew his acceptance.
CalPERS had already done a salary survey in connection with the CFO search and the preparation of the brochure below in January 2017. They were not redone when the search resumed in June. Asubonten accepted the job offer on September 12 and joined October 2. That is a long enough time lapse that it suggests that CalPERS did not simply take the second or third place candidate from the earlier search, since they presumably would have gotten the offer out sooner.
Asubonten’s Shortcomings for the CalPERS CFO Position
Asubonten falls dramatically short of CalPERS’ required “professional competencies.” Not only has he not worked for ten years in a large pension fund or financial firm overseeing complex operations, he has no financial institutions experience whatsoever. Running what was at best a microscopically small private equity business does not qualify. Nor does having been the chief financial officer at two mining sites.
While it is no doubt tiresome to be told that financial institutions really are different, one way that that is true is in terms of the level of transaction activity and the related operational and control demands. Just think of how many transactions even a mere mid-sized bank handles between its retail customers (checking and saving account transactions, potentially also credit card transactions, as well as mortgage and auto loans) and businesses, who would have even higher transaction levels and more service needs (starting with payroll and vendor payments).
As Associate Professor of Economics and Law and white collar criminologist Bill Black wrote:
Charles A. Asubonten is CalPERS’ latest chief financial officer (CFO). Over a decade ago, CalPERS set the standard for superb investment by pension funds. It then descended into scandal involving substantial corruption. The acute phase of that corruption has ended, but CalPERS remains a shell of its former glory with weak senior executive officials determined to remove the fund’s transparency that once set a global standard.
Unfortunately, Mr. Asubonten epitomizes CalPERS’ retreat from the best practices it once championed into the Wall Street sleaze that led to the CalPERS scandals. Mr. Asubonten has a fine education, but his work experience, even if we take his dubious resume as accurate, should not have led to him being included in even the most preliminary pool of potential candidates for CalPERS’ CFO.
Phrased most favorably to him, he may have expertise in mining in Africa. He is not remotely appropriate to lead a massive pension fund. He is not appropriate to lead the vigorous reform effort CalPERS desperately needs in which he would have to take on the culture of concealment and mediocrity that CalPERS’ senior management team has created. Mr. Asubonten adds to CalPERS’ problems rather than fixing them.
Other financial institutions experts who have reviewed Asubonten’s background are surprised that he was hired at CalPERS. They have volunteered that his background is fitting for an assistant Treasurer or Treasurer position at a financial institution, not chief financial officer.
What Does This Fiasco Say About CalPERS and Heidrick & Struggles?
This is not the first time that CEO Marcie Frost has tried to put someone lacking in needed skills in a senior position. She tried bringing in an unqualified crony from her former home, the Washington State pension fund, in the critically important role of Chief Actuary. Bear in mind that the Chief Actuary position at CalPERS is seen as the second most difficult in the US, exceeded only by the Chief Actuary of the Social Security Administration, by virtue of CalPERS administering over 2200 pension plans. As we wrote in October 2016:
This Thursday, November 3, the California State Personnel Board is set to approve changes to the job description of CalPERS’ Chief Actuary that are depicted as minor but are anything but….
The proposed changes both amount to a violation of the California Constitution by attempting to end the required role of the board in policy-making, and separately so far reducing the minimum qualifications for the job that they will be lower than that for the most junior actuaries now employed at CalPERS. Needless to say, that makes a mockery of the claim that CalPERS needs to dumb down the job description so severely to fill the post. CalPERS could promote someone from inside by relaxing the requirements less or not at all.
One has to assume that the motivation for allowing a person who would be deemed to be grossly unqualified under current rules to be hired in the Chief Actuary is that the new CEO, Marcie Frost, has someone specific she’d like to bring in. The fact that Frost herself does not have a college degree and certainly does not have the mathematical chops to evaluate an actuary’s professional competence certainly looks like she is giving personal loyalty far too much weight in a role where analytical rigor and professionalism are of paramount importance.
CalPERS withdrew its plan to greatly reduce the qualifications required for the Chief Actuary position shortly after our post ran.
If you look at the Chief Financial Officer job description below, you can see how little space it gives to professional skills and how much to touchy-feeley attributes. One industry professional remarked it was almost as if the people who wrote this document either didn’t know or didn’t care much about what a CFO did.
And some of the leadership fetishes served up as part of the Chief Financial Officer job requirements aren’t a good fit. Being the Chief Financial Officer is a “trains must run on time” position. Creativity isn’t a necessarily a good thing, for instance. Nor is it clear why a CFO in an organization that does not do financings needs to adapt to changing market positions. That’s the job of the investing side.
Another question is how someone so obviously unqualified for the role got serious consideration, much the less hired. Many observers argued his candidacy must have been pushed by an interested party with some clout. But even so, Asubonten should have gotten more scrutiny. First, large institutions strongly prefer individuals from other large organizations, and for good reason. They typically have higher caliber employees. Senior managers also have large spans of control That means they operate in a more formal manner, with periodic reports, management information systems, and procedures being far more important than in a small shop, where most things are done on an ad hoc basis.
Another reason for opting for candidates from large organizations is that it is much easier to vet their backgrounds. The search community would be familiar not just with the standards and quirks of past employers but even with many of their senior executives. By contrast, someone from a little company is a big unknown unless they’ve worked extensively with the prospective employer.
In addition, given CalPERS’ expressed concern with integrity, such as “demonstrates a high degree of integrity, honesty, and ethical behavior,” the mining industry is not a paragon of virtue. For instance, one of Asubonten’s former employers, Mopani Copper Mines refused to pay a windfall tax in 2008 and in 2011 was accused of tax evasion. And, of course, our posts’ extensive analysis of Asubonten’s resume and Form 700 inaccuracies and misrepresentations raise pointed questions about his candor.
Asubonten’s hiring is also a black eye for CalPERS’ search firm Heidrick & Struggles. It is hard to see how anyone who has spent his last four years in what amounts to a small business could be seen as a serious candidate for a position at CalPERS, absent some visible achievement that showed he had relevant expertise. Heidrick & Struggles was also in a vastly better position than I was to vet resume claims that looked questionable on their face and therefore called for verification. If CalPERS does not demand that Heidrick & Struggles refund this search fee, it would suggest that this search process was more than merely sloppy.
CalPERS needs to suspend Asubonten immediately and conduct a thorough investigation. Anything less than that would confirm that the institution is beyond redemption. But that seems to be precisely what is happening. Several contacts have told us that CalPERS is still defending Asubonten and denying the significance of his extensive misrepresentations on his resume and official forms.
As sometime guest poster Clive pointed out, Yahoo fired its CEO over a single falsification on his resume. We’ve presented ample evidence that Asubonten has made many. The message is all too clear. CEO Marcie Frost regards it as more important to defend her decisions and support her inner team than give top priority to her paramount duty, that of protecting CalPERS beneficiaries and California taxpayers.
cfo-recruitment-brochureAsubonten resume
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I wonder if part of the problem is that good, qualified candidates aren’t applying because CALPERS is such a hot mess and everyone in the industry knows it? Otherwise, this series is just fantastic work, Yves. Brava!
No. I would not hire him, even if his credentials were perfectly correct, as a Treasurer at any FI, even small sized-bank or a pension fund.
FI’s ARE different – and the accounting community recognises that. Moreover, in SA he would have experience with IFRS, not GAAP, and the whole world of accounting is changing/changed with IFRS9.
Arguably, IFRS9 has no impact on CalPERS now, but my understanding is that the IASB and FASB are trying to reconcile the standards so that GAAP and IFRS are at least fairly similar.
In a mining operation, unless you’re at the Treasury of Rio/BHP etc. you’re likely exposed to few except commodity, and maybe a couple of FX derivatives. You’d have zilch knowledge of equity derivatives and little if any of IR/credit.
One of the main roles of Treasury in a non-fin is financing. There are liquidity requirements too, but they pale in comparison to any FI, especially pension funds. They are also very different from the requirements on CFO/Treasurer for a PE/investment business.
In a pension fund or a bank, at the very very best, I’d hire this guy as a direct report to the CalPers equivalent of Treasury – if I believed he was very bright and quick learner.
I _might_ consider hiring him as Treasurer in an investment manager for the “shared Treasury” function, i.e. a Treasury run by the IM as outsourcer for the owned businesses – where you need the experience of the non-fin business. I probably would not, as his CV shows little in the area of capital markets which is one of the main functions I’d want from a Treasurer there.
As of the moment, putting “CalPERS Marcie Frost” into DuckDuckGo,
the items featured at the top of p.1 are three of Yves’ current series on Asubonten.
As of the moment, putting “CalPERS Marcie Frost” into Google,
none of these posts appear in the first 5 pages of links.
(There is one link on p. 3 to a .pdf doc that was included in a post here last Fall.)
Be evil.
@allan
April 12, 2018 at 6:31 am
——
Using Bing, the first NC reference is in the middle of the third page. The link is to the October, 2016, post that Yves quotes from above.
Having worked recently with headhunters in London I can add that the vast majority of them (1) have absolutely no clue of what a prospective employee really needs to know in order to do a job well and (2) do not care *at all* if the right person for the company (and even for the future employee) is hired. I believe that most headhunters who have gone in this business (over the last 10 years maybe?) are former professionals themselves who left the financial industry, willingly or not. As such, they lack many important skills needed for headhunters.
I may also add that misrepresentations on CVs are far more common than people like to admit. I have seen mayself how former “Co-Heads” suddenly became “Heads” or how the past level of responsibility was “beefed up”. It gets worse in informal converations, where sadly people engage in a true “race to the bottom”. Unfortunately, “spinning the story” and “selling yourself well” seem to be very important and the truth is, should a candidate use down-to-earth words to describe their work experience (e.g. good, solid, up-to-standard), that candidate would be disquialified from the race (and maybe even laughed at). No, you need to be “top-notch”, “outstanding”, “consistently above expectations”. Do not get me wrong. Some people may use those words, but those people are few and far in between.
On the other hand, in some countries on the continent (e.g. the German-speaking space and the Netherlands) all candidates need to submit at the moment of application for any job all their grades starting with the A-Levels/Baccalaureat PLUS any other documents proving professional qualifications (e.g. CPA, CFA) and other standardised test (e.g. GMAT). The person who is not qualified nad/or lies does not go past HR…
In spite of the rigidity, there are clear advantages to the second approach. But yet again, everyone nowadays wants flexibility at any cost.
Regards
I agree with your observations. But senior, highly-compensated posts such as CalPERS’s CFO are needle-in-haystack opportunities for search firms. They usually go all out to do them well, in part, because they hope for considerable follow-on business when new top bosses are hired.
Unfortunately, that can also mean following the breadcrumbs CEOs and board search committees leave behind them that reveal who and what they really want to hire (as opposed to the cut-and-paste descriptions used in formal job postings).
Considering that imo CalPERS appears to be a mafia style criminal enterprise with unseen power brokers pulling on the puppet strings of the staff (my prejudice against california as a cesspool of greed and self aggrandizement is showing) who better to hire than a not so bright person with questionable morals combined with ambition who can be persuaded to make the “right choices”
Your comment certainly makes the unbelievably bad hire at least make some sense.
Cal Pers is not an outlier when it comes to dishonesty, incompetence and corruption.
Ausfonten’s hiring was not a mistake, this is typical of how California is governed.
Complex budgeting, staffing, auditing and operational demands – real time systems analysis of 2200 different pension funds, for example – supervising the chief accountant and (normally) the chief investment officer, the nuts and bolts demands of each separate function, reporting to and advising the CEO, and helping the CEO manage relations with and provide reports to the board about all of the above would seem beyond the imagination, let alone the capabilities, of the person described in Mr. Asubonten’s cv.
Heidrick & Struggles should not let the door hit them in their well-compensated rear end as they follow Mr. Asubonten out the door. It would seem time for California’s government to clean house at CalPERS, starting at the top.
No, the CFO does not supervise the Chief Actuary or the Chief Investment Officer. The Chief Actuary and Chief Investment Officer are more important than the CFO and historically were direct reports to the board.
Thanks for the correction.
Great work Yves!
http://www.sacbee.com/news/politics-government/the-state-worker/article209490874.html