Smear Campaigns Work: Pro-Transparency Board Member Margaret Brown, Candidate Tiffany Emon-Moran, Both Lose CalPERS Board Election

The California public employees unions that have bizarrely made clear that they are firmly on the side of having CalPERS continue to be poorly run have gotten their way. Pro accountability, pro-transparency board member Margaret Brown, and Tiffany Emon-Moran, who was challenging incumbent and staunch staff David Miller, were both defeated in this year’s board election. The unions backing Miller and Brown’s opponent used the same playbook they deployed to defeat JJ Jelincic last year when he tried to return to the board: raw spending power and dirty tricks. Both times, the anti good governance forces deployed repeated hit piece mailings chock full of distortions and outright fabrications. It didn’t hurt that the unions also had better mailing lists than the outsider board candidates. Knowledgeable parties are confident that CalPERS employees threw some lists over the fence to the unions, which would be violation of California election laws.

To paraphrase Clinton strategist Jim Carville: Drag $500,000 across California, you never know what you will find.

Chief Investment Officer ran an even-handed piece on the result, with the title, Vocal Critic Margaret Brown Is Knocked Off CalPERS Board, and more important, the subhead,

Things should be more peaceful once the ‘watchdog’ leaves, this coming January, but whether CalPERS will be better or worse remains to be seen.

The article also makes clear that union backing drove the results:

Both Pacheco and Miller received the support of a powerful coalition of unions representing state and local employees including the statewide Service Employees International Union (SEIU) in California. Brown did receive some smaller union support, but too little to fight the SEIU group.

It also gives a fair-minded recap of her tenure at CalPERS, in particular her criticism of CalPERS intending to increase its commitments to private equity funds when they haven’t delivered the needed risk adjusted and even gross returns, and her crossing swords with Frost, particularly the board rubber-stamping never-ending pay raises for Frost’s non-performance.

Brown was sorely hampered by her inability to force discussion of important governance and investment issues due to her rarely being able to get a second when she made a motion. She would often field calls from the press about pressing issues at CalPERS and gave good soundbites, which drove the staff and captured board members nuts.

CalPERS has continued to lurch from scandal to scandal under Frost,. The staff and board have reacted in a paranoid manner, blaming presumed internal and external saboteurs, as opposed to their own visible incompetence and chicanery. A prime example was the shape-shifting “private equity new business model”. It was initially a plan to hand the program over to BlackRock and pay an additional layer of fees, then morphed into setting up new vehicles entirely outside CalPERS, with no reporting to the board, which was almost certainly illegal. CalPERS abandoned the scheme because even modest press prodding exposed that CalPERS was unable to give a coherent explanation of how it would work and why it would be an improvement. No joke, only rationale seemed to be “Because innovative” when it wasn’t that either.

Blaming Brown for the poor press was part of the knee-jerk refusal to take responsibility for CalPERS’ mistakes and (gasp!) try to learn from them. Admittedly, Brown did unabashedly plant a few stories, such as on how board members were pre-signing blank expense forms. She gave that to use after her efforts to get the practice stopped went nowhere.

But the most embarrassing stories about CalPERS, such as Chief Financial Officer Charles Asubonten and Marcie Frost’s resume fabrications, the long-term-care insurance fiasco, its consistent peer-lagging returns, former Chief Investment Officer Ben Meng’s sacrificing $1 billion by canceling tail hedges right before their big payday, and then caught out for violating California conflict of interest rules, which led to his abrupt resignation, all came out through public information.

CalPERS seems unable to believe that outsiders can actually do research; they seem to believe that the press lives solely on planted stories. You can see that long-form in the partially-redacted transcript of the special board meeting held shortly after Meng’s exodus in EXPOSED: CalPERS’ Brainwashed Board in Denial that CIO Meng Caused His Own Downfall with Information He Himself Provided. Board members keep referring to leaks as if they drove our reporting. Earth to CalPERS’ board: you need to free yourselves from the staff reality-distortion machine. Everything we did came from your own documents. No Deep Throat, no insider wink and nod.

And that means, as much as the staff and board might be high-fiving each other that they’ve expelled a barbarian from their ranks, their life is not going to get any better. Brown had at most a marginal impact on CalPERS’ press. The bad stories were generated by CalPERS’ bad acts. It’s going to be interested to see how CalPERS behaves now that it has finally freed itself of dissident board members that served as convenient scapegoats. Expect increasingly convoluted efforts to avoid admitting that it has only itself to blame for being held in disrepute.

And those of you who followed CalPERS, please thank Brown for her valiant efforts. She took a lot of punching yet was not deterred.

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20 comments

  1. The Rev Kev

    It’s easy to go with the flow and to accept what is going on around you. It takes a special sort of person to make a stand against greed & corruption and to fight against it instead. For years now Margaret Brown has been doing her elected duty and trying to protect those that depend on CalPERS for an income, even when she has had little support from most members of the CalPERS Board, their staff, the media (looking at you, SacBee) and compromised leadership of some powerful unions. I only hope that she did not sign a non-disclosure form and will tell us and those in the honest media a lot of the background story on what she saw at CalPERS. And I am sure that sooner or later, she will be called upon to give her testimony on her time a CalPERS. MB, I salute you.

    Reply
  2. PlutoniumKun

    This is really disappointing. We need more Margaret Browns around, but expecially in rotten organisations like Calpers. Shame on the Unions for supporting the status quo. It really makes you wonder who is really benefiting from this.

    I have no skin in this particular game, but I hope that those Calpers beneficiaries who are following this will give her their thanks for what has no doubt been a bruising experience.

    Reply
  3. James E Keenan

    A non-Californian asks: Are there any constituencies in California that are making a ruckus about this CalPERS mismanagement?

    I first heard about this issue about four years ago when Yves was interviewed by Harry Shearer on Le Show. But I can’t recall reading anything about CalPERS mismanagement or opposition thereto in national news sources like the WaPo or NYT.

    So I’m left wondering: Is this a big issue in California?

    Reply
    1. ambrit

      I don’t live in California, so; however, I do suspect that “it” will become a big deal when, for reasons of “fiscal responsibility,” Calpers cuts pensions back. I do not expect the top paying California state pensions to be cut significantly. What’s $100 USD less a month when you’re taking in $2000 and better each month? I expect the lower level pensions to take the greater hit. Remove $100 USD a month from a $600 per month pension and hear the teeth grind and the garments rend.
      Experts correct me, but, barring the complete privatization of the Calpers system, that’s how I would expect to see a serious funds shortfall to be dealt with. Now, with a “privatized: system, one could always blame “the Market.”
      I can see some seriously “interesting” journalism arising out of looking into how those union leadership cadres made those decisions.

      Reply
    2. Jasbo

      It’s a big issue, but one to which many if not most people are not paying near enough attention. This group keeps trying to bring attention to it, but it’s still mostly not noticed by the “man on the street,” at least among my acquaintances.

      I’m a small business owner, and thus uninsulated from risk, particularly relative to highly-insulated public employee union members. I had one few-year windfall season where I experienced “being rich enough to pay most of the taxes, but not rich enough to own a politician,” and was absolutely stunned by the taxes I paid during that time. It was then that I looked into “Where does all this money go?” – and that is when I collided squarely into the issue of underfunded pensions.

      Most people have no idea how much government services are being devoured by over-promised government employee pensions. They have even less idea how much the issue is costing them directly.

      I’m a sixth-generation Californian and a lifelong small business owner. I’m not insulated, and have no retirement other than one I create myself; I have to pay attention to these things.

      I’m leaving California, for four reasons:

      1) Taxes (with public employee pensions driving increases; arguably, increased handouts are as well)

      2) Employment law (“10,000 ways to get hit with a stick” for creating jobs, with 3-10 new “punishment opportunities” added every year. This one is huge for me.)

      3) Public employee pensions (completely out of control, and this result will likely just add to that). Me: “Sorry, I’m not going to squander my retirement paying for yours.”

      4) Insane regulatory nonsense. (Two casual offhand examples: 1) LL Bean can’t send moccasins to CA because — oh no! — leather might touch your skin; 2) A trucker acquaintance, after having paid well north of $10k in compliance upgrades, was told he could no longer drive his paid-for truck on CA roads due to “not having a new enough engine” (needed to be 2010 or newer I think it was; this was maybe 2018?). Last we talked about it, he was looking into a program where the state would buy it, just to destroy it (a la “Cash for Clunkers”).)

      My view: at the root of items 1-3 is public employee unions controlling politics.

      Most people are simply not paying close enough attention to even notice.

      Reply
  4. HH

    It is puzzling that huge investment portfolios like CALPERS are managed by shoddy people. One plausible explanation is that predatory financial institutions work to position “friendly” candidates for these positions through indirect bribery. Even a thin slice of the fees from these public portfolios would provide sufficient inducements for leadership malfeasance. i suspect that a detailed study of the finances of the CALPERS board members would reveal significant conflicts of interest.

    As Boss Tweed said: “I don’t care who does the electing, so long as I get to do the nominating.”

    Reply
  5. Watt4Bob

    Number one rule of the PMC;

    Don’t cause a fuss.

    Rule #2, see rule #1

    All rules of the PMC are magnified for those having fiduciary responsibility, the ability to spend other people’s money with the stroke of a pen is one of the most basic, and sought after certifications of the credentialed class, and once attained, is never relinquished without a fight.

    Rule #3 All people causing fusses will be cancelled.

    Reply
    1. jr

      Hammer to nail. If there is one thing I’ve learned about PMC’s is that getting angry, raising a fuss, causing a commotion, etc. are all prohibited. It’s always a search for “solutions” and “collaboration”.

      Reply
  6. Jennifer

    Just ask yourselves who put Marcie Frost into her position?
    She committed perjury on her application yet she was hired with the boards full knowledge.
    She fires a cio for embellished application.
    She receives huge pay bonuses like clockwork for not meeting targets. Thank you Board.
    She holds information from the board under the guise of the process is to tell the president and Vice President information even the entire board are the fiduciaries
    The entire board think that if they don’t know they’re protected from lawsuits.
    Worst of all David Miller Has publicly stated he doesn’t want to know about wrongdoings going on.
    The board changed from Roberts rules to keep the public from full participation, cut back public meetings and increased confidential meetings.
    Implementing the serial meeting tool insight for the board to use online. (Someone might request a PRA for these)
    The Bagley Keene act is actively being repealed by CalPERS to no longer be required to report out on all the so called confidential meetings
    Well beneficiaries if you don’t stand to protect your retirement you will not have a retirement fund.
    Ask yourselves just who put Ms Frost there and why?

    Reply
    1. antidlc

      “Well beneficiaries if you don’t stand to protect your retirement you will not have a retirement fund.”

      Do the beneficiaries even know that their retirement is at risk?

      Reply
  7. Trustee

    Margaret Brown did some good things.

    She opposed the huge increase in the long-term-care premiums.. She, and she alone, voted against eliminating “health characteristics” in calculating risk adjustments for health care premiums. She alone voted against having low cost HMOs with strong cost containment practices hit with surcharges to subsidize high cost HMOs. It is presumably just a coincidence that Blue Shield and Blue Cross were the main beneficiaries. They both just happen to be very large campaign donators.

    She actually thought she was working for the beneficiaries. She did not understand, as the rest of the
    Board knew and argued in court, that CalPERS was not a state agency bound by transparency laws.

    I hope that a much larger group of the beneficiaries start to take an active interest in their money.

    A reminder to the Board “We all know what to do, but we don’t know how to get re-elected once we have done it.” – Jean-Claude Juncker.

    Reply
  8. David in Santa Cruz

    CalPERS management will be very surprised when their tribulations fail to subside. Anyone can obtain their agendas, budget proposals, and CAFR’s online.

    In the wake of the Janus decision, unions are guarding their political money quite closely. The amount spent on this backwater pension board election does not tally with what these unions could or should have spent. It clearly came from other sources, with the unions providing Astroturf cover.

    This striking imbalance will not go unnoticed — if anything, attention has been drawn in the State Legislature to vast sums being spent which make assembly and senate campaigns appear to be mere drops in the bucket. Billions are being skimmed-off of the California Public Employees Retirement Funds.

    As always: follow the money.

    Reply
  9. Margaret Brown

    It’s been my honor to serve beneficiaries for the last four years.

    When my term ends in January, my work does not stop. I’ll serve in a different role where my comments and concerns will be voiced openly and loudly.

    And YES, I have been holding back.

    The NEW YEAR will bring many surprises so hold on to your portfolio.

    Reply
    1. Kim Kaufman

      Thank you Margaret, for your work and integrity in the face of all kinds of adversity. It is a sad but not at all surprising outcome. I will certainly look forward to the New Year surprises. And thanks to Yves for staying with this issue and giving it the attention it deserves.

      Reply
    2. ALM

      I deeply appreciate your efforts to demand accountability, integrity, and transparency from lazy, captured Board cronies and their godawful management whose incompetence is matched only by the regular corruption scandals in which they have either a starring or supporting role.

      Reply
  10. vlade

    This is not just sad, it’s bad.

    It’s sad to see a hard-working and and fiducary-duties-taking-seriously director out.

    It’s bad that Union members have no clue – because, when the CP fails (and on this trajectory it’s a case of when, not if), it will not only hurt them – it will hurt the cause of unions across the US.

    Short-termism seems to be winning everywhere.

    Reply

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