By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives
CalPERS was once the crown jewel of institutional investors, known for combining competence, integrity, and care. It invests funds and pays the pensions of California State workers. Over a decade ago, however, CalPERS’ senior managers and board became a cesspool that stood for the opposite. CalPERS’ corrupt culture is deeply rooted. Various California Treasurers have tried to clean up the mess, but the reforms have failed because few senior officers and board members have been willing to take on the rot with the forcefulness required.
I worked closely with board members in my role as the general counsel of Federal Home Loan Bank of San Francisco. It takes enormous courage to confront senior corporate officers or fellow-directors when they are maintaining a solid front. We had a good board, officers, and institution. In an institution with a deeply rooted, sick culture like CalPERS, everything works against forceful directors trying to cure the rot. They have to confront a phalanx of directors and officers who are genuinely horrified that someone would disturb the highly prized decorum of the boardroom. The officials maintaining that the sick culture is not sick become enraged at anyone that blows the whistle on their unwillingness to act aggressively to cure the sick culture.
CalPERS has had the great fortune of having a board member willing to take on its board and officers to insist on rooting out its culture of corruption. In doing so, JJ Jelincic discovered the great truth – no good deed goes unpunished. His fellow board members, with the clear connivance of the senior officers, are ginning up an effort to destroy his ability to continue to try to root out the rot at CalPERS. Neither Jelincic, who has among the greatest expertise of any board member in finance, nor the directors as a whole, knows what Jelincic is supposed to have done wrong.
Here is the kangaroo nature of the proceedings at CalPERS, revealed in an excerpt from the transcript of a public board meeting. It is typical of a broken organization. Bill Slaton is a CalPERS board member.
Bill Slaton: Mr. Jelincic, I’m going to address you in this – that as I’ve observed, you’ve taken unilateral actions that to me are clear violations of fiduciary duty, and by implication placed our fiduciary duty as a board at risk, and the common theme is the disrespect for the governing rules of the organization.
To be more specific, I’m talking about the disregard for confidentiality of materials or decisions reviewed or made by this board…. [T]here are in my view only two possible solutions to protect the fund from the risk of continued fiduciary violations. The first would be for Mr. Jelincic to voluntarily resign his board position.
If he chooses to remain on the board, I ask the board president to place on the board agenda as soon as possible an action item regarding a sanction or sanctions to be imposed by this board, and one sanction I ask to be considered would prohibit Mr. Jelincic from attending any closed sessions conducted by any committee or the full board while he remains a member of this board due to his repeated unauthorized disclosure of confidential material.
At this point in the transcript, we have Slaton attacking Jelincic in a manner one virtually never witnesses in a boardroom. What we do not know is what “confidential” information Jelincic supposedly “disregarded.” Jelincic’s reputation is for pushing boards to act aggressively to fulfill their fiduciary duties, so it is bizarre for Slaton to be seeking to muzzle Jelincic’s efforts to improve the board’s performance of its fiduciary duties on the grounds that (in some unstated fashion) doing so will improve the board’s fiduciary performance.
Jelincic, as one would expect, asked what specific “confidentiality” he was “disregarding” so that he could respond to Slaton’s attacks. Slaton provided no specific charges, making it impossible for Jelincic to respond with any specific denials.
The transcript reveals other important facts. First, while Slaton provided zero evidence of any wrongdoing by Jelincic, he demanded that that the board act “as soon as possible” to consider Slaton’s demand that the removal of Jelincic from the board. (A director that cannot take part in the closed board meetings cannot function as a director.) Without any showing by Slaton of anything remotely approaching an emergency, the board appears to be expediting its effort to muzzle Jelincic.
As a general counsel, I would have responded immediately to Slaton at the board meeting. First, I would have emphasized that Slaton had presented nothing to warrant the board considering such a drastic sanction against another director. Second, I would have stressed that Jelincic’s request that Slaton notify Jelincic’s of the specific charges was an absolute necessity before the board should even consider holding a meeting to sanction a director. Third, I would have called attention to Slaton’s refusal to provide any facts supporting his conclusory claims of misconduct when Jelincic requested that he do so. The fourth point I would have made is described below.
We know is that CalPERS’ general counsel responded in a very different manner – a manner that reveals the terrible culture at CalPERS that Jelincic has labored to fix. The transcript reveals that the Rob Feckner, President of CalPERS board and his general counsel are reinforcing rather than fixing CalPERS’ failed culture.
Matt Jacobs, the General Counsel did speak up, but solely to implicitly support throwing Jelincic under the bus. His statement ignored the three points I would have made, and then merely read the board of directors’ sanctioning powers. Jacobs failed to note that the board did not have the power under the powers he had just read, to impose Slaton’s proposed sanction. That is the fourth point I would have made to the board.
The transcript then records Feckner’s response to his General Counsel’s legalese. He too failed to point out that the board had no power to impose Slaton’s proposed sanction. He told the board that “Matt and I have had many discussions about” Slaton’s desire to sanction Jelincic. Jelincic knew about Slaton’s desire as well and in conversation with Feckner requested that the board meeting where Slaton was going to request that the board hold a “trial” and sanction Jelincic be public and on the record.
Feckner’s revelation proves that Slaton had zero excuse for not providing Jelincic with the specific charges so that he could respond and refute any pretext for the board holding a “trial.” Slaton’s attack on Jelincic was planned, not impromptu. It was a serious charge that Slaton knew could do grave damage to Jelincic and CalPERS’ reputations. If Slaton had not done his homework and determined the specific charges he intended to make against Jelincic, all Slaton had to do was wait until he had done so, put Jelincic on written notice of the specific charges so that he could respond, and then the board could decide whether to consider the charges and the defense.
The transcript indicates that Slaton claimed to have done his homework. He asserted that he had his specific charges developed – but refused to give Jelincic notice of those specific charges so that he could mount an effective defense. Slaton then compounded the unfairness by requesting an expedited “trial” of his specific charges by the board. That combination of actions indicates that Slaton had two purposes in making his unsubstantiated, conclusory charges at the board of directors meeting. First, it denies Jelincic the time and ability to prepare an effective defense of Slaton’s specific charges while allowing Slaton to plan and prepare his attack. Second, it allowed Slaton to smear Jelincic and prejudice the board (the “judges” in the future “trial”) against Jelincic by allowing Slaton to make a facially slanderous attack on Jelinic that I quoted from in a manner that made it impossible for Jelincic to respond because there were zero specifics.
Feckner’s revelation also means that Feckner and Jacobs have zero excuse for not insisting that Slaton provide Jelincic and them with the specific charges before Slaton made the facially slanderous charges at the board meeting that I quoted. It is a breach of their and Slaton’s fiduciary duties to CalPERS to knowingly allow one board member to accuse another board member of committing a crime under California law without having vetted the claim to demonstrate that it was well-founded. Jacobs’ actions go against every normal reflex of a corporate general counsel.
The general counsel is supposed to play a leadership role in rehabilitating a corporate culture like CalPERS that has lost its integrity. Jacobs has failed this test.
This excerpt from another board member’s comments is symptomatic of CalPERS’ sick culture.
Priya Mathur: That is our job – to protect this organization and to protect our members by protecting this organization, so those are my comments.
No, your “job” is not “protecting this organization” from those trying to fix what every independent expert agrees became a corrupt culture. Your job is not protecting officers and board members from criticism by Jelincic when they fail to work aggressively to fix that toxic culture. CalPERS’ culture became toxic over a decade ago precisely because there was no one like Jelincic on the board who was willing to criticize and willing to ask the officers the demanding questions that a real fiduciary asks when serving on a board. The long practice of CalPERS board members “protecting this organization” has been causing devastating harm to CalPERS’ members for over a decade. To fix CalPERS, California should appoint more people like Jelincic.
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They don’t get how see-through this all is, do they? They really think they can steamroll everybody. They think they can go on record proving they don’t understand their obligations and no one will hold them accountable for it…can’t wait for the class-action against the entirety of the board and staff (sans Jelincic).
Whoa. Pretty disgusting. I’ve worked in some toxic work environments, where things like this happened – unsubstantiated claims/attacks, generalized attacks against someone where the substance of the attack is never revealed, etc. It’s very difficult to work under such conditions, but I’ve witnessed first hand how hard it is for someone who is honestly trying to work with people to clean house often has the tables turned and becomes the one who is accused of wrong-doing.
I’m glad that notice is taken and given about this situation, as I wish Jelincic well in his endeavors. This is very sobering news. Thanks for the post.
CalPERS really needs to clean house and clean up its act. They are “playing” with CA citizens’ money, and it’s been proven over and over that they’re doing a really poor job at this time.
Professor Black fails to mention that the former CEO of CalPERS, who most of the current top staff worked with, has been in FEDERAL PRISON since last May for misconduct at CalPERS.
While General Counsel Jacobs was brought in from outside after the indictment of the CEO and a former board member, it is clear that his job is to lead the cover-up and to make sure that no other staffers or board members join the former CEO in prison.
Board members engaging in a cover-up are the ones in violation of their fiduciary obligations. As a current beneficiary of CalPERS, if I had two quarters to rub together I’d sue Slaton, Feckner, and Mathur personally for violating their fiduciary duty to me as a beneficiary by placing protection of the “organization” over their duty to protect members and beneficiaries by transparently ferreting-out the damage done to our investments by this self-admitted and jailed CROOK. Instead, they chose to violate the First Amendment rights of a legitimately-elected board member who also happens to be an expert in finance.
Hey, this is how it works in the real world, just ask Richard Bowen of Citigroup. Or how about Neil Barofsky’s story about when one of little Timmy’s senior aides at the Treasury department told him not to do his job too well because it would enhance his job prospects in the private sector once he was one with government service. Hopefully a watchdog website like NC can help to make a difference in this case, but unfortunately this episode exemplifies how things really works in the country.
The (apparently deliberate) perversion of the term “fiduciary duty” is truly disgusting.
Thank you Bill Black for spelling out the wrongdoings of the CalPERS board against Jelincic with such clarity.
It would be great to know more about specifically how the board’s rules do not give them the authority to impose the sanctions against Jelincic they propose to consider. (Which I assume would compound to their legal wrongdoings if they are foolish enough to try to proceed. . . )
Given the excoriating of CalPers here at NC – taking direct aim at private equity, my read is that Jelincic’s great crime is his reading of NC and possibly asking questions in public meetings regarding PE deals and contracts. Basically, the board is trying to keep the public from knowing how much the GPs made while the LPs (that is, CalPers) made little if anything. This hypothesis, if true, suggests that either those numbers are truly hideous, or there is a conflict of interest on the board. I hope the CA AG’s office takes note. I smell a pony.
http://realdeals.eu.com/news/2015/09/07/calpers-board-member-criticises-private-equity-propaganda/
Another fun fact:
Although that does exclude the University of California, which has equally questionable practices.
As a person with no experience in these matters I am horrified to see how ingrained this corruption is in so many financial institutions. I am in the process of rereading Jeffery Clements’ book from 2011 “Corporations are not People” and wonder how most Americans can consider they live in any sort of democratic country where the citizens have any power at all to influence those already in charge.
I had to chuckle at this phrasing:
CalPERS’ corrupt culture is deeply rooted.
In New Zealand and Australia, “rooted” is a synonym for “f—ed”. It still parses quite well even with the unintentional(?) double meaning.
Wasnt Priya Mathur herself facing some ethics violations or something?
Not facing, she’s no longer chairing any board committees as a result of earlier sanctions.
CalPERS board strips Priya Mathur of posts after ethics law violations
Ethics panel wants stiffer penalty for CalPERS’ Priya Mathur
From the second story:
Actually Mathur is currently Chair of Pension & Health Benefits Committee and Vice-Chair of Performance, Compensation & Talent Management Committee, Her removal only lasted six months.
New Chair and Vice-Chair elections will begin this month.
“Who is the client of the government attorney”, I believe this question also applies to CalPers.
I would ask can you clarify, link to or in any way help me to understand a very slippery question. “Who is the client of the government attorney”? I ask this question concerning an elected group like County Council, an appointed public board and a single elected official like a Supervisor of Elections. Also what obligation does the attorney have to other elected officials and members in the above situations?
Mayors assign attorneys to elected city councils and other elected officials send (assign_) attorneys to work with elected officials, an example being the supervisor of elections, school board, and to public boards. As a long time observer the attorneys act as their client is the person who sent or assigned them.
I have seen information on the public not being the client. I also have seen information on the question of confidentiality for the attorney in certain situations. I know there are statutes and ordinances about meeting not open to the public when concerning law suits but otherwise I believe the public should be able to hear or know the instructions of the client when charging the attorney about what actions to take. Is this correct?
I have not seen the question raised about an attorney who is assigned by a client to a county or city council or to another elected official who cannot have a client relationship with the attorney who is advising the official.
I have seen elected officials try without successes to have their own attorney but never hear the argument raised about the problem being the client relationship to another.
Can you point to any information about the legality of this and other questions or answers about this type of client relationship or lack their of?
I’ve seen major conflicts of interest arise in relation to election officials or boards of election, in which the state attorney (who represents state staff and officials) charged with wrong-doing, is somehow also in a position of making legal decisions to citizens who are trying to take a case against election officials. For some reason judges don’t take action to avoid conflicts of interest (in themselves or in other parties) in such cases. Ken Blackwell (OH 2004 Presidential Election) is a famous example but there are many others.
To add oil to the fire, whistleblowers in FBI & CIA have observed patterns of candidates for the judiciary and other high office having their names recommended based on how compromised they were. (The candidates with the blackest record were consistently recommended most highly.)
There are judges / officials who do their job with integrity, but it is not always the case.
A book published in Ireland 18 months ago lays out facts concerning the finances of Irish high court judges. (“Waiting for the Sheriff”) They apparently all have massive loans that cannot ever be paid (in the tens of millions and more). For some “strange” reason the banks have never called in those loans. In Ireland, one may not serve as a high court judge if they have been bankrupt. Thus the banks “own” the judges. No wonder the banks get off easy all the time, regardless of the evidence against them.
Thanks for the input. I can believe the whistleblowers. In the distant past when everything I turned over was concerning in a big way I looked at the FBI’s public corruption web site. It stated they do not overturn the people’s choices or language to that affect. The 60 day before the election was thing with Clinton was not there but it supports the facts that it seems most elected officials get a pass regardless of what they do even to extent of subversion of government (Democracy). I cannot remember if it was there on the site or where I learned that the FBI locally could not open an investigation on a politician unless they checked with higher ups. The only exception was dealing drugs. I personally think the only time a politician is indicted or prosecuted is when they piss of someone with more power.
As for attorneys they can only have only one client at a time and they must have a client relationship to act. I used to think this was like a safety on a loaded gun with the attorney being the gun. I have always believed but never heard a client who is an elected official should give instructions to the attorney in an announced public meeting or setting.
I have seen attorneys in government settings parrot anything to make what their client wants to happen by not acknowledging law and procedures. There can be a lot more said about this. It reflects the loss of We the Citizens Rights to seek Redress stated by the Constitution which can only be had by laws, regulations and parliamentary procedures being acknowledged and followed.
. “Who is the client of the government attorney”?
The People are the “client” of government. In CalPERS the clients are the recipients of the pensions. They are the ones owed a “fiduciary duty” by the Board. And any action taken that can impair the money to be paid to the CalPERS clients would be a violation of the Boards “fiduciary duty”.
As a recipient I’m pissed. I’m probably old enough that when Calpers goes under I will have received my reward, but those yet to retire will suffer
Besides the dispute over PE, are there other disputes ?
Let’s face it, CALPERs is underfunded and is letting financial ignoramuses in Sacramento bankrupt the system.