Thanks to an audience member making a video of a CalPERS board meeting in January that would otherwise have gone undocumented, we were able to publicize that the giant public pension fund was launching a full bore attack against JJ Jelincic, the only board member who does his duty by asking questions of staff. That appears to be a hanging crime in Sacramento.
This plan was so clearly dubious that not only did former general counsel, now law professor Bill Black savage the conduct of CalPERS’ board and its general counsel, Matt Jacobs, but reporter Mike Hiltzik of the Los Angeles Times also criticized CalPERS, in an article titled, One CalPERS board member asks tough questions about its investments. Why are his colleagues trying to muzzle him?
The only potential check on this kangaroo court was that Jelincic asked for and was promised a public process.
Apparently CalPERS is determined to censure Jelincic yet recognizes that its charges and procedures won’t stand up to scrutiny. The result is that CalPERS reneged on its promise to Jelincic and the public and insisted on a secret process. CalPERS even tried to gag Jelincic by cheekily asserting that an early April meeting was attorney-client privileged even though Jelincic had his own counsel and his interest was clearly adverse.
Keep in mind that CalPERS has been trying to find a way to neutralize Jelincic for a very long time. As we wrote in 2015:
This section of the Governance Committee meeting clearly shows that the board, aided and abetted by [fiduciary counsel Robert] Klausner, is in the process of establishing a procedure for implementing trumped-up sanctions against Jelincic, presumably so as to facilitate an opponent unseating him in his next election. But Jelincic’s term isn’t up until 2018, so from their perspective they are stuck with an apostate in their ranks for an uncomfortably long amount of time. Part of their strategy appears to harass him into compliance with the posture the rest of the board, that of ceding authority to staff and conducting board meetings that are largely ceremonial.
Now for a recap of the latest chapter of this sorry saga. In January, board member Bill Slaton made an astonishing attack on Jelincic at an offsite, demanding that the board strip Jelinicic of substantive authority unless he resigned. Not only does the board lack the power to do that, but on top of that, Slaton failed offer a single specific example of misconduct. Yet showing that CalPERS lives in an Alice in Wonderland, “Sentence first, verdict later” realm, general counsel Matt Jacobs swung into support behind Slaton.
This plan would have started and might have proceeded entirely in secret, save for the fact that that Jelincic not insisted that the annual board peer review be held in an open session. CalPERS scheduled the meeting to discuss stripping Jelincic of power at an offsite in Monterey, away from its Sacramento board room. Jelincic had no warning that it would include a proposal to push him off the board.
Moreover, CalPERS neither recorded a video, as it does for all open sessions in Sacramento and for most of the sessions its offsites, nor did it make a transcript for this illegitimate procedure. But we have a bootleg video, and we’ve uploaded the key section to YouTube. We have embedded the transcript at the end of this post. We’ll discuss the details shortly.
This campaign against Jelincic is proof of diseased governance. And that is no surprise since the foxes are in charge of the henhouse. CalPERS’ staff is not accountable to anyone save its board, and once in a great while, the court of public opinion. And as we have documented over the past three years, the only board member who stands up to staff is Jelinicic. The other members of the board, rather than admitting to themselves that Jelincic is doing what they all ought to be doing, instead see him as a threat and are determined to beat him down.
As CJ Latsa, a board member at Ohio’s state pension fund, Ohio PERS, wrote:
This is potentially a very serious situation. It is my hope that any trustee would be considered innocent until proven guilty and an investigation would include adequate checks and balances. Without a fair and impartial review, a board could in effect act as judge, jury, and executioner. Considering the worst case scenario, it would be a travesty if a board mistakenly unelected the people’s choice without due cause.
And from Bill Black:
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.
Mind you, despite the promise of a public process, a further discussion was never put on a CalPERS board agenda. As indicated above, the next play was for CalPERS to call for an private discussion in early April, a move that I am perplexed that Jelincic and his counsel agreed to.
And CalPERS continues to resist any pretense of being transparent, despite its earlier promise to Jelincic. See the exchange below starting at 43:45 (you can also view it here):
Michael Flaherman, Visiting Scholar, UC Berkeley: I’m Michael Flaherman. I’m a retiree of CalPERS. I’m also a visiting scholar at UC Berkeley.
The reason I wanted to address you this morning is that I see that you’re about to have a briefing on cybersecurity, and I want to call your attention to a an alert that was put out by a major law firm Kirkland and Ellis, which advises probably a third of the private equity managers you do business with. And I’m just going read just a couple of sentences. The title of this portion is called “Drawdown Scam”.
“Kirkland has recently been made aware of cyber criminals targeting private equity sponsors and their drawdown practices. That’s calling capital from you. In these attacks, the prevalence of which is unclear, cyber criminals have hacked into sponsors systems…” sponsors meaning private equity firms “…and obtained drawdown notices and LP information. The criminals then used fake drawdown requests with changed bank account details in an attempt to steel funds from LPs.”
There are two reasons I bring this up. First, you’re having this cybersecurity briefing. But the second reason I bring it up is because I called Mr. Jelincic’s attention to this about a month ago, when I first became aware of it. And I’m concerned that if he chooses to raise the issue in closed session, this could become another of these very strange situations, where he’s accused of leaking something that was actually told to him, but it appears to you that he’s telling it to others.
That’s a great concern. I’m also here, I guess, to raise the larger issue that I’m quite perplexed about the status of his censure. It’s been, I think, more than three months since he was promised a public process. And I think we’ve all been waiting to see the charges, to see a public process, and nothing has happened.
Could…could some kind of statement from the Board president be made about the status of what’s going on with that?
Board President Robert Feckner: There will be one, when I’m prepared to do so…
Flaherman: So you’re not prepared to make a statement.
Feckner: I am not.
Flaherman: So we have a situation of secret charges, and a secret trial, and…
Feckner: No, I said when I’m prepared to…
Flaherman: Well, that’s very unfortunate. Thank you very much.
Feckner: Yes, sir. Thank you for your comments.
It is important to understand the significance of Flaherman feeling compelled to notify the CalPERS board that he had provided Jelincic with information, even public information like the Kirkland & Ellis client alert.
From the statements that CalPERS has made to the media and Jelincic, it is apparent that they have a bizarre view of confidentiality. While it is true that the contents of the non-public portions of CalPERS board meetings are confidential, it is also a well-settled legal principle that information that is public cannot be made private simply by trying to assert that it is confidential. Thus, for instance, the board regularly reviews the status of litigation in which CalPERS is involved. However, for cases already filed, those discussions are almost certain to include material that is in court documents. For a board member to discuss something that is already a matter of public record would not be a violation of confidentiality, yet members of CalPERS’ board seem to believe otherwise.
And of course, you can see Feckner stonewalling Flaherman, which is hardly a demonstration of good faith or fair dealing with Jelincic and the public at large.
The board’s deeply misguided sense of priorities strongly suggests that rather than find a way to beat a quiet retreat, they will instead persist in trying to find a way to smear Jelincic, no matter what the cost to their and CalPERS’ reputation.
This entire procedure is shameful. The board owes Jelincic an apology. But even if some board members now recognize that they will do themselves more harm if they allow this bogus procedure to continue, too many board members seem obsessed with punishing Jelincic rather than doing a better job of overseeing staff. And bear in mind, they can’t hide behind the excuse that this train wreck is Slaton’s and Feckner’s doing. Feckner is proceeding with the delegated authority of the board. He is their operative and they all bear responsibility for the outcome.