ASSET OWNERS

Suppression of dissent shouldn’t be a core value

CalPERS' reprimand of a board member for publicly criticizing the hiring of Theodore “Ted” Eliopoulos as its chief investment officer is unacceptable.

The California Public Employees' Retirement System is, after all, a public institution. As a result, it needs to act in a transparent manner.

In elevating Mr. Eliopoulos, it was not as forthcoming as it should have been in describing the board's decision.

It was a unanimous vote for sure as CalPERS described the tally. But not all CalPERS board members were in agreement on the appointment.

One of them, J.J. Jelincic, challenged the board's decision and Mr. Eliopoulos' capability, as reported by Pension & Investments in a Sept. 29 story. Mr. Jelincic, on paid leave from his position as a CalPERS investment officer while he serves on the board, is prohibited from voting on issues that might raise a potential conflict of interest.

For his comments, Mr. Jelincic was censured by the board. Rob Feckner, board president, read a statement at CalPERS' Oct. 15 meeting, calling the comments a violation of the board's policy of “civility and courtesy, as well as a breach of the CalPERS core values.”

But what is uncivil about speaking out? As fiduciaries, the board is supposed to work in the interest of participants, who deserved a full hearing of issues. Taxpayers, who help finance the pension benefits, deserve to know how the board is working in their best interest to meet the objective of paying pension promises. In the long term, public pension funds depend on participant and public support. CalPERS must do more to bolster that support.

The chief investment officer is one of the top leadership positions at CalPERS. The board should have ensured the decision-making surrounding selection for such a post was open, especially with CalPERS emerging from a cloud of corruption and the resulting challenges to its credibility.

Federico Buenrostro pleaded guilty July 11 to accepting bribes to steer the pension fund to invest in particular private equity investments while he was CalPERS' CEO.

The Jelincic censure can leave participants and the public wondering to what extent the CalPERS board encourages discussion. The board should encourage other viewpoints. In fact, CalPERS in its effort to improve corporate governance encourages selection of independent board members who will not rubber-stamp management decisions. But with CalPERS' reprimand of Mr. Jelincic, that objective is meaningless. The reprimand also does a disservice to Mr. Eliopoulos. Mr. Jelincic's public dissent cast a shadow on the appointment. CalPERS should have encouraged discussion to clear it up.

CalPERS must assure participants and the public it has vetted its staff, especially its leadership, to mitigate chances of recurring corruption. In fact, concern about identifying fraud and misconduct led CalPERS to create a whistleblower hotline in 2010.

But so much for “whistleblowers” like Mr. Jelincic, who went public with his concerns. The board's reaction will deter others from stepping forward.

The board supposedly has a policy calling for it to be “open and accountable to stakeholders,” but instead seems to have a policy of suppressing dissenting viewpoints. Clearly, the policy needs revision to ensure the board is giving proper consideration and airing of all opinions. n

This article originally appeared in the October 27, 2014 print issue as, "Suppression of dissent shouldn't be a core value".