SACRAMENTO, Calif. - During a California state legislative hearing on alleged political influence peddling, officials for California's two largest state retirement systems announced board members for the funds will reconsider their voting procedures this fall.
State Sen. Adam B. Schiff, chairman of the Senate Committee on Public Employment and Retirement, called the hearing in response to a complaint to the Securities and Exchange Commission by Thomas E. Flanigan. Mr. Flanigan charged some California State Teachers' Retirement System board members might be using their position to encourage thousands of dollars of campaign contributions from firms vying to do business with the board.
Mr. Flanigan lodged his complaint in June after his contract as chief investment officer for the $80 billion retirement system wasn't renewed.
Mr. Schiff widened the scope of the state hearing to include the $124 billion California Public Employees' Retirement System.
A key concern, said Mr. Schiff, is that political contributions are made to some board members at both retirement systems, but that no public record exists of roll-call votes on alternative investments approved in closed session. He said state legislators receive political contributions, but all of their votes are public.
Several speakers said the only CalPERS board members to get substantial political contributions are State Treasurer Matthew Fong and State Controller Kathleen Connell. Together they have received an estimated $400,000 in contributions since taking office in January 1995; both are expected to seek higher state office.
Neither testified at the hearing.
But Mr. Schiff said he also was concerned about trips to international meetings, hotel bills and dinners provided by money managers to board members.
In response to Mr. Schiff's comments, several key CalPERS and CalSTRS officials said they have large boards with very open investment processes that include many checks and balances.
Under questioning from Mr. Schiff, James Burton, CalPERS' chief executive officer, said it was not a practice of board members to announce when they had received political contributions in connection with an investment they were deciding.
Mr. Burton said political contributions to board members didn't "trigger" board member decisions to excuse themselves from voting.
Mr. Schiff asked if it was common for CalPERS officials to go against the advice of their staff and consultants.
Sheryl Pressler, CalPERS' chief investment officer, and Mr. Burton said board members did not always follow the recommendations of the fund's staff and consultants. "This is no rubber-stamp board," said Ms. Pressler.
Mr. Burton said board members had shown themselves to have information about investments that CalPERS staff and consultants didn't have. He said they often proved astute in making investment decisions.
Both Mr. Burton and James Mosman, the chief executive officer for CalSTRS, testified their boards later this year plan to take up the issues of formally requiring members to announce when they have received contributions concerning matters they are deciding and providing roll-call votes on closed-door session items.
However, neither official promised their investment boards would change voting practices.
Mr. Schiff didn't schedule another hearing, but he indicated he might introduce legislation to change the funds' closed-door voting processes unless they either open the meetings or provide roll-call votes.
The only CalSTRS board member to testify, Emma Zink, said revealing board votes made in closed sessions "should not cause any problems."
Mr. Mosman said CalSTRS has "numerous checks and balances" in making its investment decisions, and has external and internal advisers. He said Mr. Flanigan's letter to the SEC did "not represent an official statement of the system." He added he was unaware of the letter until he read news reports about it.
Also at the hearing, Ian Lanoff, fiduciary counsel for the teachers' system, said some CalSTRS board members might have been voting illegally on CalSTRS matters affecting contributors to their respective political campaigns.
Mr. Mosman responded that Mr. Lanoff had never made that statement explicit at board meetings.
Mr. Lanoff said under CalSTRS' codes, he believed it was illegal for board members to accept contributions from investment or other firms and then participate in discussions and vote on decisions affecting the firms or people making the contributions.
But Mr. Mosman said Mr. Lanoff's view has "never been quite that explicit" before.
