SACRAMENTO, Calif. -- An internal board fight over hiring a political risk consultant now has CalPERS Investment Committee Chairman Charles Valdes hanging onto his post by his fingernails.
The battle -- which seemed likely to explode at a CalPERS Investment Committee meeting Nov. 15 in San Diego -- might spark the California Legislature to rein in the $156 billion California Public Employees' Retirement System.
At issue is an attack leveled by Mr. Valdes against State Treasurer Philip Angelides, a fellow board member.
At an Oct. 18 investment committee meeting, Mr. Valdes lambasted Mr. Angelides -- who was absent -- for blocking CalPERS staff from hiring Marvin Zonis, a Chicago-based consultant and academic. Previously, Mr. Angelides had argued Mr. Zonis had made "extremely offensive remarks" that trivialized the Armenian genocide by the Turks from 1915 to 1923.
In supporting Mr. Zonis, Mr. Valdes said Mr. Angelides, a Greek-American, was motivated by "ethnic hatreds" against the Turks and referred to Mr. Angelides as the "Greek treasurer."
Those comments, and protests that the investment committee discussed the issue without giving advance notice, have led 24 members of the Legislature, including Speaker of the Assembly Antonio Villaraigosa, to call for Mr. Valdes' resignation.
Mr. Valdes has sent a written apology to Mr. Angelides, but legislators still want Mr. Valdes to step down.
Dean of the Assembly Louis J. Papan "does not think the apology is adequate," said Ed Randolph, Mr. Papan's chief of staff.
This is not the first scrape the outspoken and sometimes brusque Mr. Valdes has faced, but it might be tougher for him to escape than previous episodes. If nothing else, a motion to censure him is likely to be made.
Mr. Valdes and other senior CalPERS officials did not return phone calls.
In June, Mr. Angelides objected to hiring Mr. Zonis because of a cursory reference the consultant had made about the genocide of more than 1.5 million Armenians between 1915 and 1923.
In a political analysis of a newsletter article following the capture of Kurdish rebel leader Abdullah Ocalan, Mr. Zonis, who is a principal in Marvin Zonis + Associates and a professor at the University of Chicago's Graduate School of Business, wrote about the Turkish persecution of Greeks and Armenians living in eastern Turkey: "The very large Greek minority fled to Greece. The Armenian minority was dealt with in a different way."
At the June meeting, Mr. Angelides said: "I suggest to you that we would never, never think of hiring someone who put in writing that in the 1940s the Jews were dealt with in a different way."
Mr. Angelides proposed barring hiring Mr. Zonis until he explained his "extremely offensive remarks." The motion was approved with one dissenting vote.
In a July 1 letter to Mary Cottrill, a senior principal investment officer at the California fund, Mr. Zonis wrote he was "appalled" that his sentence "was apparently misunderstood. It was a reference to the Turk genocide of the Armenians."
Mr. Zonis also enclosed a New York Times book review article he had written criticizing the genocide and added: "I have always been a severe critic of the refusal of the Turks to face up to their own history."
In an interview, Mr. Zonis said he never intended to offend the Greek or Armenian communities, and has been a lifelong supporter of human rights, civil liberties and the rights of oppressed countries. He also has personal ties to the Greek and Armenian communities, he said.
Seeds planted earlier
The seeds of the issue were planted in an April 21 CalPERS workshop on international investments.
At that meeting, Mr. Angelides said he was "deeply troubled" that the fund was investing in Turkey "because of its tremendous political instability, tremendous military instability and resulting economic instability."
He raised numerous questions as to how CalPERS evaluates investments in emerging markets, noting he had particular expertise in Turkey because of his Greek heritage.
By the June investment committee meeting, Mr. Angelides proposed barring Mr. Zonis from the ranks of CalPERS' consultants.
He also proposed CalPERS develop a new methodology for evaluating emerging markets that takes into account social responsibility, on the grounds that a politically unstable regime could affect the economic value of the investments.
By the Oct. 18 investment committee meeting, the Zonis issue was coming to a boil.
Ann Stausboll, Mr. Angelides' general counsel, tried to ensure the ban on using Mr. Zonis' services remained intact.
At that point, Mr. Valdes said the ban was "probably the flimsiest of excuses from barring someone, from, frankly, blacklisting a professor of the University of Chicago, a Jewish professor, who is the son of Holocaust parents." (Mr. Zonis' parents actually emigrated from Eastern Europe before World War II.) Mr. Valdes said the issue should be addressed immediately.
The committee voted 6-4 to give the staff complete freedom in organizing the Dec. 13 workshop, including the option of hiring Mr. Zonis.
At that point, Yeoryios Apallas, California Gov. Gray Davis' legal affairs secretary and not a CalPERS board member, said, among other things, that Mr. Zonis' comments had been "extraordinary" and insensitive.
Mr. Valdes then let loose. "What we have here is a Greek treasurer who doesn't like Turkey, the country, who doesn't like Turks, who is trying to . . . drive our policy according to those ethnic hatreds," he said. "This system is not going to be subverted by that kind of ethnic rivalry, and I just want you to take that to the rest of the Greek community."
Threat to sue
Reprisals came swiftly. Legislators, public employee unions and newspapers took offense at Mr. Valdes' comments on Mr. Angelides' ethnicity. While 24 legislators called for Mr. Valdes to resign, they have no power to force his resignation.
The CalPERS board, however, can take away Mr. Valdes' chairmanship of the investment committee, Mr. Randolph noted. He added the Legislature likely will seek a legislative or constitutional change to boost its oversight of CalPERS' administrative functions.
In an Oct. 22 letter, Mr. Angelides threatened to sue CalPERS if it didn't revisit the issue and provide adequate notice by Oct. 29. He did not sue.
Some legislators separately made similar threats.
Mr. Angelides' said Mr. Zonis' earlier statement "falsely portrayed the Armenian genocide and the expulsion and massacre of Greeks."
Historical revisionism, he added, cannot be allowed to occur. "For the last eight years, the Turkish government has waged a deliberate and concerted campaign to bury the truth of the genocide and to this day, unlike Germany, steadfastly refuses to admit the historical facts of the genocide or any responsibility for it."
Backing down, the CalPERS investment committee resurrected the issue for its Nov. 15 meeting, and the staff decided not use to Mr. Zonis' services in any event.
But the question remains, why is Mr. Angelides pursuing the matter once Mr. Zonis' other writings have become available?
Cathy Calfo, Mr. Angelides' press secretary, said the treasurer still isn't satisfied with Mr. Zonis' response. She noted his book review was from 1996, while the comments at issue were from this year.