By Mark Battey
Here's a tip for readers new to the political appointee process. If you get a voice-mail from the governor's office saying, "We need to discuss your appointment," it's not good news.
Gov. Arnold Schwarzenegger recently removed me and three other appointees (two Democrats and two Republicans) as trustees for the California State Teachers' Retirement System, the third largest public pension plan in the United States with assets of $125 billion.
Why? Because we voted against the governor's proposed reform of public pensions in California. He wants to close the current defined benefit plans to new public employees and only offer 401(k)-type plans. That proposal would undermine the funding for CalSTRS and hurt the state's teachers, so we did our fiduciary duty and voted to oppose the proposal.
Understand that this vote was purely advisory and symbolic. Only the governor and the 120 state legislators have votes that truly count in the pension reform debate. That is until the debate crashes in the Legislature, and the issue is put to the California voters as an initiative in November. It will be an epic political battle with all the usual suspects aligned on opposite sides.
So why did the governor act when it's clear to most observers that there will be no resolution until the fall? Two reasons: one practical and one political. First, he had to act quickly since our confirmation hearings were one week away. Once confirmed by the state Senate, he could not remove us. And second, as his representative stated, "The governor concluded that these appointees are not best suited to implement his mission for reform."
Wow. That statement, especially as a rationale for our termination, shows a stunning lack of knowledge of fiduciary duty.
Our job as fiduciaries was not and cannot be to implement a mission. Fiduciaries are required by law to act with undivided loyalty to participants and beneficiaries of the trust. This requirement is not hidden in some footnote. It is stated clearly on page one of all fiduciary training guides. It is illegal for any fiduciary to implement a mission.
I know what you're thinking. What about all of those other political causes that the public funds supposedly push, mostly from the left side of the political spectrum? Wasn't the governor just doing what the Democrats have done? My answer is yes, but of course that is no excuse.
In the year I served on CalPERS and CalSTRS as Mr. Westly's delegate, and in the 10 months of service as an independent trustee on CalSTRS, I cannot remember a single meeting without some degree of political pressure. Because of this, the CalSTRS board was taking steps to ensure that we could escape this pressure and focus solely on our fiduciary responsibility.
Perhaps the best testament to our focus on performance, not politics, occurred in the same meeting when we took the vote that led to our termination. Just hours before the vote against the governor's proposal, the now-terminated trustees led a majority of the board to reject a "country ranking" proposal backed by the California Teachers Association and others. We determined that it made more sense to let our professional money managers judge risks in emerging markets than to have the board evaluate countries in a highly charged political environment.
So one week before our confirmation hearings, we vote against both the governor and the CTA. OK, we are not political geniuses. But that's the point: we were acting as fiduciaries, not politicians.
The governor clearly had the right to terminate us. All appointees serve at the pleasure of the governor until confirmed, and it's evident he was no longer pleased. By axing us, however, I believe he set a new low in politicizing public pension funds.
My hope is that the next set of appointees to the CalSTRS board can continue our progress in focusing solely on fiduciary duty. Our teachers, our students, and our state deserve no less.
Mark Battey is managing director of Miramar Capital LLC, a financial advisory firm in Half Moon Bay, Calif. He served on the CalPERS and CalSTRS pension boards in 2003 as a delegate for Controller Steve Westly. He was appointed as an independent trustee to CalSTRS by Gov. Arnold Schwarzenegger in April 2004. Mr. Schwarzenegger withdrew Mr. Battey's nomination to the CalSTRS board in February 2005.