CalPERS to review governance changes at upcoming board meeting

CalPERS board is expected to consider rewinding some of the governance changes it made last year as well as making new adjustments to increase its oversight role, all in the wake of the August resignation of former CIO Yu "Ben" Meng.

The board of the $417.3 billion California Public Employees' Retirement System, Sacramento, as well as one of its committees are slated to meet Sept. 16. During those meetings, members are expected to discuss modifying the current delegation of duties to the CEO, the reporting structure of the CIO, expanding the investment committee and increasing the number of board and committee meetings, a CalPERS spokesman said.

Under the existing governance structure, the board has delegated to the CEO the power to hire, discipline and fire upper management, including the CIO. At CalPERS, only the CEO reports to the board.

Those discussion points were requested by Controller Betty T. Yee in a letter Wednesday to CalPERS board President Henry Jones "to ensure appropriate board oversight." Board member Margaret Brown echoed these requests in a letter Thursday to Mr. Jones and also asked that the board discuss delegation of investment authority.

Ms. Yee confirmed that all of the discussion items she requested are on the agenda in open session, said Jennifer Hanson, spokeswoman for the controller, in an email.

Within the last 18 months, the board has made sweeping changes to its governance model that included reducing the number of committee and board meetings and stripping its investment committee's decision-making power. It also increased the amount that investment staff members could invest on their own discretion.

CalPERS spokesman Wayne Davis said that the items requested by Ms. Yee will be added to the open session agenda sometime next week.

Two board committees are already set to discuss other changes at the Sept. 16 meeting, said CEO Marcie Frost in an interview Thursday with Pensions & Investments. One change would give the board oversight of investigations into allegations of misconduct against CEO and CIO, among other top officials. CalPERS management would also be required to inform the full board upon commencement of such an investigation. Currently, Ms. Frost said her practice is to inform the board president and the heads of the investment and a personnel committees about investigations into misconduct allegations.

That was the process Ms. Frost said she followed with Mr. Meng, who resigned in the wake of disclosure filings showing, among other things, that he had invested in stocks of two private equity firms and the business development company of a third private equity firm with which CalPERS had invested in the past.

The CalPERS board also is scheduled to discuss whether to require the new CIO to sell any securities that could potentially give rise to a conflict under the state’s Political Reform Act prior to assuming the position, or place the resulting assets into a blind trust, Ms. Frost said.

It is important to guard against the appearance of impropriety, Ms. Frost said. Currently, it is up to each investment staff member to ensure there are no conflict of interests between their personal investments and their job at CalPERS, she said.

CalPERS main role is education, Ms. Frost said, noting that each staff member has a “personal responsibility” to ensure they recuse themselves from participating in activities in which they have a conflict.