Vocal Critic Margaret Brown Is Knocked Off CalPERS Board

California Public Employees Retirement System (CalPERS) board member Margaret Brown, known for her aggressive questioning of the pension plan’s investment policies—and of its top management—has been defeated in her bid for a second team.

Results released by CalPERS on October 1 show that Brown was defeated by a landslide vote. Challenger Jose Luis Pacheco received 116,296 votes, or 61.76%, to Brown’s 71,999 votes, or 38.24%.

A second incumbent on the 13-member board, David Miller, held onto his seat, receiving 138,453 votes, or 72.65% of the votes cast, to challenger Tiffany Emon-Moran’s 52,117 votes, or 27.35%.

Pacheco will join the board, and Miller will start his second four-year-term, on January 16, 2022. The results still need to be certified by the California Secretary of State in November.

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Pacheco is a SharePoint developer and administrator with the San José-Evergreen Community College District. Miller is an environmental scientist at the California Department of Toxic Substances Control.

The other losing candidate, Emon-Moran, is a retired police department fraud investigator.

Only a fraction of CalPERS more than 2 million retired and active members from state and local governments and school districts voted in the month-long elections.

Both Pacheco and Miller received the support of a powerful coalition of unions representing state and local employees including the statewide Service Employees International Union (SEIU) in California. Brown did receive some smaller union support, but too little to fight the SEIU group.

Brown’s defeat will end a bitter four-year battle with other board members and CalPERS CEO Marcie Frost. It likely signifies a more unified CalPERS board starting in January, as Brown was often the only dissent on investment decisions.

Brown, who took office in January 2018, has repeatedly questioned the $479-billion CalPERS decision to expand its private market investment, arguing the move by the largest US pension plan is too risky.

Most recently, she expressed concerns at the system’s September 15th investment committee meeting that investment staff’s interest in increasing the pensions plans’ private equity allocation from 8%to 13% isn’t prudent.

Investment staff are eying such a move as part of a new asset allocation for CalPERS, arguing that it will help diversify assets beyond CalPERS’ heavy dependence on equities and will increase returns.

Brown has long been at odds with Frost. She has voted against giving Frost a pay raise every year since 2018.

Brown was the only “no” vote at last month’s meeting when the CalPERS board approved Frost’s base salary of $534,689 and an incentive award of $143,590.

Brown’s “no” votes against Frost began in 2018 after a controversy erupted over Frost’s educational background.

A CalPERS press release on July 16, 2016, when Frost was hired at the pension plan, said Frost was enrolled in a dual bachelor’s/master’s program in public policy at Evergreen State College in Olympia, Washington.

Evergreen College officials later disclosed that no such program exists. It was revealed that Frost had taken several classes at Evergreen, but none since 2010.

Frost’s educational background does not extend beyond high school. But CalPERS officials insisted in 2018, after the blog “Naked Capitalism” reported Frost’s educational discrepancies, that there was no misrepresentation. CalPERS spokesman Wayne Davis attributed the error in the press release to a internal staff mixup.

Brown was the only board member to vote against the 2018 pay raise for Frost.

Then California State Treasurer John Chiang, who was a member of the CalPERS board, did call for an independent investigation of how the misrepresentation occurred on Frost’s educational background. The CalPERS board never approved an investigation.

Brown has also not seen eye to eye with other board members. In an unusual move in July, five members endorsed her opponent.

CalPERS Board President Henry Jones and Vice President Theresa Taylor, along with board members Rob Feckner, David Miller, and Ramón Rubalcava, were all part of the effort to elect Jose Luis Pacheco to the CalPERS board.

Brown has clashed with board members over whether CalPERS has been improperly discussing public issues in private, such as the circumstances surrounding the sudden resignation of Chief Investment Officer Ben Meng in August 2020.

Meng resigned after California ethics officials began investigating the CIO’s alleged approval of an approximately $1 billion CalPERS investment into a Blackstone Group private equity fund. Meng held stock in publicly held Blackstone and would have been required to recluse himself under state law.

CalPERS Board President Henry Jones has said the resignation was a personnel matter and needed to be discussed in private.

In December 2019, Jones disciplined Brown, temporarily suspending her travel privileges after she was accused of using the CalPERS name in her Twitter handle.

Brown sued in California Supreme Court in Sacramento a year ago June. The suit was dismissed this January.

In his official CalPERS campaign statement, Pacheco denounced Brown. “This is Margaret Brown’s fifth run for office in 10 years, and her behavior, including initiating a groundless lawsuit and disparaging board members and staff, demonstrates that she is in this for herself, not you,” he said.

Brown, in her statement, did not denounce Pacheco but took a swipe at fellow board members. “CalPERS reels from scandal to scandal with a head-in-the-sand board that seeks to punish anyone trying to address issues,” she said.

Brown told CIO on October 2 that she plans to continue as a CalPERS “watchdog.”

“The issues and concerns that caused me to run in 2017 exist today,” she said. “The lack of transparency and failure of oversight and accountability by the board is continuing to harm beneficiaries.”

Pacheco thanked supporters in a victory statement posted on his campaign website. “I am honored that my fellow CalPERS members have selected me to safeguard and grow their retirement income as the newest member of that board,” he said.

Brown, Emon-Moran, Pacheco and Miller all campaigned on ensuring the financial stability of CalPERS, but neglected to focus on specifics of investments. The pension plan is approximately 71% funded.

The pension plan currently shoots for a 6.8% rate of return and is in the midst of an asset liability study expected to be completed in mid-November 2021 to determine how CalPERS assets should be deployed and make future investment return projections. according to CALPERS spokesman Wayne Davis, who noted the fund is 80% funded at 6.8% rate of return.

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Tags: Board Politics, California Public Employees’ Retirement System, CalPERS, elections, Margaret Brown, Pensions

The Securities and Exchange Commission (SEC) is proposing to change its rules on proxy voting disclosure in a move it says is intended to supply more background for investors on how funds report about their proxy votes.

The regulator has proposed amendments to Form N-PX to improve the information mutual funds, exchange-traded funds (ETFs), and other funds report about their proxy votes. Under the proposed changes, funds would be required to tie the description of each voting matter to the issuer’s form of proxy and categorize each matter by type. The SEC said this would make the filings easier to analyze and help investors identify votes of interest and compare voting records.

The amendments would also require institutional investment managers to disclose how they voted on executive compensation, or so-called “say-on-pay” votes, which the SEC said would fulfill one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC is also asking funds to provide their voting records, or a link to the records, on their websites.

Funds have been required since 2003 to file Form N-PX reports to disclose how they voted on proxy proposals relating to investments they hold; however, the SEC has acknowledged that the forms are not the most accessible for investors. It said the changes are intended to make funds’ proxy voting records more usable and easier to analyze, improve investors’ ability to monitor how their funds vote, and to compare different funds’ voting records.

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The SEC is also proposing to require funds to disclose how their securities lending activity affected their voting. When a fund lends its portfolio securities and thus transfers ownership, it is also giving up its proxy voting rights for the duration of the loan. As a result, the fund can’t vote the proxies of such securities. Yet, if a fund decides an issue is important enough to vote on, it can recall the securities and vote as long as they receive the securities before the record date for the vote.

The decision to recall a security on loan in order to vote it is not currently disclosed on Form N-PX, but the SEC said some investors have expressed interest in information about the relationship between a fund’s securities lending and proxy voting. It also noted that recalling loaned securities may decrease the revenue a fund generates from securities lending activity.

The proposed amendments also seek to require disclosure of the number of shares that were loaned but not recalled. The SEC said it believes that for investors to see that number would help them better understand how securities lending activities affect the voting practices of a fund. It also said that, without disclosure of that number, the number of shares on loan for a given vote would not provide meaningful insight into how a fund or manager voted.

Still, SEC Commissioner Elad Roisman said requiring such seems “ill-designed” to communicate to investors the balancing act funds go through when considering how to maximize value.

“When a fund manager is faced with the decision of whether or not to recall shares in a company in order to vote in the meeting, the manager considers where the fund can get the most bang for its buck,” Roisman said in a statement. “None of these considerations is reflected in the proposed new disclosure, and investors will be left to view only part of the outcome of this balancing act: the unvoted shares.”

While Roisman said he supported many of the proposed amendments, fellow SEC Commission Hester Pierce said she can’t support any of them and suggested the regulator withdraw all nonstatutorily mandated voting disclosures to eliminate the expense of reporting and to allow for confidentiality of votes.

“Proxy voting is not the most important activity in which a fund engages,” Pierce said in a statement. “How or why a fund votes, or even whether a fund votes on a particular issue at a particular portfolio company is unlikely materially to influence an investor’s choice to invest in a particular fund.”