ANALYSIS

CalPERS ups transparency

The whales were out in numbers off the California coast when the board of administration of the $330 billion California Public Employees’ Retirement System (CalPERS) met to discuss a range of emerging investment and governance issues.

“We couldn’t ask for much better weather,” board president Rob Feckner said from the meeting, inside the Monterey Tides, a beachfront boutique hotel on Monterey Bay.

“I know you need to focus on the panels and the people but we’ll be looking for those wandering eyes out there. Lots of whales were out there playing yesterday so hopefully at break-time they’ll come back and play again.”

It was a light-hearted opening but this summer offsite covered some heavy topics, ranging from the use of leverage in strategic asset allocation to private equity business models and a new enterprise reporting process.

As usual, the CalPERS offsite was open to members of the public and their comments were actively canvassed.

“We appreciate your active involvement,” Feckner said. “You’re important partners to us and we welcome your feedback.”

The sessions were recorded (or “videotaped” as Feckner somewhat quaintly put it) and available to view online within hours of ending. The full discussions, questions and answers, and the interrogation of CalPERS staff by the board are now out there for the world to see. Anyone who wants to know how CalPERS arrives at its decision on, for example, whether leverage should or should not be used (and if so, how) can watch and find out.

At the time of writing, the online version of the leverage session had been viewed just more than 150 times. It’s insignificant in the context of CalPERS’ more than 1.8 million members, but is indicative of a commitment to transparency and public accountability.

“As we advocate for those board qualities in the companies we invest in, I’m proud that we can serve as a best-practice leader in the way we conduct our own business,” Feckner said.

New in-house reporting system

The nature of the meetings and the interaction among directors, staff and the public “give us the chance to learn and strategise, and also encourage open and candid dialogue, which helps broaden our perspectives”, Feckner said.

Diverse perspectives help enrich the quality of information gathering and decision-making, and “diversity of thought leads to creative and innovative collaboration and, even better, it’s good for our bottom line”, he explained.

A commitment to transparency and accountability extended into a two-and-a-half hour discussion of a new business reporting system that CalPERS is rolling out across the organisation.

The chief executive of CalPERS, Marcie Frost, said key performance indicators already in the fund’s customer-facing programs would be extended across the entire organisation. The aim, she said, is to provide complete transparency on how the fund is tracking relative to those measurements, and to identify quickly any issues that need to be taken to the board.

“This board delegates work to the team at CalPERS, so with this management system, you’ll have transparency on how that delegation is functioning, and I think that’s very important,” Frost said. “It also gives you an overall view of the organisation’s performance, whether that’s [in relation to] a strategic initiative or in operational work that [affects] our customers or our team members…It also provides great visibility to our stakeholders, who have a great interest in what we do, and [creates] a level of accountability within CalPERS.”

Red – or yellow – alert

Frost said that to ensure full transparency and accountability – and that problems are identified quickly – a reporting system must focus on “ ‘what’, not ‘who’ ”.

“That’s something within the culture we’ll be working on,” she said. “What we’ll be proposing to you today, as a part of our ongoing review of performance, is this: We come to you each quarter and review with you any performance indicator or strategic measure that is in yellow or red status. [Indicators will be marked] yellow or red, depending on severity, to tell you when performance is off the targets we’ve established.”

This discussion with the board would identify the performance issue, assign a cause, and put forward concrete, specific actions to address it.

That could lead to some awkward questions being put to staff by the board. Knowing that the conversation could also be immortalised on YouTube might be an additional incentive to make sure things don’t go wrong in the first place.