Opinions Point to Illegal CalPERS Campaign Activities

Anyone familiar with the movement to improve corporate governance in the United States knows that CalPERS, the giant California pension fund, has often taken a lead plaintiff role to protect shareowners and ensure corporations follow the law. Unfortunately, CalPERS, its board members, and their campaigns have not been beyond reproach in their own governance practices.

For years the Board insisted they were exempt from laws, such as the Administrative Procedure Act, because of direct authority granted by the California Constitution. However, the Office of Administrative Law (OAL) and the courts have determined the Board is not above the law. "Continued use of 'underground regulations,' especially those which open members to financial risk from identity theft, is a breach of fiduciary duty, undermines the credibility of efforts by CalPERS in the area of corporate governance, and makes the entire system more vulnerable to attack by those who seek to destroy it as a defined benefit plan, says James McRitchie, publisher of CorpGov.Net and former CalPERS board candidate.

Although the Board rejected Mr. McRitchie's Draft Petition for Underground Regulations Determination in June 2006 to change rules that put CalPERS members at risk for identity theft, OAL recently Link Textissued a determination that the Notice of Elections, which includes the Procedures for Becoming a Candidate and the Election Schedule, contains underground regulations.

On another front, McRitchie also received an Link Textopinion from California's Legislative Counsel that Board candidates and their supporters cannot use state meeting rooms and facilities for campaign purposes and that use of such facilities during the recent election was a violation of section 8314 of the Government Code. "The incumbent's candidate statement solicited e-mail to his state e-mail address, another apparent violation of Government Code sections 8134 and section 19990," according to McRitchie.

Ignoring such 'minor' laws fits into an unfortunate pattern for Board members and leaves many wondering what other laws they may be violating, says McRitchie.

"When candidates register with CalPERS they are given a packet of various laws they must follow. That package should include information on the legal prohibitions against using state resources for campaign purposes," McRitchie advises.