To: letter.editor@edit.wsj.com
From: James McRitchie <jm@perswatch.net>
Subject: Connell's suit against Calpers (p. A20, 7/9)
The rule regarding political contributions was put into place only after board actions were heavily criticized in the press, came under the scrutiny of the FBI and were subjected to a Senate hearing because of deals involving relatives and former board members, gifts, allegations of high living, extensive travel, and campaign contributions funded by those doing business with CalPERS.
In total denial, CalPERS President William D. Crist then issued a press release stating "There has been no evidence or even suspicion of corruption by any CalPERS fiduciaries because of political contributions or gifts. Nevertheless, we have taken the extreme measure of banning political contributions and requiring the fullest disclosure possible (of gifts)."
Some speculate the campaign policy was payback for Connell's aggressive stance on board members accepting free travel. But the action may have also been motivated by a desire to focus the spotlight on campaign contributions, largely raised by the Controller and Treasurer, instead of gifts received by most of the 13 member board...gifts they can continue to receive under the new policy.
Connell's re-election committee alleges a violation of First and Fourteenth Amendment rights, discrimination (only incumbents are fully subject to the policies, not other candidates for the same office), lack of statutory authority to enact the regulation, and failure to comply with the Administrative Procedure Act (notice, comment, consistency, clarity, necessity and other requirements). They appear to have an excellent case.
This time CalPERS President Crist said the "board evaluated this issue over an eight-month period, considering very carefully the potential impact on the political process." However, I attended the committee meeting where the rule was introduced. While the board may have contemplated the issue carefully for months, the wording of the policies was not made available to interested parties prior to being publicly discussed and major portions were crafted by Crist on the spot.
Because of these improprieties, I petitioned CalPERS to go through the rulemaking process for its conflict of interest policies and, when that was rejected, requested a determination from the Office of Administrative Law (OAL) on 4/30. Unfortunately, because of staffing cutbacks, OAL is not expected to get to my case until next year; we can expect action on the Connell writ much sooner.
The irony is that CalPERS is viewed an effective leader in the area of corporate governance... seeking independent boards with high moral standards. Yet, the ethical policies it chose to adopt for its own board consisted largely of unenforceable window dressing in violation of several laws. Had the policies gone through the legally required rulemaking process, CalPERS would likely have adopted more modest conflict of interest regulations with regard to political contributions and stronger regulations with regard to gifts. As it is, the court will likely throw out the rules regarding political campaign contributions but will probably leave the weaker gift policy standing, since Connell's campaign committee did not ask the court to address that issue.
James McRitchie
CalPERS Board Candidate
Editor of Corporate Governance
URL: http://www.corpgov.net
(916) 452-5338 (hm) 327-8642 (day)
Contact: 
jm@perswatch.net