CalPERS: Protecting Taxpayers, Pensioners

Just two years after scandals at corporations like Enron and WorldCom rocked our financial markets and sent investors reeling, we at the California Public Employees' Retirement System (CalPERS) are leading a battle on behalf of shareholders, taxpayers and pensioners across the country. In the wake of the greatest wave of corporate corruption since the market manipulations of the 1920s, we are fighting to clean up the corruption, mismanagement and fraud that bilked American investors out of trillions of dollars, including $1.2 billion in losses suffered by our own state's pension funds from four companies alone - Enron, WorldCom, Tyco and Global Crossing.

As a CalPERS board member, I believe that we - as trustees of the nation's largest public pension fund - have a responsibility to take on corruption and market manipulation, and to do all that we can to restore integrity to this nation's boardrooms and financial markets. Anyone who sits in the state treasurer's chair has a duty to lead this national crusade - even if it means taking on powerful corporate interests.

For our country's economy to thrive and be strong, it is vital that our financial markets thrive and be strong. And markets can only be strong if they operate with integrity, openness and honesty. Indeed, a whole generation of Americans who weathered the market crash of 1929 and the Great Depression never again invested in the stock market, preferring instead the "security" of the dark space beneath their mattresses. Today, nothing is more important to CalPERS than the very integrity, openness and honesty of the markets because CalPERS is invested so broadly in our nation's financial markets.

To that end, I am proud of the actions we have taken at our state's pension funds and the good that we have done to push the markets to a greater degree of integrity, fairness and transparency, and to protect the investments of millions of taxpayers and pensioners. Consider just these actions, as a sample:

* In July 2002, CalPERS and the California State Teachers' Retirement System (CalSTRS) - the nation's third-largest public pension fund - joined by the Los Angeles County Employees Retirement Association, sued WorldCom executives and their team of underwriting banks to recover losses stemming from investments in WorldCom bonds. The suit charges that the company clearly knew - and the banks clearly had reason to know - that the WorldCom books falsely portrayed the company's true financial picture. The fraud-induced collapse of the telecommunications company alone cost CalPERS and CalSTRS pensioners and their families more than $880 million.

* In November 2002, CalPERS sued some of the country's largest investment banks, alleging that the banks touted Enron bonds even as they knew the company was on the brink of disaster. Enron's collapse cost CalPERS and CalSTRS pensioners and their families $159 million.

* In the summer of 2003, in the wake of widespread revelations of excessive executive compensation, I proposed new executive compensation standards that CalPERS and CalSTRS adopted. The standards - the toughest in the country - allow the funds to vote in support of executive compensation plans only if the plans award 5 percent or less of the total compensation to the top five executives in the company.

* Also in the summer of 2003, I proposed - and CalPERS and CalSTRS adopted - a tough set of investment protection standards for financial institutions, in the wake of malfeasance that rocked the investment banking industry and robbed and otherwise misled retail investors. There were numerous instances where the research departments of financial institutions were touting stocks that analysts were privately disparaging. (Remember the Charles Schwab ad: "Let's put some lipstick on this pig! Get to work people!") Today, financial institutions must meet a strict code of financial conduct that completely separates research from investment banking if they want to do business with California.

* In September 2003, CalPERS Board President Sean Harrigan, CalSTRS CEO Jack Ehnes and I called for New York Stock Exchange Chairman and CEO Richard Grasso to resign, following the disclosure of Grasso's obscenely exorbitant $188 million pay package.

Within hours, other public officials joined the call, and Grasso resigned the very next day - opening the door for needed reforms at the NYSE. We also called for a thorough and full investigation of the Grasso matter. Since then, the U.S. Securities and Exchange Commission (SEC) and New York State Attorney General Eliot Spitzer have pursued such an investigation.

* In November 2003, I launched an ultimately successful effort to urge CalPERS and CalSTRS to terminate their combined $1.5 billion relationships with Putnam Investments, a mutual fund company embroiled in controversy over its corporate practices. Since then, Putnam's newly installed reform-minded chief executive has written me to report that he has successfully instituted many of the reforms that we have sought.

* In March, CalPERS and CalSTRS adopted a set of mutual fund protection principles - which I proposed in the wake of corruption and scandal at Putnam and at other firms within the mutual fund industry - that call for a wide range of reforms to shareholder disclosure and reporting, mutual fund practices and board structure. CalPERS and CalSTRS will consider compliance with the principles in determining whether mutual funds have the right to do business with the two plans.

CalPERS' recent investment returns illustrate the soundness of our investment policies. In the year ending February 29, 2004, CalPERS earned a 29.7 percent return on its investments. Yet, despite such solid financial returns and despite our successes in bringing needed reforms to our financial markets, I am amazed that the critics of CalPERS and CalSTRS continue to stand up so blatantly, ignorantly and unapologetically for corporate special interests.

As officials entrusted with the funds of millions of state taxpayers and pensioners, we cannot stand idly by and trust the financial markets to do what is right by investors. CalPERS' and CalSTRS' ongoing efforts to shine the light on irresponsible corporate practices protect our members' investments, help to assure that the marketplace is fair for all investors and foster economic progress.