Monthly Archives: April 2008

CalPERS Turmoil: Pot calling the kettle black?

I am a huge fan of the efforts of CalPERS to clean up corporate governance, and I even helped in the drafting of their emerging market activist equity screen a few years ago. And I argue with my law and economics colleagues that the unusual board structure at CalPERS is evidence that boards representing all stakeholders can function efficiently. 
But now it appears that CalPERS is itself embroiled in a governance problem.  They have recently lost (fired? quit? pushed out? had lured away?) three senior figures, including their two top executives just this past week.
The heart of the problem appears to be a perennial one for large public sector pension funds.  How do you create a culture in the professional staff that implements the board’s vision?  And how do you do that when the vision itself is subject to change as politics changes?  Six of the board members are elected by California public sector workers and retirees; four are ex officio appointments serving by virtue of their public office; two are appointed by the Governor and one by the state legislature.  
When a pro-labor Democrat is in office usually things can go smoothly, but not always (the last time the CalPERS board was headed up by a labor representative and there was a Democrat in power in Sacramento, the board went after Warren Buffett!)  But when you have a market oriented Governor and a labor influenced board, then you are in for some serious tensions.  
Most recently, the CalPERS investment strategy had begun shifting away from some of its commitments to human rights and labor rights including opening up to investments in China.  While that is problematic, in my view, that does not appear to be the source of the current problems.  Instead, it appears that a decision to invest in private sector based infrastructure projects (where the giant fund might earn above market returns) clashed with the natural tendency of the labor folks on the board to want to protect union jobs on those projects and existing civil service positions. 
It is also possible that the downturn in the economy is going to lead to some red ink in the fund’s returns.  Better for those top execs to get out while the getting is good.  No huge severance package like other failed CEO’s but at least they can land softly in the private sector.
But this is all speculation because CalPERS has as of yet not clearly explained what is going on. Since they have no SEC to worry about or shareholders they can say pretty much what they want. But it is disappointing and a bit hypocritical for the Board now to suggest that these executive departures are simply because the CIO and CEO could earn more in the private sector (that is the first line of defense, anyway).  That was always the case for both individuals.  The CEO, for example, has 20 years experience rising up the ranks of CalPERS.  And now he wants to leave?  CalPERS argues around the world that it values transparency. It should practice what it preaches.

FT Alphaville Protesting too much, Calpers edition

Triple A Failure: Behind the Subprime Crisis

A very readable and clear explanation of some of the plumbing that led to the sub prime credit crisis.  The author demonstrates how the so-called “gatekeepers” that our system of unregulated financial capitalism uses to “protect” us in pursuit of the goals of so-called self-regulation failed utterly.  This was a giant case of “see no evil, hear no evil.”  Or, if you have kids, “hot potato.”

Moody’s – Credit Rating – Mortgages – Investments – Subprime Mortgages – New York Times

Labor Goes Digital: Lessons from the Writers’ Strike

I gave a talk recently at my law school on the impact of the writers’ strike and its implications for the actors’ negotiations. You can download it here from iTunes for free (it takes about ten minutes on a broad band connection to download). Comments and thoughts welcome.

If Mohammed won’t come to the mountain….

One thing people who live outside the Valley take a long time to learn is that it is a small community and you have to be here to know what is going on.  Location, location, location….even law firms around here have split up over whether or not to open up a second office on Sand Hill Road!  And one factor in explaining the rise to the top in high tech of my former law firm, Wilson Sonsini Goodrich & Rosati, is that it opened up shop here in Palo Alto (in the late 60s) and stayed there through thick and thin.  When entrepreneurs and venture capitalists needed them they were here while larger firms in NY, LA and SF were not.  Now those firms are playing catch up here.
So, finally, the entertainment industry is catching on as this story in Variety today suggests.

CBS sets up in Silicon Valley

Battle of the nurses unions turns physical : L.A. Now : Los Angeles Times

Some union members in the entertainment industry think that one union is safe from the actions of another because of the anti-raiding provisions of the AFL-CIO or because of the “option” of leaving the AFL-CIO and operating independently.  They should pay close attention to the events underway in the health care industry these days.  The AFL-CIO backed California Nurses Association is engaged in a heated battle across the country with the much larger SEIU over representation of nurses in healthcare.  This past week the tensions became physical with thuggish tactics being used by the SEIU at an otherwise peaceful labor conference held in Detroit.
The only real solution for the entertainment industry is to work hard to find common solutions to common problems.  Once the current final round of negotiations concludes – and the sooner the better given the divisions plaguing the remaining unions at this stage – let’s hope attention of union leaders in the industry turns to constructive long run planning.

Battle of the nurses unions turns physical : L.A. Now : Los Angeles Times

It’s Blu Ray in the 3d…..

Think DVD “packaged” entertainment is a thing of the past?  Think again…this piece notes that demand for Blu Ray discs is expected to jump dramatically now that Toshiba/Microsoft’s DVD HD technology has thrown in the towel.  Sony alone is ramping up to produce 38 million discs per month – roughly two-thirds of global demand as currently forecast.   Let’s assume that’s the entire market and that each disc generates 5 dollars in profit for the studios – that adds up to about 2 billion dollars per year.  And that is on top of the non Blu Ray revenues although those are likely to slide as Blu Ray comes online.  Of course, as it currently stands 80% of that revenue is off the table when it comes to workers in the EMI sector – who to date have been unable to break into the so-called “distribution” side pile of cash earned by the studios.

Mousetrap Technology – Times Online – WBLG: Where are all the Blu-ray discs?

Filmmaker Jules Dassin, 96, Dies

The great American-born director (and actor and screenwriter) Jules Dassin died recently at 96, in Greece, his adopted homeland. Dassin left the US under the cloud of the black list due to his time in the Communist Party in the 30s (he left long before many others when Stalin signed a non-aggression pact with Hitler in 1939). Dassin later married his leading lady Melina Mercouri, a Greek socialist who became the country’s Culture Minister. After her death in 1994 he continued her long time effort to see the Elgin Marbles returned to Greece.

Filmmaker Jules Dassin, 96, Dies : NPR

Now they tell us….

Citi merger architect calls deal ‘mistake’ 

Of course, will he speak up for putting Glass Steagal back in place?