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Pension Q&A

Richard Koppes

Richard Koppes is outside counsel to the international law firm of Jones Day and a former general counsel to CalPers. He is also administrator of the National Association of Public Pension Attorneys. He was one of the founders of the Stanford Institutional Investors' Forum 13 years ago.

We know you were involved in the best practices recommendations on governance put out by the Stanford Institutional Investors' Forum last spring. Could you tell us a little about it?

I helped organize this group when I was still at CalPers. It's made up of a large group of institutional investors, both private and public pension funds and mutual funds. Over the years, pension governance has been a big issue, so a subcommittee was formed a couple of years ago and at the end of May we came out with some good governance principles and best practices.

["The Committee on Fund Governance Best Practices Principles," dubbed the Clapman Report, after chair Peter Clapman, is available here. It covers five areas: transparency of rules and governance, leadership, trustee attributes and core competencies, conflicts of interest and disclosure, and delegation of duties.]

How hard is it for boards of trustees to adhere to these practices?

There are a fair number that are standard and a number of plans are already doing these things. But you still have 40 to 50 percent that aren't even doing the common sense stuff. There are other recommendations that would be politically difficult, like getting rid of the politicians on the board.

Do you worry about the interference of politics?

It's a serious concern. These funds are too big, and too important for the people who rely on them to be subject to politics. But big sums of money tend to attract complicated investments and sometimes not the most savory of people. Most professional staff are high quality. But you run into political situations — like "I want you to give business to my good friend the campaign contributor."

What other major issues would you highlight?

For the average trustee, understanding complicated investments is a huge challenge. That's why the Stanford Project recommends more education, more training and more professionals on board. All the board members can't be police officers and bus drivers and teachers. All of us have our fields of specialty, but if you make all the board members non-investment people that's a problem. It helps to have investment knowledge on each board. You also want to make sure that trustees that are there are properly trained. In the corporate world, there's a lot more emphasis now on director education

Every profession now has continuing education requirements and we need to treat this as another profession. And one more thing, I think too many of these funds don't bother to compensate their trustees for the time they spend. CalPers trustees are paid $100 a day for meetings that can go on for 10 to 12 hours. That's ludicrous. We ought to treat these jobs as more than just power positions. They're fiduciaries. They don't need to get rich, but they need to be compensated for their time and effort.

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