Thursday, March 26, 2009 | You might think that a group of people with enough collective courage to invest more than a billion dollars of public money in some of the most secretive and risky ventures on Wall Street might have enough collective courage to just fire the guy they apparently blame for losing a good part of it.
You’d be wrong, of course.
We’re not entirely sure what happened when the Board of Retirement at the San Diego County Employees Retirement Association confronted its chief investment officer about his continued employment at the fund recently. It all happened behind closed doors. And while public officials never seem to worry about following the law that requires them to deal with as much as possible in front of the public, they live in perpetual fear of disclosing what happens behind closed doors.
So we’re left in the dark.
But we do know what happened after they came out of the meeting. The trustees of the once massive, now not-so-massive, pension fund emerged and announced that they had “accepted the resignation” of their chief investment officer, David Deutsch. They were eager to thank him for his service.
Even Deutsch made comments that would seem to imply that he didn’t want to continue working for the fund.
“It wasn’t a good fit. There was a personality disconnect in the sense that the board is more hands on than I’m really used to,” he told voiceofsandiego.org after the board had accepted his resignation. This is a way of saying, simply: “Things would have worked out better if they would have stayed out of my face. It’s not my fault.”
So it’s pretty clear he “resigned.”
But then, the other day, you might have noticed the news that he got a severance of three months’ pay. He had demanded a year’s pay. Investing money in poor-performing, secretive, even potentially fraudulent hedge funds is a very demanding job. A year’s worth of his salary would have been $209,000.
For the trustees who have watched $2.5 billion of their trust wither away over the past several months, well, $209,000 was just unbearable.
So they gave him $50,000.
Yes, $50,000. They say he “resigned” but they felt obligated to give him a severance of $50,000.
There are a lot of us for whom $50,000 is still a lot of money. And we may wonder why a guy who quits his job deserves any severance at all. If a person resigns from their job, you give them a party, maybe a box of chocolates and a Hallmark card everyone can sign with some witty send off and wish them well.
What’s more, this is the county that, for the first time in years, may actually be forced to lay workers off. They’ll have to give pink slips to people who didn’t lose millions of dollars in investments they had trouble explaining in simple English. These are people who didn’t quit. These are people who will be forced from their jobs and onto unemployment.
Where is their $50,000? Perhaps they should have gotten into the investment advice world. Apparently you don’t have to perform particularly well to get fat paychecks even when you “resign.”
But he’s not the problem here. He claims he didn’t just resign. He claims he was forced to resign. There is a difference. Because if you’re forced to resign, and you are a well-paid person with access to lawyers, you expect a parting gift of some sort.
The trustees, Deutsch’s bosses, could have just fired him and given him no severance. But you give someone a severance when it’s not ultra clear that he or she deserved to be fired. You do this in the hopes that this person will sign a form and agree not to make any claims on your organization and everyone can be jolly and move along with their lives.
So if you’re going to do this, you kind of have to give the person what you think is enough to make them walk away quietly. Otherwise, what’s the point?
Well, the point is this body of trustees, while courageous enough to invest in hedge funds, was not courageous enough to give their fallen angel a check for $209,000 and face a deserved backlash. Yet they also couldn’t summon the courage to stiff him altogether.
So what do some people do when they are not able to make a tough decision? They try to do something in the middle. What they don’t realize is that doing something in the middle often means doing the worst imaginable thing and making yourself look terrible.
A few notable exceptions on the board — including elected officials County Supervisor Dianne Jacob, and Treasurer/Tax Collector Dan McAllister — determined that Deutsch didn’t deserve a severance at all.
The issue now moves to the desk of San Diego County’s chief administrative officer, Walt Ekard.
You see, Ekard is in the unenviable position of deciding whether or not to sign off on the severance. If he does, he has to hope that Deutsch signs that vital piece of paper that says that Deutsch won’t sue the county. If he doesn’t, he’ll have to wonder whether Deutsch will sue the county.
“My role is to ensure that the retirement board followed county practice, policy and law. So what I’ll be looking at is whether the resignation is voluntary and there seems to be some question about that,” Ekard said.
This, of course, is further complicated by the fact that whether or not Deutsch resigned or resigned is only known to the people who were in that secret closed session. And they, apparently, disagree about what happened. When deciding whether to award Deutsch a severance the retirement board voted 5-4 to do so. The North County Times quoted David Myers, a deputy sheriff and long-time member of the board, wondering why his colleagues were “pretending” that they hadn’t actually fired Deutsch, when apparently they had, in his mind.
Ekard wasn’t there. And I’m pretty sure the trustees think they would be breaking the law if they each told him what they believe happened.
Deutsch passed up a chance to talk to me about the whole thing.
It’s pretty obvious that after the retirement fund lost $2.5 billion in the second half of last year, and after officials at a hedge fund in which Deutsch encouraged his bosses to invest were accused of fraud, the retirement board was ready for a change.
The trustees didn’t want to fire him, though, because that might imply that they should have fired him before. Or maybe they didn’t feel he deserved it. After all, they signed off on his decisions, no?
So they tried to handle a bad situation the way many people do: by controlling the damage. They tried to make him happy while firing him and save their own reputations as diligent fiduciaries of a troubled fund.
Unfortunately, their indecisiveness has left the county in a precarious position.
And it may lose a couple of hundred thousand dollars more trying to make it right.
County taxpayers and retirees deserve better. If the pension system has the courage to do so many risky things with so much money, it should have the courage to clean up the mess appropriately when it all falls apart.