The Regents are one of the most powerful groups of people in the UC system, but their activities and their priorities often remain hidden from public view. Political appointees serving 12-year terms, most of the regents are successful business people with no background in education. Their central role appears to be to ensure the financial health of the UC system. However, for the past nine years, they have done very poorly at this task.
In 2000, the head regent, Gerald Parsky, was able to oust the highly regarded treasurer of the UC, Patricia Small, in order to outsource the control of some UC investment accounts. Until the time of her departure, Small oversaw one of the most successful university investment portfolios in the country (for a detailed analysis of Parsky’s role in the UC regents, click here). In fact, the UC’s pension investments were so good that the employees, the employer, and the state did not have to pay into the pension system for close to twenty years. However, this once over-funded plan is now under-funded.
Starting in 2008, in just fifteen months alone, the UC pension fund, endowments, and other investments lost over $23 billion. While UCOP and the regents will tell you that everyone lost money during this time, Charles Schwartz has shown that the UC’s investments have been underperforming most comparable institutions since the outsourcing started in 2000. In other words, UC investors have gone from being the best to being one of the worst, yet no one has lost their job or has even been admonished. Instead, people are getting raises and special retirement deals.
The regents seem to have a penchant for secrecy and private negotiations that directly conflicts with the UC’s status as a public institution. In fact, unions and faculty members have sued the regents on several occasions to force them to follow laws regarding public meetings and financial transparency. One reason why the regents may prefer that their dealings remain relatively shielded from view is that they have many vested interests that can affect their judgment and priorities. For example, Regent Parsky pushed the regents in 1999 to hire an outside investment firm, the Wilshire Group, to look at the UC’s financial strategies and assess their effectiveness. This private company reported that the UC could get a much higher rate of return if it outsourced the control of many of its investments and got rid of the current treasurer. The Wilshire Group also recommended that UC hire the Wilshire Group to manage the transformation of the UC’s investments. In other words, the result of their careful analysis was to recommend themselves for a giant contract. The Wilshire Group ultimately also made significant contributions to the reelection campaign of George W. Bush; Regent Parsky was Chair of Bush’s California Campaign Committee.
Under Parsky’s leadership, the UC not only began to invest in riskier financial instruments, but it also lost its ability to know how its own money was being invested. Not only did Parsky and the regents privatize the investments of a public institution, but they also began to make some of their most important decisions in private. During this same period, a series of scandals broke out in the UC system regarding executive pay, and once again, the regents were shown to be breaking the law by not following public transparency rules. It turns out that the regents were granting lavish compensation packages to top administrators, and many of the perks going along with the high salaries were not reported. After several articles in the San Francisco Chronicle and a legislative hearing, it was discovered that the regents were repeatedly breaking their own rules in order to give people hidden compensation. According to one Chronicle article, “University auditors told the UC Board of Regents they had found that 143 exceptions to the university's compensation policies had been made to give extra pay or benefits to 113 senior managers.” Even though the UC is a public institution, it failed to fully disclose many of its decisions and policies, and this secretive nature also relates to the handling of UC investments. In fact, it took legal action to force the university to begin to reveal the full nature of its compensation and investment activities.
The regents still insist on making public decisions in private. But with so many questions raised by the current budget crisis, many unions and faculty members are calling for changes to UC’s regental system. Most importantly, the regents must become democratized. Instead of having the governor appoint the regents, UC employees should elect UC faculty, staff, and students to sit on the pension board and the board of regents. Without these changes, the regents will continue to make decisions that undermine the already ailing health of the UC’s finances. Please come to the regent’s meeting, November 17-19 at UCLA and demand a democratic role.