California’s Teachers’ Retirement Board Sets High Ethics Bar
Changes Restrict Campaign Contributions, Increase Investment Decision Transparency and Eliminate Conflicts of Interest

News release

 Sacramento, CA  – At its meeting today, the Teachers’ Retirement Board approved sweeping changes to its Board Governance policy.The new rules restrict political contributions and gifts, require disclosure of placement agent fees and require disclosure of certain types of communications involving board members and/or CalSTRS staff.Upon taking office, board members must now sign a pledge confirming their independence and understanding of their fiduciary duties.Additionally, they must recuse themselves when voting on any transaction that may present a conflict of interest, real or perceived.

“Even the appearance of ‘pay-to-play’ sullies the good name of this system,” said Carolyn Widener, CalSTRS board chair. “Our members and the people of California deserve nothing less than the highest ethical behavior from those they’ve entrusted to make financial decisions of this magnitude. These rules set the gold standard for acceptable behavior when doing business with CalSTRS.”

The Teachers’ Retirement Board includes three member-elected positions representing current educators, five representatives appointed by the Governor and confirmed by the Senate, and four board members who serve in an ex-officio capacity by virtue of their office: Director of Finance, State Controller, State Superintendent of Public Instruction and State Treasurer.

During the discussion, the board members cited the need to maintain a strong, stable fund in order to pay benefits to CalSTRS members and their survivors. The policy changes enacted today affect board members as well as those who do business or seek to do business with CalSTRS.

The policy changes, which will be effective January 1, 2007, include:

  • A pledge that confirms board member independence and understanding of fiduciary duty;
  • Rigorous conflict of interest language to avoid nepotism or the appearance of nepotism;
  • Increased disclosure of communications between board members and third parties regarding investment transactions;
  • Full disclosure of communication initiated by a board member to a staff member or consultant if the communication could reasonably be interpreted as an attempt to influence a specified outcome regarding an investment transaction;
  • Provisions for investigating undue influence claims;
  • Disclosure of placement agent relationships and payments;
  • Requires 12-month recusal from any decision involving a campaign contributor or gift maker where the amount exceeds $250 to a board member; and
  • Provides a $250 ceiling on the giving of a charitable contribution at the request of a board member and a $360 ceiling on gifts to a board member in any given year.

Additionally, other policy changes were approved that must proceed through the Administrative Procedure Act rulemaking process and could take up to one year to implement. Those changes would:

  • Restrict campaign contributions to board members, including the Governor or candidates for governor, to no more than $1,000 in any year; and
  • Provide financial penalties for violation of the campaign contribution and gift limits.


Any violation of the contribution and gift limits will lead to disqualification from doing new business with CalSTRS for two years. Once the regulations are in effect, those with existing business relationships with CalSTRS shall be subject to a fine of $10,000 or the amount equal to the value of the impermissible campaign contribution, whichever is greater.

“We see no benefit in taking a ‘wait and see’ approach to governance when we already have such a well-established framework for success,” said Jack Ehnes, CalSTRS chief executive officer. “These rules are modeled after those set forth in 1993 by the SEC for the municipal securities sector which have proven effective in curbing conflict of interest issues. Our new board governance policy is the toughest set of standards in the nation on ethics, putting CalSTRS in a very select group among our industry peers. It’s a matter of public trust and it’s time to take action.”

With a $153.2 billion investment portfolio, the California State Teachers’ Retirement System is the second-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California’s 776,000 public school educators from kindergarten through community college.