The din surrounding the operations of State Compensation Insurance Fund (SCIF) this past summer has diminished in public to a barely audible whimper. But deep inside we know the tumult continues.
Though it is assumed that the Legislature, and perhaps the commissioner, will make further recommendations about operations of the state’s largest workers’ comp insurer, the substance of those recommendations has yet to materialize. To be sure, SCIF has made important announcements on new internal controls and promises about doing business differently in its large-group programs. Before the end of the session, Chairperson Jeanie Cain, California Chamber of Commerce lobbyist, in what must have been an embarrassment for the governor, tried to inform the Legislature on SCIF’s status.
But transparency means more than using the term in well-honed press releases that sound as much Wall Street as Market Street. Transparency means candor.
Certain steps easily could be taken, and very much need to be taken, to add confidence to SCIF operations.
As previously noted, the first priority is to make board meetings subject to the state’s open-meeting (sunshine) laws. Certainly state funds in other jurisdictions have done so without compromising their business operations. It has a precedent and it makes good sense.
Another step would be to subject SCIF to similar disclosures required of public companies. This would involve not only preparation and publication of quarterly and annual financial statements but also inclusion of management discussion and analysis (MD&A) where corporate leadership identifies significant risks to the company, including litigation and regulatory activity, and how that may affect the company’s performance.
These reports are required of publicly traded companies, and SCIF is not a publicly traded company. But the past six months should at a minimum stand for the proposition that SCIF’s operations are infused with public trust even if its operations are not funded by investors purchasing stock. SCIF insures some 50% of California business, and as reported in these pages, has pretty solid control of the rates some industry segments are charged.
Parsing the securities laws, including Sarbanes-Oxley, and deciding in a vacuum which concepts should apply to SCIF and which should not, is not the prerogative of SCIF’s board. Establishing requirements of SCIF governance is the prerogative of the Legislature and the governor, and only after issues are debated in the public forum the Legislature provides.
As stated by the Securities and Exchange Commission, “The SEC’s rules governing MD&A require disclosure about trends, events or uncertainties known to management that would have a material impact on reported financial information. The purpose of MD&A is to provide investors with information that the company’s management believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. It is intended to help investors to see the company through the eyes of management. It is also intended to provide context for the financial statements and information about the company’s earnings and cash flows.”
2007 is nearly over, but SCIF is still working on its 2006 Annual Report.
But even once it is published, there will be no MD&A. As always there will be a laudatory report that SCIF is fulfilling its mission in the marketplace, is solvent, and is proud of the billions of dollars it has passed on to California businesses since enactment of the reforms in 2003-04.
That’s all well and good. But tell us, Ms. Frank, what do you really think about rapidly declining market share, current litigation on administration of group programs, existing class actions, potential for other class actions, your relationship with the Department of Insurance? What exactly can you say about their ongoing civil and criminal investigations, the potential for recovery of overbilled legal fees, and how the state budget deficit may affect SCIF’s income from administering claims for the State of California? Need we mention the costs, strategies, successes and failures of your expensive internal and external lobbying efforts?
In other words, SEC requires management to discuss and analyze risk, not develop and publish sound bites. If you don’t believe that, just ask Hank Greenberg.
Well, Ms. Frank, is anything changing besides the figurehead at SCIF? What say you?