No good reason for not signing code of conduct

But four members of the State Investment Council refuse to do so

It would seem to be kind of a “no-brainer.” Back in March, the New Mexico State Investment Council adopted a strengthened Council Code of Conduct requiring its 11 members to publicly affirm their fiduciary duty to the more than $22 billion they oversee for the state. There was nothing extraordinary about this updated ethics policy — in fact, virtually all trustees who manage pensions, endowments and sovereign wealth funds like New Mexico’s are required to observe such a code. It’s a promise to act only in the best interest of the funds, and acknowledgement of your $22 billion responsibility.

But four of the 11 members of the State Investment Council didn’t see it that way. For five months, they let the new code linger, deflecting requests to sign it. One member said his attorneys were reviewing the code. One said that as an elected official he wasn’t required to sign. One said he had “no problem” with the policy but felt he shouldn’t be forced to acknowledge his duty in writing.

So last month, many months since the code draft was first discussed, seven members — a supermajority of the council — decided we could no longer stand by. Not signing the code, we argue, is equivalent to either admitting an ongoing conflict of interest, or worse, reserving the right to self-deal in the future. As a result, seven council members, including Gov. Susana Martinez, voted to sanction the four members who refused to put their pledge to paper.

Rather than accepting the basic need for ethical conduct requirements, sanctioned members doubled down with cries of “politics!”

It’s worth noting that the seven members who voted to hold our fellow fiduciaries on the council accountable are a combination of Democrats, Republicans, and an independent. The four sanctioned members are also bipartisan: two Democrats and two Republicans. This fight is about fiduciary duty, not political smokescreens.

Republican Land Commissioner Aubrey Dunn, backed by the opinion of his own attorney, says his behavior on the council is already covered by the state Constitution and cites many legal reasons he cannot be required to sign the code. He has not explained, however, how his refusal to sign a code of ethics is in the best interests of permanent fund beneficiaries.

Tim Jennings, a Democrat and former legislative leader appointed to the council by the state Senate, says the code would somehow hide council actions from the public. That is simply not the case.

To clarify, the sanction and its penalties are not over-the-top. They say if you won’t sign a code upholding the high standards required to responsibly invest billions, then you are barred from participating in the council’s executive sessions and related public votes. These closed sessions, held only occasionally, cover confidential topics like litigation strategy and personnel matters. They are confidential by law, and for good reasons. That said, when the council reaches a decision in closed session, members are required to exit into the public forum and formally vote in open session. If there’s no public vote, there is no action allowed, period.

In fact, one reason the council strengthened its code involves concerns that a council member improperly leaked privileged legal communications to third parties. That, and the subsequent discussion of confidential personnel matters outside of executive session, are not only unethical, they potentially put the funds at risk. Observing a code of conduct that guides fiduciary behavior is just a basic best practice.

Discord aside, New Mexico’s Land Grant and Severance Tax Permanent Funds are writing a winning story. Investments for the fiscal year topped 13 percent, 1.5 percent higher than benchmarks and far exceeding annual return targets of 7 percent. The funds will produce a record $900 million in benefits for schools and taxpayers this year, saving the average N.M. household more than $1,100 in taxes. The funds are prudently invested, well-diversified and generating income for the state.

It can never be forgotten that these billions of permanent fund dollars haven’t always been managed properly. With a pay-to-play scandal less than a decade in the rear-view mirror, State Investment Council members should not make up excuses as to why they aren’t responsible fiduciaries who can’t put their ethical promises in writing.