NC treasurer’s corporate board service poses ethical questions

North Carolina State Treasurer Janet Cowell is shown here at a Council of State meeting. Her term expires in January and she’s not seeking re-election.
North Carolina State Treasurer Janet Cowell is shown here at a Council of State meeting. Her term expires in January and she’s not seeking re-election.

State Treasurer Janet Cowell’s plans to join the boards of two publicly traded companies have raised thorny ethical issues even though the State Ethics Commission pre-approved the moves.

Cowell, who isn’t seeking re-election to a third term as treasurer in the November election, joined the board of Morrisville-based ChannelAdvisor, an e-commerce technology company, in February. She’s also standing for election to the board of James River Group Holdings, a specialty insurance company that is based in Bermuda but has a U.S. headquarter in Raleigh. That election is set for Tuesday.

Cowell only took those steps after requesting an opinion from the ethics commission, which ruled that serving on the boards wouldn’t run afoul of the state Government Ethics Act.

But critics say it’s highly unusual for a public official, especially one that controls the state’s $86.6 billion pension fund, to join a corporate board – and that conflicts of interest are inevitable.

“Usually, when you’re in public service, you don’t go on corporate boards because of potential conflicts of interest,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“I think the potential for conflicts, or even the optics of potential conflicts, mean it’s probably not advisable for a state official to serve on a board,” Elson added.

Andrew Silton, a former chief investment officer for the state pension fund that is administered by the state treasurer, contends that the commission’s ruling that state law doesn’t prevent Cowell from serving on corporate board of directors didn’t delve far enough into potential conflicts of interest. He also pointed to several “interconnections” involving James River that illustrates the conflicts that can arise.

In response to a request for comment, a spokesman for the state treasurer’s office referred to a recusal pledge that Cowell signed in February.

“In order to avoid even the appearance of a conflict of interest between my role as State Treasurer of North Carolina and any role I may have as a board member for these companies, I have chosen to recuse myself from matters concerning ChannelAdvisor and JRVR, even if recusal for those matters may not be required by state law,” the pledge states.

Additionally, she pledged, “I will recuse myself from any discussions or decision-making at the Department that could reasonably be viewed as directly or indirectly related to my corporate board service.”

If she does recuse herself, she added, “I hereby delegate my signatory authority to the Chief Investment Officer for any decisions, contracts and related documents.”

Sole fiduciary

On Feb. 12 the commission ruled that joining the boards was permissible but pointed out that state ethics law bars her from taking official action that would benefit those companies. The commission also noted that the state pension fund doesn’t have either ChannelAdvisor or James River in its investment portfolio.

None of North Carolina’s state treasurers in recent memory have served on a corporate board while in office. North Carolina is one of just a few states where the state treasurer is the sole fiduciary with final authority over pension fund investment decisions.

The National Association of State Treasurers declined to comment on Cowell’s corporate board plans, and a spokeswoman said the group didn’t have information about state treasurers nationwide serving on corporate boards.

Silton recently wrote about why he sees Cowell’s moves as an ethical minefield in his blog, Meditations on Money Management, and elaborated on his concerns in an interview.

Silton said he’s less concerned about Cowell joining these particular boards – particularly since it’s unlikely that conflicts will arise in the relatively short time she has left in office – than he is with the public policy issue of any North Carolina treasurer serving on a corporate board.

“The treasurer really just should not be on a public board in a private capacity,” he said.

Still, he noted that investment management firm Wellington Management manages more than $4 billion in funds for the state pension plan and its 401(k) and 457 (deferred compensation) plans, work that earned it $3.2 million in fees for the fiscal year that ended June 30, according to state reports. At the same, Wellington also is one of the largest shareholders in James River, with a 6.8 percent ownership stake, according to the company’s latest proxy.

That means that Cowell must objectively evaluate Wellington’s performance for the state while, in effect, working for Wellington’s benefit as a James River director. “Can she still be an objective fiduciary?” Silton asked in his blog post.

In addition, James Rivers’ chairman and CEO, Adam Abram, also is lead independent director of Raleigh-based Yadkin Bank and owns a 1 percent stake in the bank. That’s relevant because Cowell also chairs the state banking commission, which oversees the regulation of state banks.

In addition, the treasurer’s department had $7.2 million on deposit at Yadkin as of Dec. 31 – one of more than 30 banks across the state where it does business.

A spokeswoman for the state Office of the Commissioner of Banks said of Cowell’s plan to join the James River board: “Treasurer Cowell has received guidance on this matter by the State Ethics Commission and we defer to the State Ethics Commission.”

Although Cowell has pledged to recuse herself from department decisions that could be viewed as conflicts of interest and delegate her authority, Silton doesn’t view that as a remedy.

“As a sole fiduciary, how do you recuse yourself?” he asked. “Her power to make these investment decisions can’t be delegated.”

Lucrative service

Silton also noted that hedge fund D.E. Shaw and Fidelity are major shareholders in James River.

“While the pension doesn’t appear to have an investment relationship with either firm, Treasurer Cowell’s role (as) a public director would make it difficult for the pension to engage either firm as a money manager,” he wrote.

The candidates vying to become the next treasurer have diverged on the question of whether they would follow the path to corporate boards being blazed by Cowell.

Democrat Dan Blue III’s campaign has said that “opportunities such as these would be evaluated on a case by case basis and cleared by the Ethics Commission before considerations.” But Dale Folwell, the Republican candidate, has pledged “to never take outside compensation” to serve on a corporate board.

That compensation is noteworthy.

At ChannelAdvisor, Cowell will receive a $50,000 annual retainer and restricted stock valued at $150,000. James River pays directors $75,000 per year plus $25,000 in restricted stock.

The treasurer’s annual salary from the state is $125,676.

David Ranii: 919-829-4877, @dranii