That would like to address the commission . Seeing none, well close public are we ready . Closed session, is there a motion not to disclose . I will make the motion. Is there a second . Second. Can we take the item without objection . Item passes. Mr. Secretary, next item. General floor comment. Before we go general Public Comment, i want to make a quick announcement. I think there was confusion as to the agenda on todays meeting. Theres nothing today on fossil fuel investment. That meeting is on the 24th, as posted on the website. We apologize for any confusion. First, john furland. Two or three minutes . Two minutes. I wanted to comment on the ci reports. There was a great start in the absolute return section of the report. Im happy because ive supported that for almost three years now. Secondly, theres nothing in the report on well, one phrase on risk. And so, were in the middle of an extremely complacent meltup phase, which Jeremy Graham just wrote about. Nobody knows the results. For the february 13th panel on risk mitigation, that you bring in an outside person who has a little bit more bring in jeremy grant, if you want. Kyle bass is going to speak at the pension bridge conference in april. Bring him in or meet with him on the side. Bring somebody in like that whos going to give you a little bit of a scare. Number two, just repeat. I think the managing director, Risk Management innovation should be a fulltime managing director for a risk officer. She would include a section on the cios report. It needs to be a section ten years in on that cio report. I would say congratulations. You guys are doing extremely well right now, but frankly, monkeys throwing darts at a board can do well. Were a bull market. Okay . What you need to do is focus on risk. I was a tech analyst on wall street. Im a big fan. Before that phase, you have to survive a bear market. And theres far too much complacency. Thank you, mr. Furland. I have a speaker card for david page. Hello, everyone. Nice to see everybody again. I used the time i came early for the 2 30 Public Comment, and i ended up here a little early. So i used the time to go back to my old office, and i met with one of my coworkers whos about to retire. I wanted to report that hes really looking forward to that pension. And at the same time we got news from Santa Barbara that theyre still pulling bodies out of the mud. So what does one have to do with the other . If youve heard me before, if youve been doing your own research, you know about how to collect the dots between fossil fuel companies, Global Warming, and the weird weather, but just in case you havent, i sent you a pdf over the holidays about Global Warming review. I just want to make sure, did everyone get a chance to look at that . Anyone . Quick show of hands. Commissi commissioner driscoll, i knew i could count on you. Just in case you havent seen it, i figure youre all extremely busy, so i didnt write another long report at this time. I just sent in a bunch of photos for the slide show. Theres like 30 pictures, if you want to look. Takes maybe three seconds a picture. You get done in a minute and a half. I will resend it. Its called Global Warming review, and its in a pdf. Thanks very much. Up next, i have a speaker card for kai hung phonetic . Im sorry. Thank you very much. I called it out of order. My mistake. I have another speaker card for general Public Comment. Is there anyone else who would like to address the board under Public Comment . Im john i would like to give you an update from ten years ago. It started on january 5th, 2008. As you know, 2008 was one of the largest down years in stock market history. The bet ended on the 21st of december, just a few weeks ago. Over a tenyear period, the s p 500 will outperform the vast majority of hedge funds. If you piggybacked with the hedge fund ten years ago, after ten years, you would have a gain of 220 million. If you took one and put 1 billion, you would have gained 710 million. Thats nearly three times in a moderate risk investment, taking on an investment. I think the fifth of may this year, the stockholders meeting, i would recommend you send mr. Coker to the Stockholder Meeting because theres going to be a lecture on why nobody should invest; especially pension funds, into hedge funds. 30 seconds. One last thing. Hedge Fund Managers will always tell you one of the reasons you invest in hedge funds is the best and the brightest. In previous meetings, ive told you that a monkey could outperform most hedge Fund Managers. You thought i was joking. If any of you want to produce off mic i will prove that a monkey can outperform most of the hedge Fund Managers. If you want to take me up to the challenge, i will prove it to you. Thank you. [laughter] are there any other members of the public that would like to address the commission under general Public Comment . Seeing none, well close general Public Comment. I think there are two items were going to continue excuse me. Just one. Were going to continue item eight. Mr. Hung, well not be calling that item today. Mr. Secretary, next item. Item five, an action item, approve december 17th, 2017, retirement Board Meeting. I move adoption of the off mic . I will second the item. We need a second, correct . Second and a vote . Okay. I will second the item. Well open it up to general Public Comment . Is there anyone who would like to address the committee on this item . Can we take this board without objection . Okay. Passes. The consent calendar. We have a motion. We have a second. Well open it to general Public Comment. Are there any members of the public that would like to address the commission on the calendar . Seeing none, well close general Public Comment. Any discussion . Being none, can we take the item without objection . Item passes. No. 7, action item. This is a recommendation to hire a small cap manager. I would first like to introduce you to our new managing director. He has 20 years plus experience in investment experience. I would like him to introduce himself to the board, and well get to the recommendation. Thank you. Pleasure to meet you all. As bill mentioned, i have 27 years of Investment Management experience. The last 17 of which have been spent in San Francisco working for two private Asset Management firms. Im grateful for the opportunity to join such a qualified staff and to work with such an engaged board. I look forward to the opportunity to serve the participants of the retirement services. Any questions, board . Thank you, kirk. Hahn is going to introduce us to the strategy, and he has comments. Thank you, bill. Today were recommending an investment. One of the current underlying management merging in this case is defined as total of less than 2 billion at the time of hire. Dba was add and had only 3 billion in assets. Today assets are close to 5 billion. Its been recommended that San Francisco graduate dba to a direct independent Due Diligence of dba, and we do recommend graduating it and are supportive of vivians recommendation. They specialize in small cap strategies and focused on companies with high cash flows. The firm is based in montreal, canada. It was founded in 1991. It launched its first strategy in 1992, focused on canadian small cap. They developed a strong track record and gained traction among institutional investors. They have closed the u. S. Strategy since 2017. San francisco is considered an existing investor due to its relationship. It was founded by the ceo today. He has over four decades of experience in the investment industry and developed a reputation in small cap strategies. He joined full time in 2001 and promoted to Senior Analyst in 2004 and became the senior hes developed a great track record for the strategy. Hes out performed benchmark by more than we also note that bva return we would also note this is a concentrated portfolio that would hold 40 to 50 names. The concentration leads to high tracking error. We expect this portfolio will have periods of performance. Were recommending investment of small cap strategy. Its an student for a lead Investment Management with a Good Practice record. They their discipline has made them very attractive. I want to say we did do Due Diligence. As she said, theyre a closed manager. We didnt have client exposure. We had tim oconnell who you met conduct he did that doing a rigorous Performance Analysis and attribution. While we did not go on site, we did have all of those resources at our disposala. Tim wrote up the document you had with you. Our internal conference starts tomorrow in boston. Tim is in boston with dan hennessy who helps me cover San Francisco. He can answer any questions with regard to analysis. Were quite comfortable for all the reasons hawn indicated. It is an incumbent manager for you. Youve seen them perform through thick and then. Not only have they done well, but when you look at the numbers, they have a downside protect quality to some of their numbers as well. Were fully supportive of the recommendation. Board members, questions, comments . Commissioner bridges . I guess im a little confused, president. So were continuing item eight, but were going through with item 7. Commissioner cohen has requested we continue with number eight. Item seven, continue on eight, the asset phase because the fund to funds yeah. We discussed that before hand. You know, we have plenty of funding mechanisms to fund that that you dont have to do the two in tandem together. Thats what i was worried about. It is part of the fundtofund structure. I didnt know what to do. You continue one item and doing the other. Theres no contingency, and are thes no need for us. Its up to 200 million. And we could actually stave the funding over the next few months. So we have the capacity to do number seven. Commissioner driscoll, please. The question is is the current money going to be reduced now or not. You have the discretion to do that. Thats why im asking. We do have the discretion to do that. The staff does not. We havent acted on that. Yes reduced it earlier. We have not considered reducing it to zero or some further amount without prior first discussing this with the board. The bivium recommendation were approved today, we would still have to bring the guidelines back in february, and it would take a few months to finalize the contract. In the meantime, theres another manager focus, which were not recommending graduating. It could transfer the assets to a fund one, the Underlying Fund being bva, and i think it will take a couple of more months. Do you think they would do that . We have talked to bivium. They have suggested adjusting a fund and they would help was the transition. This is not the first time weve graduated without terminating the Underlying Fund of fundtofund manager. Need to terminate the fund to fund manager in order to get access to something that under a contract, a manager that no longer meets the definition of fund to fund. So theyre contractual language in there that basically says we can without bivium like bledsoe. Theres no connection there other than the funding of where the money that is currently with vva with bivium will go. I think weve tried to say that we dont need that money and that there will be, in the next couple of months, guidelines being brought back to you before we would execute. We havent negotiated the contract yet. Theres no linkage and no contingency on needing to take action on number eight before approval of number seven. But if i fiduciarily, its important not to get charged by bivium. We should just be doing that with the money, you know. Eventually we will once we final the contract and if the board approves the vva today. I do not know where item eight will go when it comes back on calendar. My point being, do not pay bivium if were managing van burkm directly. Maybe that was assumed. Once we finalize the contract and are able to go direct, well no longer pay bivium. The max drawdown for van burkm can you tell me. Maybe im looking at the wrong set of numbers. 44. 7 doesnt really bother me, but i like to know how you got that number. Theres a graphical example underneath, the underwater draw down. You can see it happened in the depth of the 20082009 recession. The blue line, which didnt far as fall, as the vva strategy, and this is the russell index, which fell further. So it was over a period of time that that drawdown occurred. It started to drop until you get back to the recovery. So its there on that page and numbers above it performed by almost 10 . The question had to do with the performance numbers, the numbers on your page five. Your numbers are not that compelling. Are there better, more current numbers . The december numbers, the Fourth Quarter quarter of 2017 were strong, so they bounced back. They outperformed the bench mark for the entire year. What are your numbers, then . Yes, for the calendar year 2017, these numbers are as of september 30th, 2017, the ones in the table. You have the december 1st numbers. They were up about 16. 5 . Versus . Versus the benchmark at 15 or so. 14. 7. Yes. 14. 7, correct. For concentrated manager one year. Okay. Good. Doesnt change. Makes the sharp numbers look even better. Okay. Ive got your recommendation. Thank you. Questions from the board . Is there a motion on the table . The fee arrangement is negotiated that that be reported back to the board. I will second. Call for Public Comment. Any members of the public that like to address us on item 7, please come forward. Im kai hung, chief strategist for bivium. Because we were brought up, i want to make some clarifications. Weve had a longstanding relationship with San Francisco. Something we valued here. The recommendation with vva hopefully validates the work. With respect to fees and overlaps were happy to work with the staff and board and the plan in whatever way is equitable. Weve had conversations broadly about how to make sure that in this period, as youre moving through the process with vva, that its absolutely equitable to the board. I just want to put it out there that were happy to accommodate anything and work with staff because we want to see this a success for the overall program. A manager you funded early on that hopefully can successfully move forward with in the future. Thank you. Are there any other members of the public that would like to address the commission on this item . I see none. We have a motion and a second. Is there any discussion on the item . Seeing no discussion, can we take this item without objection . Commissioner bridges . No. None for you. Voting against . Okay. So we have four in the affirmative, and one against. Item passes. Next item, please. The chief Investment Officer report. Mr. Coker. A continuance of the good news throughout the years. To begin, we crossed the 24 billion mark for the first time. A very sharp recovery that you will see on the chart later on. Regarding the narrative, you will note on page one of the narrative is that we finished every month of the year in positive territory. So a really terrific year. Regarding economic conditions, the economy continues in a really ideal strike zone. In addition, good unemployment, good low unemployment, good job growth. Interest rates are still relatively low. Inflation is still relatively low. And Economic Growth around the world is picking up. I did spend some additional time on item number three on the science. I do think were in a unique period of the Human Experience, graduating from the Industrial Age to an experience of science, technology, and innovation. This is really beginning to sweep through the entire Human Experience. Originally the science and tech and innovation impact was primarily on calculations, communications, convenience, and mobility. In the next 10 to 15, 20 years, its going to be much, much more impactful. Immunogene therapy, were going to see improvements in human health. Ai and deep learning. Computers will be able to solve all sorts of array of human problems from human health, energy, transportation, et cetera. Auto mated vehicles will be ready for prime time in a couple of years. Electric vehicles as well. Robotics will bring about much more quicker and cheaper manufacturi manufacturing. Block chain is truly a transformational technology. Were seeing a variety of currencies. Im not predicting who the winners are, but i think well have a digital currency, and theres more to do in digital payment. So this experience, sign, tech, innovation is beginning to sweep through everything of the Human Experience. I think its going to be as impactful to the Human Experience as moving from the agricultu agricultural era to the Industrial Age. I mention all of this hoping that youre not going to ask us what our exposure is to all of this, but while we have done very well, weve outperformed by 1. 5 in aggregate. Thats about 1 billion over the last three years and about a billion and a half over the last five. I do think the keys to unlock and continue that even further are really going to be talent, partnerships, and process. Its going to be those that see the future before it becomes widely known, and the partnerships, meaning the external partners that we partner with and gain a commitment from, its going to be those things that are going to give us continue our good performance and enhance it going forward. A few things to close on. As far as reporting items that closed in previous closed session, crow holdings, the board approved for 75 million in november. Indeed, we funds relationship with blackstone. And this actually did close on december 22nd. Thoma bravo, which is a private equity firm that weve had seven relationships with so far, the board did approve last month 100 million. It did close for 100 million. And actually last month, an eighth relationship with thoma bravo was approved by the board. We requested 50 million, and we did, indeed, get 50 million. On page seven of the narrative, you will see the absolute return portfolio. Since inception, its now 15 months old. Its annualized return has been 8. 33 and outperforming the Hedge Fund Index by 7. 15 . We introduced you to kurt. In addition to that, anna is going to get help from the top up with kurt but also working to the analyst level is mr. Martins from cambridge. We know he had very good training. He joins us a week from monday. We have a special Board Meeting coming up on january 24th, so two weeks from today, in which the board will hear on the motion before the board to die vest of fossil fuels in public markets. In addition, we have a Board Meeting. Its not a special Board Meeting, but including in the Board Meeting on february 14th, is we have a special section on risk mitigating factors that ellen is going to host for us. It will include any pc and parametric. Theres a lot to fair through, but we think its very helpful and valuable information for the board to consider. And then lastly, i will mention if jay has anything to mention. Maybe its in the executive director report. Actually, no, i wont mention that at all. Thats separate. Well talk about that later. There is some Additional Data in terms of charts from any pc last month, just economic data, and i included some comments in the narrative. With that, i will turn it over and ask the board if they have any questions or comments. Commissioner . Regarding your item no. 9, you wrote in there amount approved for investment is up to 17 . The target is 15. We allowed a range of plus or minus 2. I would prefer you use the 15 number than the 17. The 15 number is a controversial number already. Thats just a suggestion. Okay. So 15 target. Commissioner driscoll is correct. Its 15 target. Any other questions . Go ahead. On the special meeting of the 24th, are we to anticipate that staffs recommendation will be the same, or do you think theres going to be a change in staffs recommendation . We will release it on the 17th. So were still working on that. Okay. Thank you. Any other questions from the board. Seeing none, well open it to Public Comment. There are people who like to address us regarding the chief Investment Officer report. I would just like to speak off mic i would just like to speak on the absolute retain. Thats a fancy name. Im guessing that means hedge funds. Either its absolute loss or absolute gain. The hedge fund industry, you know, its the most corrupt. Largest gambling casino in the world, and you guys want to invest in it. If you went to las vegas, what would you rather be . The gambler or the casino. Either own blackstone or blackstone stock. I think they went public in 1999 at like 14 a share. Right now, its over 500 a share. That would be the casino. You want to be the gamblers. You want to invest in the hedge fund. The point i want to make, invest in the casino. Thats black rock and blackstone. Thats all i have to say. Please. Come on up. So bills report was what i just said, a textbook case of complacency. He didnt mention risk at all, other than youre going to have a meeting, an agenda item on it, which i have zero hope for anything coming out of that. I dont like being the party pooper here. Ive been the party pooper for three years now. Ive been pushing hedge funds for three years even though i dont like them. By the way, i apologize to john. He was right. I was wrong. The hedge funds declined in the last fair market. I would suggest another bet, which is why i suggested hedge funds. Theyre going to outperform wean now and the next market. Ive been willing to take that bet. Ive made that offer several times. My preference wasnt hedge funds, but thats the only thing youre going to do to derisk your portfolio. I also like my preference is to index your equities and hedge them yourselves, but youre not going to do that. I like bills emphasis on innovation. As i said, i was a tech analyst. I used to work with goldman sac sachs, so im just going to make an announcement. Im tired of this. Im tired of being the cassandra and chicken little and party pooper. Some of you are tired of hearing me. Im tired of asking you guys to make motions and nothing happening. Ive taken all the arrows in the back. Ive been the strongest advocate of the hedge funds. Ive talked to leona since october. Ive mentioned joining the board. Her position expires. I am going to seek that position. I dont think im going to get it. I have no political connections, but im tired of sitting up here and sounding like a fool for three years. So i will send you a long thing on it friday or monday explaining my reasons. Thank you, mr. Furland. Are there any other members of the public that would like to address the Commission Regarding the chief Investment Officer report . Seeing none, well close Public Comment. Next item, please. Item 10, the deferred compensation manager report. Good afternoon, commissioners. Before you is the monthly activity report. I do have a couple of oral updates i would like to present as well, but if you have any questions on the monthly report, im happy to answer them now. Okay. Just a couple of updates for you. As you remember, the board voted to make some fund changes to the sfdcp lineup. We have communicated our first lineup notice. Thats online, should you be interested in seeing the notice. So far, we havent heard anything, which is a good thing. The average expense fees are actually being lower. I cant imagine our participants being upset about that. I just wanted to share that with the board. Additionally, i wanted to inform you that contribution limits for this year will be increasing for the first time after two years. Now the contribution limit will be 18,500. And the catchup will be the same, however. That stays at 6,000. Participants will be able to contribute 500 more to their deferred compensation plan. Finally, i have the stable value crediting rate for first quarter. Im proud to inform you that it has increased to 1. 91 . So the stable value credit rate has increased again. At this time, i would like to ask, is there any questions . Any questions from the board . [off mic] the bottom half you outline the average account balances and all. Can you walk me through the differences between the account balance and the participants average account balance . Oh, yes, absolutely. So if youre looking at this to the far right, are you looking at the total column . Im more interested in understanding the difference between prudential participants and account average. Certainly. So for the average account balance, thats the average account balance for sfdcp accounts and thats the average across all their sponsors. Thats the average prudential quotes for all their other clients, as a comparative. Thank you. 457 . Correct. All their plan sponsors. And includes a contributory plan where the employer is either matching . Thats a question for julie. 41c plans, yep. Thats why its very strong. Theres no match. Theres no city match. This is all voluntary. Yet our average account balances are higher than at least a snapshot of the industry. Thank you. Yep. Commissioner driscoll . For that particular chart, be prepared to break it out, the act versus the retired. That line includes the retirees. Theres always the issue of how actively are participants still saving even if it is a voluntary plan. Youre right. I would assume this includes retirees, not just those who are currently contributing. So would i. I was going to ask to the discretion of the manager and the chairman of the committee. We had a meeting the other day. I think staff reflected a lot more activities that are going to be going on the next couple of months, plus the investment policy and the product im trying to think of the second document. Weve been voting with the attorneys. A lot of work has been done, which was not captured in this report. I wanted to give her more credit. Thank you. It was held on monday. So it was after we published this and so the chair will normally report out the activities of the february Board Meeting. Thank you, commissioner. Those documents will go to the board in february for approval. Thats what we discussed already. Thank you for acknowledgment. For all the work shes put into it. Any other questions or comments from the board . Seeing none, were open it up to Public Comment. Any of the public that would like to address the commission . Seeing none, well close Public Comment. Mr. Secretary, next item. Next item is item 11, review and approval of revised resolution 44, excuetory authority. Were introducing b. The name weve added is justin lowe who has recently been successful in being promoted well, not recently. Its been over a year, but with tonya going out on her maternity leave, we want to make sure that we include justin as having the investment authority. And on d, it is the delegation of trading authority, and weve added Ashley Denning king, tren, joel bates. We would have the board to approve it. Well be bringing it back in six months to add kurts name, but the policy generally, as we dont add folks until theyve been here a while. So these folks have been here. So we ask that you approve this. Theres a motion. Is there a second. Second. Theres a second. Would any public like to address the commission . Seeing none, well close Public Comment. Item passes. Mr. Secretary, next item, please. The board fiduciary training. What do you anticipate, 10, 15 minutes . I can try to shorten it to that. Sure. I will do my best. [off mic] that may be a bit hard. Board members, this is a continuation of the presentation that was made at the Board Meeting in november. At that presentation, we covered the Legal Framework for the fiduciary duties, and were going to pick up with the fiduciary duties in practice. Just a quick review, what we discussed about the fiduciary duties that each of the organization has. The exclusive benefit rule. The prudent expert standard. Duty to diversify. The duty of loyalty, i will just briefly say summarized in constitution, article 16 section 17, and its all very important, of course, but what i want to emphasize is the exclusive purpose of the participants under beneficiaries. Thats your paramount duty. The duty of loyalty is effectively a conflict of interest rule, which means that fiduciaries may not have conflict in loyalties and may not discharge their duties for the benefit of a third person or for their own profits or for any other purpose unconnected with the trust. This means putting your personal interes interests, a planned sponsors interest, a union interest, or voters interest would be a breach of the duty. Lets take a simple example that might demonstrate the duty of loyalty. In this case, im on the staff. Ima encourages her son to respond to the rdfp. The staff ultimately recommends to the board. The board accepts the recommendation. There will be a reasonable Investment Agreement pursuant to which its agreed to pay a reasonable fee. What raises red flags is the relationship between ima and her son and whether or not the recommendation is being made with regard to whats in the best interest of the plan or because its her son, but were told in the second paragraph that there was an rfp process, a reasonable Investment Agreement was entered into, which involved paying the company a reasonable fee. It was suggested that there was a process followed and it would appear that the board acted in the best interest of the plan. Thats not necessarily the case. Thats what would have to be dealt with in a situation like this. But if the board acted within the best interest in the plan, there would not be a breach in this case. Theres two sort of related issues, or hidden issues, in the first paragraph. The big question is whether or not ima had any financial interest in big bucks through her son or direct investments. And if she did, in that case, its very possible that the board would not have been able to act at all on the contract because of section 90 of the government code. And if she did not have a financial interest in big bucks, she should have disclosed a relationship her sons position in the Company Publicly to the board. So those are related issues that we would have to look at, all related to potential conflicts of interest. The next fiduciary duty can i interrupt real fast. Its an interesting example. Do we have any on a goforward basis, if we could incorporate some rulings on where that maybe actually happened and what the court determined or what the lawyers determined. Well, i can see if i can find some cases on this, but 1090, the government guide, one of the things you have to be very, very alert to, having financial interest in a contract that the board is acting on. If you have a financial interest in a contract, and its not considered a remote interest, then the board cannot act on that contract. So you would have to divest your interest in the contract to move forward. Thats the issue with ima. Im looking for something more than just shades of gray. You have to consider these things and look for more definitive, no, you shouldnt do that. You need to disclose it, and you should recuse yourself. There would always be shades of gray. It would depend on the facts. If i find you a case, its going to be decided based on the facts in that case. We can see if we can find cases and talk about those cases next time. That would be great. Thank you. We have had trustees recuse themselves for possible conflicts of interest and even the appearance of a conflict of interest to avoid the embarrassment that might be thrown at everybody. So its a very broad standard. If a board member seeks recusal, i think weve almost always honored it, accepted it. I mean, i think thats the best practice. She should have recused herself, but we need guidance. Adopt it in a term of reference. Certainly. And as indicated, there are circumstances where the board cannot vote on an item, even with recusal. And so thats an area that we really have not seen what would trigger that effect that would basically not allow a member to recuse themselves, but the board would not be able to vote on it. Who makes that determination. We would recommend that whenever you know you have a financial interest in something that the board is going to act on, that you certainly you can call me, and we can talk about it before it gets to the board. If you dont want to serve it out yourself, i wouldnt suggest you do that. Consult with our office. I agree. You should call them and call them as soon as you know its been calendared so that its not the day of the Board Meeting type of discussion, but certainly we need those types of disclosures before the board would ever undertake to take action on something. And the only reason i say to be held to the concrete example, you know, if you take the citys harassment training, they dont say, well, these are things you have to consider. But theres no answer. They say, no, you shouldnt do this. This is appropriate. This is inappropriate. To some extent, its black and white, and theres categories of what you should and shouldnt do versus these are things you need to think about. I will put it as black and white as i can put it. If you have a contract that the board is going to act on, you should consult with our office. In many, many cases, the board may not be able to act or you must recuse yourself. Thats about as black and white. But what if you dont . What if its your son . If you have no financial interest in the contract, then you need to make a public disclosure. The financial interest is what creates a conflict that may require you to divest yourself from the board. There are some exceptions. And theyre laid out in the government guide that might be considered remote, but i think for your safety and for the protection of the board, we should assume that any financial interests might create that problem, and you should consult me on that. What happens if we sit on the board and theres no financial interest directly to us, but the board we sit on would benefit collectively . Nonprofit board, of course. A nonprofit board, in that case, you may need to make a discollierville disclosure. Why not just make the disclosure to be safe. That may satisfy the situation. Now, it gets more complicated if youre receiving a salary from that board. Then we may be getting into a 1090 situation. We would want to explore that with you. Continue the conversation. Are we close to our 15 minutes . [laughter] prudence, we see that expressed in the constitution, article 16 section 17 as well as in the charter part of 12, which is that you must discharge this duty with the care, skill, prudence, and diligence that would be used. Its basically the duty that requires you to exercise a high degree of diligence. Its known as a prudent expert standard. And even though you may not be an expert, you may need to consult an expert to guide you through your decisionmaking process. I will skip the next slide. The important thing here, when using an expert, the fiduciary must take into considering the advice of the expert or may, but the fiduciary is still ultimate responsible. So that means that, for example, you would have to monitor and take action to make sure that the expert is doing the job, looking at the things, and making a consideration where an expert should. On this slide, no. 29, the important thing here is going back to that, youre talking about the reliance on experts. What is donovan . In essence . Im sorry . Donovan, the case you cited, what is is it . Its actually an case. You want the facts of that case . The 20second version, as much as can be done. Okay. This is going to take some time. Donovan is one of the early cases which the department of labor took an interest in. Its a case where a company, a division, the company knew the division was failing. It didnt want to be responsible, so it decided to create a subsidiary, transfer the plans to the subsidiary, convince its employees to them follow some of the employees to move because its a subsidiary, without telling them that the subsidiary created was economically frail. So it failed to disclose to them it failed to meet fiduciary obligations in failing to provide the information they needed to have in order to make a good decision as to whether or not they should have transferred their plans to the subsidiary. I thought it might be something different. Thats fine. Thats what that case is all about. Thank you. So heres a hypothetical dealing with prudence. Well call this choosing your own ending. Hypothetical, new kids on the block manages an account. You could approach them to change investment guidelines. The change is approved and theres a 50 loss in the account in the first year. So the issue here is whether they satisfied the prudence, the duty of prudence. As i said, it always depends on the facts. In the first case, first scenario, we know that they did not inquire into the experience of new kids on the block under a type of trading, risk controls, et cetera, and new kids on the block was new to the strategy and did not manage disclosures appropriately. The key issue here is the failure to investigate the experience and backgrounds and controls and measures new kids on the block would use. They did not. And were being told they failed to handle the strategy appropriately. So this is a situation where more likely than not, they would be found a breach duty of prudence. We didnt do the basic thing to the to satisfy ourselves. This company was capable of doing the job it needed to do. In the second scenario, were told that they did investigate the background, did review risk control measures, imposed limits and reporting requirements. These are the kind of things that they should have done, a prudent person would have done. In this situation, its very likely that they would not have been found to breech the fiduciary duty. But if challenged, its contacted and theres been reporting of the things that they did. Thats critical to the procedural prudence. Due diligence, who is the cop in the game . Is it your offices on staff . Who would be the cop. Each fiduciary is its own cop. This is why we have the training, to make sure everybody has considered these things as they move along. Again, were always available for you to consult us. By the way, when youre on a board of fiduciaries, each fiduciary has a responsibility to make sure that there isnt a fiduciary thats breaching his or her duty. So you are your own cops. Were certainly here to hell you, but youre your own cops. [off mic] yes. Who sets the fiduciary standards . Say i dont like the way something was done, and i bring it up to the executive director, and he says, i think that was done properly. What would be the practical thing . Well, yeah. Again, you can certainly talk to us as well, but, i mean, if you think that a standard that has been set for the board to follow is not appropriate, then i think you can ask for a calendar board discussion. If your discussion with the executive director or the discussion with the president fails to satisfy you . Would that fall under a personnel item . Or would that fall under an open