Sunday, November 05, 2006

A Conversation with Denise Nappier

Connecticut has a long history of innovation across industries, but lately the buzz about innovation seems to emanate form the left coast, and Connecticut has settled into a tweedy land of steady habits tagline. That is until you meet Denise Nappier. A Hartford native, Nappier’s entrance into this world started a string of firsts (first set of triplets born at Mt. Sinai in Hartford) that show no sign of letting up; in 2004 she was the first female US state treasurer to speak at the World Economic Forum in Davos, Switzerland, the exclusive gathering of the best political and business minds in the world.

Denise Nappier entered the Treasury Department following the scandalous wake of Paul Sylvester as the first elected treasurer with a background in public finance. In the months heading into 2000, Nappier worked to ease public concern about the unraveling investigations and put management and financial systems in place to regain control of where the treasury money was flowing. The lack of paper trails was one thing; the amount they were getting out of the treasury through “finder-fees” was stunning. Nappier methodically addressed reforms to triage the damage and restore the integrity of the office.

Part of her reforms was bringing the asset allocation of the pension fund in line with other public pensions. Nappier made changes as she instituted practices that would serve the office well. Reforming the way business was handled was one thing, but she took things a step further. She began conversations with fund management where Connecticut had made investments and worked with them to recover close to $1 billion in assets. That doesn’t include her work as lead plaintiff in class action law suits. These types of negotiations have paid big dividends for the state, preventing long legal battles that would ultimately only enrich lawyers, instead of returning to the pension funds.

Nappier’s philosophy is simple, “[I have] a fiduciary obligation to do what ever is necessary to protect our investments in companies, never do we lose sight of our main objective, it’s all about the money.” Which is how she got involved in helping Connecticut consumers avoid fees on gift cards, in financial lingo, stored value cards. Connecticut had a law on the books regarding unclaimed property, leaving it to Nappier to push the corporations to drop fees tacked on for non-use and eliminate expiration dates.

A fan of her management style is Jack Ehnes, CEO of the $130 billion California State Teacher’s Retirement System. In a recent Businessweek article he said, "She has chosen issues in her corporate governance and environmental discussion that might not have yielded instantaneous results but recognized the long-term value these things would create. She is a pioneer."

Take the recent turmoil at the Walt Disney Company, the media conglomerate that so often is at the forefront of media innovations, like ESPN, and whose stock has languished under the Eisner years. Nappier pushed corporate governance reforms, citing such practices like having the same company that provides auditing services also providing other financial services to Disney, the same type of chubby arrangement that led to Enron’s fall. Disney listened, and took a step further in making the board more independent by separating the positions of the CEO and chairman of the board, which Eisner had previously held jointly.

“Companies that embrace responsible corporate governance do better than those that don’t,” explained Nappier.

In the end, it’s all about doing what’s right for Connecticut. Nappier’s pension fund in a top rated fund, the short term investment fund recently was ranked number on in the country, and her flagship College education savings program, CHET, has achieved several milestones, from the number of accounts opened. 54 thousand, to assets under management, 750 million dollars. CHET is continuously rated as having one of the lowest management fees in the country.

Nappier sees more challenges ahead. “[We have to] reduce enough of the liability of the pension fund and intensify our investment in Connecticut. We have tremendous untapped resources and value in Connecticut.”

The unfunded liability of the pension fund has been talked about this campaign season. The problem, Nappier acknowledges, is that Connecticut’s legislature contributes less than the amounts suggested by actuaries. The legislature has no discipline when it comes to spending. Unlike a credit card, there’s no monthly statement showing them how the debt is growing. But as Nappier explained, the money that is not put into the fund by the legislature still goes in, but as a loan. And it’s this loan that gets in interest rates at the actuarial 8.5% assumed rate of return for the state’s investments.

Nappier would like to see the legislature reign in spending, but also sees importance in reducing the interest on the debt. “We are investigating whether to issue a pension obligation bond to move to a less expensive form of debt, hard debt, but less expensive.. But it has to make economic sense for the state.”

“Unless they change the law it’s part of the cap, that’s 2 billion that they can’t use for other capital improvements. but it’s debt and should be treated like debt.”

She points out another advantage, “The bond issue can be used to lock in the states commitment to contribute to life of the bond”

Nappier sees that investing in Connecticut is linked to the financial health of the state, and is linked to the financial health of its citizens. She sees her office as the catalyst for financial education, to provide more information and training for Connecticut residents, collaborating through non profits and financial services firms. The Treasurer’s office has sponsored summits on financial matters like: The Youth Financial Education Conference, The Money Conference for Women, and the Connecticut Latino Personal Finance and Wealth-Building Initiative.

“What does it mean to be a good corporate citizen in Connecticut, how are you giving back to the community,” Nappier asks. It’s this mindset that guides the performance based results that mark the successes of Nappier’s decisions.

5 comments:

ken krayeske said...

Nappier is to be congratulated on running such a tight ship.

However, I disagree with the premise of investing pension funds in companies like Disney. Certainly, ESPN has done wonders for Connecticut's economy, at the same time, I don't see that Disney's stewardship of publicly-owned property has been responsible.

The corporate media monopoly of Disney has proved harmful to free expression of ideas, and I think that as Nappier moves forward for another term, she should begin looking deeper at the social costs of her investments, like carbon emissions costs and unfair labor practices? In the companies Ms. Nappier chooses to invest in, what is the ratio of CEO pay to lowest worker?

I would prefer to see Ms. Nappier begin investing pension funds Connecticut - using the pension monies to rebuild our cities. With the projected population growth in the United States for the next 30 years, reconstruction of our urban areas will be a must, and it can also be a profitable venture for public monies.

The pension funds can be secured through solid planning. I think that we should have very little money invested in the stock market, because when bombs drop, the stock market rises.

As we take steps towards creating a just society, we have to examine all the places where our government perpetuates injustice.

As the top rated treasurer in the country, she is in a position to move forward on some of these issues, and I hope she does.

Anonymous said...

Good post after an apparently long interview. Not all issues can be covered but ken k's point about Connecticut investment is valid. Therefore, please note that Nappier has a strong policy (and great success with) investing in Connecticut based companies as well as minority and women owned and led companies. You can check it out. Good job turrfgirl. Great job Denise.

Shadow said...

Great points, Ken. The Bush Presidency has shown us that we have the potential to destroy our country pretty quickly with irrational decisions; our only hope to protect ourselves from this in the future is to begin deconstructing the inherant incentives reinforcing the military industrial complex of which Dwight D. Eisenhower so gravely warned in his final Presidential address. The more state money we have invested in the stock market, the more of a financial incentive the state of CT has for the US to go to war with somebody... anybody.

Anonymous said...

Shadow the stock market has been the engine that has created wealth in this country, lifting people out of poverty by fueling job growth. To say, don't invest in the stock market is a ridiculous statement. Maybe you mean don't invest in defense contractors/industry.

Shadow said...

I didn't say private individuals shouldn't invest in the stock market; they absolutely should (wisely), as their investments are good for our economy.

I said that the state should not have a financial incentive for the US to attack other countries; in a severe budget crunch, that would put pressure on lawmakers to support war policies based on factors besides the policy's actual merits. This would clearly be an even bigger problem in the federal goverment, were they to say privatize social security and put it in the stock market (as has been suggested by many Republicans).

President Eisenhower's argument in his farewell address was simple and clear: as long as we have a good part of our economy invested in the military, that part can logically only thrive in the long run if we remain at war, and thus we must always be wary of pressures on the government to instigate war based on those economic motivations.

It is gravely sad that we as a nation do not heed these words, and even more bizarrely ironic that it has been Republicans who have been the quickest to ignore the words of a Republican President, not to mention one of our nation's greatest military generals.