Last December, Governor Arnold Schwarzenegger created a new panel to figure out how to solve what may be California's worst-ever budget crisis. The state's two biggest retirement funds will owe at least $49 billion they don't have, and Californians will be paying this bill for decades. The man Schwarzenegger chose to lead this historic undertaking is commission chairman Gerald Parsky. But for the hundreds of thousands of teachers and state employees who depend on these funds, his appointment should be cause for alarm. Just ask the employees of the University of California.
Parsky's reputation as a financial genius is undisputed, at least among the people who count. A former official in Richard Nixon's Treasury Department, Parsky made a fortune in real estate, junk bond, and venture capital investments. In the 1990s, he gradually rose through the ranks of the California Republican Party until he became one of the state's most important power brokers. He raised millions to organize the 1996 Republican National Convention in San Diego, and chaired the state presidential campaigns of George W. Bush in both 2000 and 2004. Today, he reviews candidates for California US Attorney positions on behalf of the Bush Justice Department. He has been appointed senior economic adviser to presidential candidate John McCain; if McCain is elected president, Parsky could well become the next secretary of the Treasury.
But it was in his capacity as a regent of the University of California that Parsky made his greatest impact. In the ten years before he took over as chair of the Regents' Investment Committee, the university's pension plan, which provides retirement benefits for more than 190,000 employees, made a small fortune playing the stock market and investing in long-term bonds. The fund earned so much money that it literally paid for itself in fact, employees haven't had to pay into their pension plan since 1990. These generous retirement benefits have been critical in attracting renowned professors and researchers, who draw considerably lower salaries than they would at top-tier public or private universities. Without the pension plan and other benefits, the university would be starved of talent.
In 1999 and 2000, in a series of secret meetings, Parsky spearheaded an effort to radically remake the pension fund's investment philosophy. Under his leadership, the regents gave hundreds of thousands of dollars to a Los Angeles investment firm to recommend and implement changes to the way the university invests tens of billions of dollars. At the same time, the president of that firm, Wilshire Associates, gave tens of thousands of dollars to the very Bush presidential campaign chaired by Parsky.
Wilshire, Parsky, and the Regents' Investment Committee farmed out control of the investment fund to an army of pension consultants and money management firms, ending the decades-long practice of using university staff to trade stocks themselves. Along the way, they humiliated and destroyed the reputation of Patricia Small, the UC treasurer who had managed the investments for years and strenuously opposed their plans. Billions of dollars in stock were bought and sold in the midst of a massive stock market crash.
Seven years later, what was once one of the most lucrative pension plans in America is in desperate trouble. Before Parsky and his colleagues restructured the investment strategy, the university's fund easily made more money than the average pension plan. Now, it ranks among the country's worst performers. Before Parsky's reforms, the university paid nothing to outside money management companies, aside from a small venture capital arm. Last year, the UC treasurer's office paid at least $32 million to forty different money management companies whose investment advice may have cost the fund billions of dollars.
Now, faced with sharply declining investment revenue and rising retirement benefit costs, university officials have asked their employees to start paying money back into the pension fund for the first time in seventeen years. The amount is projected to steadily rise over the next few years until it constitutes 8 percent of each employee's paycheck. Many claim that they can't possibly afford such a blow, especially those who are struggling to pay California's record mortgages. From professors to secretaries and janitors, more than 120,000 university workers now face one of the worst personal financial crises in the institution's history.
Gerald Parsky led a campaign to remake the university pension plan from top to bottom, and the retirement future of almost 200,000 people has been profoundly damaged. Thanks to Governor Schwarzenegger, this same man has now been asked to reform two of the largest public pension plans in the country. Hundreds of thousands of people now depend on him to make the right decisions. In the last seven years, the employees of the University of California have learned what happens when he makes the wrong ones.
In the late '90s, Patricia Small ran the UC treasurer's office, supervising a modest staff of analysts. A lifer with 28 years in the system, she oversaw the university's pension portfolio, mostly stock in 65 to 80 big companies, plus some bonds and venture capital. Small's investment performance was remarkable even by the standards of the go-go 1990s. According to university records, the retirement fund earned an average of 15.6 percent per year from 1990 to 2000, while the median performance for comparable multibillion-dollar portfolios was 13.5 percent. In a 2000 San Francisco Examiner story, former regent Glenn Campbell sang Small's praises: "Her rate of return has been outstanding, higher than almost any other university."
Parsky's rise began around the time Small started at UC. In 1971, he became a special assistant in Richard Nixon's Treasury Department. There he met his future business partner William Simon, and was promoted at age 32 to become an assistant secretary of the Treasury. The two went on to build an investment firm that made both of them rich, but Simon left in 1991 following an acrimonious business dispute. Parsky renamed his company Aurora Capital Partners, buttressed his fortune with lucrative investments, and became a player in the California GOP. He was appointed to the UC Regents by Governor Pete Wilson and he headed the host committee when the Republicans held their 1996 convention in San Diego, securing the party millions in donations. Later, as a Bush fund-raiser, he proved second only to Texas campaign chair Kenneth Lay.
In February 1999, when Parsky chaired the Investment Committee of the UC Regents, he convened a series of closed-door meetings with a select panel of regents, at which the regents hired Wilshire Associates to analyze the UC pension fund's performance. For this, the Los Angeles investment firm was paid nearly $350,000. A few months later, its analysts returned with a dire forecast: The fund had serious problems.
As the dot-com boom went into overdrive, Small had dumped some stock and bought up long-term bonds. Because interest rates were remarkably high at the time, her move locked in a steady flow of cash as a hedge against a market crash. But Wilshire claimed that her plan exposed the pension plan to too much risk by holding so much in long-term bonds and investing in just eighty companies. The consultant recommended dumping many of the long-term bonds and reinvesting as much as half of the domestic stock in index funds: large, diversified collections of securities designed to mimic overall market performance.
Small and her staff fought back in reports and letters to the regents. Long-term bonds actually lowered the risk, she said, because their lifetimes are better synchronized with the way the fund pays out retirement benefits. And selling and reinvesting billions in assets would cost millions in brokerage commissions and fees. If the university did what Wilshire asked, it would spend a fortune just moving cash around.
But what really bothered Small was more fundamental. As she recalled in a 2004 letter to the regents, she was worried that the university was poised to radically and swiftly change its investment philosophy on the advice of a single consultant. Furthermore, she wrote, Wilshire never properly analyzed the risks of its own investment strategy. And those risks were clear to any prudent investor. By spring of 2000, the dot-com bubble was beginning to burst, and the financial press was filled with trepidation.
Wilshire's people were barely interested in her opinion, Small wrote in 2004. "The only time the treasurer's office met with Wilshire for the 'office review' was for one day in the month of February 1999," she wrote. "As treasurer I was dumbstruck that not once did Wilshire ask about portfolio risk, how it was measured and controlled. I was so startled that I complained immediately to the Investment Committee Chairman. ... I was told 'not' to pursue the issue."
In fact, according to Small's letter, her access to the regents was suddenly, inexplicably curtailed. In January 2000 she was ordered not to talk to any regents about investment matters outside of their board meetings. University vice president Michael Reese denies that Small was forbidden to talk to the regents, but refused to elaborate, citing confidentiality issues.
Former regent Ward Connerly is best known as the man who ended UC's affirmative action policy, but he also was dedicated to its finances. He chaired both the finance and audit committees and sat on the Investment Committee. Connerly recalled that Wilshire's people ruled the day, baffling regents who thought the fund was doing just fine. "The whole field of money management is surrounded by such mysteries," he said in a recent interview. "Deliberately, in many cases. They come in with all these actuarial studies and dazzle you with bullshit. ... And so these people came in and threw all this nonsense at you about what Harvard and Yale are earning, even though you believe your performance is doing a magnificent job."
Parsky made Wilshire's job easier, Connerly added, by attacking Small's job performance in ways that seemed a little too enthusiastic. "We didn't want to challenge the chair of the committee who was himself sort of involved in this area," the former regent said. "There were those, however, who were wondering whether this was a personal dispute between the chair and the treasurer."
By late spring of 2000, Small was fighting for her career. In a May 15 letter to Parsky that was copied to the rest of the regents, she said that Parsky had apparently decided her conduct was so unprofessional that he was doing a "performance review." This, she wrote, was based not upon her years of service, but the previous two months of what Parsky had allegedly characterized as "evidence of poor attitude, a lack of commitment to the Board of Regents, or incompetence."
UC vice president Reese responds that "annual performance reviews are standard practice for all employees." But judging from Small's letter, this review was anything but commonplace. Indeed, her tone was almost frantic. "I respectfully note that there seems to be a high level of miscommunication and misunderstanding as to the reasons for my recent actions, and a misconstruing of my motives," Small wrote. "I have no agenda other than the best interest of the regents, the beneficiaries of the investment portfolios, and the financial protection of the university investable assets."
Again she maintained that Wilshire was pushing major changes far too quickly. "The Board of Regents has historically moved very cautiously when making decisions of such financial magnitude," Small insisted. "While following a more open, informed, and independently evaluated process may not be as 'speedy' as consultants to the university may like, the due diligence and reasonable business judgement rules require me to advise the regents there are 'risks' of implementing a new 'Plan' with new benchmarks without following tried and true financial analysis."
Three days after Small sent her letter, the regents handed Wilshire another $350,000 contract this time to implement the very changes it had recommended.
Why, after so many years of stellar returns, were the regents racing to put outside money managers in charge of tens of billions of dollars, and paying Wilshire handsomely to make it happen?
A story in the San Francisco Examiner may have shed some light on the mystery. In July 2000, reporter Lance Williams revealed that Dennis Tito, Wilshire's president, had donated $80,000 to the California presidential campaign of George W. Bush the very campaign fund overseen by Gerald Parsky just one week before Parsky and the regents granted Wilshire its second major contract. The previous year, Williams reported, Tito and a number of other Wilshire executives and their wives had given a total of $10,000 to Parsky's Bush campaign. Not long after, Wilshire scored its earlier contract to analyze the fund's performance.
Parsky denied that he was trying to fire Small, or that he'd done anything improper. "I have never had any contact with Mr. Tito about making contributions to the Bush campaign," he told the Examiner. But the story clearly rattled cages at UC. The Express has obtained a draft of an open letter written by the regents' staff that Small claimed she was asked to sign. It reads in part: "Despite misleading news reports, these steps have been undertaken with the full input of the regents, the treasurer's office, and outside investment experts. The review was conducted in a manner consistent with university practices and in the best interests of the university, its employees, and pension funds. As a result, we are confident that the pension fund will continue to provide robust and secure benefits to the university employees it serves."
According to UC's Reese, Small was never asked to sign any letter, and adds that the treasurer contributed a quote to a press-release expressing confidence in the fund's future. Small maintained that she was asked to sign, but would not.
In any case, the treasurer recalled spending the middle of 2000 in a shell-shocked limbo. Her mother was entering the final stages of a terminal illness when, according to Small's 2004 letter, John Davies, then-chair of the board of regents, quietly approached her and suggested she might consider "retiring." By August, her lawyer had received a severance deal from the university that included a section threatening financial retaliation if the treasurer "disparaged" the regents. Small's lawyers, she wrote, were told she would be fired if she didn't sign the contract. So she signed.
Parsky was given ample opportunity to comment for this story, but did not. University spokespeople said he was "traveling," and requested questions in writing. Parsky never answered them, but Reese released the following comment: "The Express' latest series of questions assumes the inaccurate premise that the university's investment policies were revised in 2000 as a result of personal conflicts, business intrigue, and political conspiracy. The questions about Regent Parsky, in particular, are based on old, discredited stories and border on character assassination." (Lance Williams, now at The San Francisco Chronicle, says his reporting was never discredited.)
For his part, Ward Connerly is still bitter about Small's ordeal. "I thought Patty was treated badly," he said. "She didn't deserve her fate. I felt that then, I said and I will say that now. ... Outside money managers would love to get their mitts on a portfolio as large as the University of California. So I had questions whether someone was setting Patty and her staff up by making claims about her performance and morale and other things, pointing the finger at the treasurer.
"Some very good regents who were very active when I came in ... paid a lot of attention to what went on with the investments," Connerly said. "Just one of those guys would spend more time than any of the present regents combined. So they were monitoring this thing, and they were tickled by the performance, and then all of a sudden, and it really happened very hastily, there was all this criticism of her performance?"
In November 2000, in accordance with Wilshire's recommendation, UC traders sold nearly $11.6 billion in stock in a single week. That's according to Jeffrey Heil, who managed the equity division at the time and claims the move was perfectly appropriate. But Small insisted that it was irresponsible. In her letter to the regents, she wondered at the rashness of the act: "How could Wilshire have ever recommended the speed of such a major change?" she wrote.
That was just the start of the outsourcing. By late 2002 the university had laid off all its in-house equity traders and was paying millions to external fund managers to oversee its entire stock portfolio. According to Heil, who lost his job in 2002, that move led to a steady erosion in profits. "All they were doing was paying these expensive outside firms with high fees to do the same as we were doing in-house, but at a much higher cost," he said. "They were overpaying in management fees and getting underperformance from their managers kind of the worst of both worlds."
Because investments are always more volatile in the short term, it would be unfair to judge Wilshire based on the UC fund's performance a short time after Small's ouster. But over almost seven years, the numbers have shown a sustained pattern of mediocre profits. Nearly every pension portfolio in the country is now doing better than the university's. According to a report by State Street, the university's custodial bank, 86 percent of large US investment trusts outperformed the UC pension fund from 2001 to 2006. Figures from the National Association of State Retirement Administrators and the investment firm Northern Trust also highlight the university's subpar returns. Had the pension plan even performed as well as half of its peers in the five years ending June 30, 2006, it would have netted an additional $3.3 billion.
When asked about this downturn, the treasurer's office responded that its portfolio had beaten an important industry benchmark, the S&P 500/Lehman Aggregate portfolio, between 1999 and 2006. But that calculation includes the 1999-2000 fiscal year when the fund, still under Small's leadership, beat the S&P 500 by a country mile. The university is using results from the very investment philosophy it repudiated to obscure the failings of its new strategy.
Even some of Parsky's peers have complained. "A number of regents have asked why the university's returns are not comparable to those of other educational institutions," the minutes of an investment committee meeting stated last year. "Regent [Paul] Wachter recalled that a chart showing investment results for seven large universities had appeared in The Wall Street Journal. The results for the University of California were the worst among those institutions. He questioned why UC cannot perform as well as Harvard."
Despite the fund's poor showing, at least a few parties made out like bandits. In fact, the close dealings between Wilshire Associates and the university raised questions about conflicts of interest. Besides the suspiciously timed Bush campaign contributions, UC eventually hired Wilshire to implement its own recommendations. This violates a fundamental ethical principle, said Edward Siedle, a former Securities and Exchange Commission lawyer who has investigated pension fund abuse for 25 years. "It's like you going to a Ford dealer and saying, 'I'll give you a hundred dollars to tell me what car to buy,'" he said. "And they'll say, 'Great, buy a Ford.'"
Connerly also objected to giving Wilshire the second contract. He complained, according to the minutes of one meeting, that "by recommending a consulting fee of $400,000 in the plan, Wilshire had effectively determined what its fee should be." In addition, he argued that hiring Wilshire would set it up to win yet another contract this time to serve as the university's general pension consultant. "Connerly suggested that the continued retention of Wilshire Associates would provide them with an advantage over other firms," the minutes stated.
Sure enough, Wilshire scored the general pension consultant contract a year later, a deal worth more than $1.3 million over three years. And while serving in this capacity, Wilshire sold the treasurer's office access to its proprietary Compass software, netting itself $108,000 more.
This isn't the first time Wilshire's conduct has been questioned. In late 2003, according to a story in Money magazine, Wilshire was implicated in a "fast trading" scandal in which company officials used specialized knowledge of overpriced securities to rapidly buy and sell millions of dollars in mutual funds, netting a tidy profit without any risk, but running up the commission costs for small-time investors. The scheme was perfectly legal, but reeked once again of conflicts of interest. Mutual-fund managers knew that Wilshire, as a pension consultant, could recommend them to handle money for Wilshire's pension-fund clients, so they had a strong incentive to let the firm dip in and out of their funds. That scandal may have made Wilshire too hot for the university when its contract expired in 2004, the regents went with another company.
But the damage was done. Letting Wall Street handle its pension portfolio has cost the university a fortune in yearly fees and commissions, even as profits have lagged. Under Small's leadership, the fund spent roughly $5.5 million a year to buy and sell bonds and almost nothing to trade stocks. The year after her resignation, bond commissions jumped to $11 million last year, the university paid more than $22 million. Meanwhile, UC paid private fund managers $32 million last year to trade stocks it used to handle in-house.
Financial outsourcing is hardly limited to the University of California. With roughly $6 trillion in assets at stake, public pension fund management and consulting is among the most lucrative corners of the financial services industry. It's also one of the least regulated. In 2005, the Securities and Exchange Commission wrapped up an eighteen-month probe of 24 pension and 401(k) fund consultants. Nearly four in five, the SEC reported, had financial relationships with the money managers they were recommending to their pension clients, even as most of the consultants purported to provide impartial references. Sometimes they sold software to the money management firms The New York Times reported that some money managers viewed the purchases as simply a way to ensure that their services were recommended to pension fund trustees. The SEC also found evidence of kickbacks: Some consultants sought out managers willing to route the stock trades back to the consultant's brokerage wing. According to The Los Angeles Times, Wilshire, one of the companies surveyed, received a letter from the SEC "suggesting the firm improve its disclosure."
Might Wilshire have recommended managers who in turn hired it to broker the trades? That's difficult to assess, since university officials swear they don't know who pocketed the millions in brokerage commissions they have paid out since 2002. "The treasurer's office tracked commissions when these assets were managed internally," spokesman Trey Davis wrote in an e-mail. "They are not tracked now; rather, the commissions are just netted against transaction costs."
Former SEC lawyer Siedle isn't buying it. "That's horseshit," he countered. "The university knows exactly who got paid to do what. They have to by law. A fiduciary is charged with monitoring costs. One of the most significant costs of running a pension plan are brokerage commissions. They're lying to you about that. And if they're not, they're really fucking up."
When asked again to review its brokerage commissions, university officials did not provide any further information.
Indeed, it seems as if the worse the pension fund does, the less willing the university is to tell the public. For example, comparisons of the fund's performance versus similar pension plans and investment trusts were once a regular feature of the treasurer's annual reports. But as fund performance began to go south, the regents and the treasurer's office became reluctant to compare it with its peers. At an investment committee meeting on May 15, 2002, Parsky noted that the committee "had urged that the regents not pay close attention to the university's peer institutions, which tend to have very different investment profiles." By 2005, the regents' new pension consultant had delivered a lengthy report arguing that such comparisons were useless: "They appeal to the 'horse-race' mentality in the investment community."
Last January, Charles Schwartz, an emeritus physics professor from UC Berkeley, was the first to publicly note that the university's bank had listed the pension fund among the nation's lowest performers. When UC officials gave him the data after repeated Public Records Act requests, they were careful to state that "The treasurer's office has moved away from peer group comparisons."
According to Schwartz, this was just part of a long-standing pattern of obfuscation on UC's part. For the past seven years, this retired professor has obsessively catalogued the fund's performance and analyzed every report by Wilshire and the treasurer's office, pointing out what he claims are critical flaws in the consultant's risk analysis and demanding the minutes to secret regents' meetings.
The regents, many of whom are investment and business professionals, dismissed Schwartz as a gadfly. After all, he has complained publicly for decades about the board's lack of accountability. In the early 1990s, as a state budget crisis drove up UC student fees, Schwartz started a campaign to "democratize" the regents, whom the governor appoints to twelve-year terms. His effort flopped, and the professor set out to enjoy his retirement. But when Schwartz began reading news accounts of Small's ouster, something didn't feel right. Thus began his long campaign to analyze every financial report and catalogue every conflict-of-interest allegation against Wilshire.
Schwartz is no investment expert, but he is a physicist who knows his numbers. To him, Wilshire's pension-fund analysis reads like mathematical nonsense. "A key part of their report was making projections of future performance on the investments," he said. "Any such projections must involve a lot of uncertainties. And in the Wilshire report it was just ignored. The numbers were just put down as if they were absolutely reliable.
"About a year later, I discovered that the numbers were just plain wrong," Schwartz said. "After some correspondence, it was admitted that yes, they made a mistake."
Schwartz eventually published a series of papers on his Web site that meticulously critique the regents' rationale for switching investment strategies, and document his campaign to get information. The regents continued to laugh him off literally. In a January 2003 dispatch, Schwartz recalled listening to a broadcast of a regents' meeting: "I heard one regent ask, 'Will you send a copy to Professor Schwartz?' A round of laughter ensued."
They stopped laughing later that year, when Schwartz, the Coalition of University Employees, and the San Jose Mercury News sued to force the university to release minutes of its secret meetings. UC lawyers appealed all the way to the state Supreme Court, but eventually lost and had to comply.
The secret meetings also revealed a disturbing practice. Since the regents had to reveal pension fund figures to the public, they discussed how they could minimize the impact by timing the disclosure to coincide with the 2002 election. "The Chronicle will be full of other stuff," regent Peter Preuss assured, according to a Mercury News report. At one point, Norman Pattiz asked his peers, "When is this going to hit the fan?" When told the numbers would be made public the day after the election, he replied, "That's good." The other regents laughed, and Bruce Lehmann, a consultant, interjected, "Thank God the doors are closed."
At the Berkeley Faculty Club last month, professors and other employees picked at a spread of hummus, falafel, and artichokes. But Ari Krantz, an attorney for the university's 65,000 unionized workers, quickly tarnished the buffet with some bad news. Just a few years back, he told them, the pension fund was making enough money to pay all of its members' retirement benefits and still have hundreds of millions of dollars in profit. Now, Krantz announced, the fund was so broke that within two years, it would be unable to even cover the benefits. For almost seventeen years, employees had enjoyed an extraordinary "contribution holiday" during which they didn't have to pay into their pension fund. Those days, he warned, were over.
From professors to janitors, UC employees get relatively meager pay last year The Berkeleyan, Cal's in-house newsletter, reported that they get 10 to 15 percent less than colleagues at comparable institutions. Thousands of university employees have been willing to work for low pay precisely because their benefits are so exemplary. Now, many worry that the regents may undo one of the things that made working there worthwhile.
Krantz said that UC negotiators want employees to divert a portion of their paychecks to the pension fund up to 8 percent eventually. The university has promised to match the contribution, but what seems like a generous offer is, in fact, a fraction of what the regents once paid. "Historically, the university had paid many times what employees were paying, more like five-to-one on average," Krantz said in a later interview. "Employees would pay 2 percent of salary, and the employer would pay everything else." Now, Krantz said, there's a growing sentiment among union members that the regents are asking ordinary workers to pay for the university's financial incompetence. UC spokesman Paul Schwartz didn't dispute these facts but said Krantz has an alarmist way of characterizing the situation.
The unions are still bargaining with the university over contribution terms, Krantz said. If workers have to pay back into the fund, union leaders want UC to raise salaries to market rates. In addition, they want the pension fund turned over to a "joint governance" board that will give employees a say in how it is invested.
"I'm really quite angry this could happen," said Paul Brooks, a Cal spectroscopist on the unions' bargaining team. "It's almost as though there's been a shift in the last twenty years, where UC regents really cared for students and employees, to a private management philosophy where they think student fees should be raised simply because they're below market."
Joe Pulido has maintained buildings at UC Berkeley for 28 years. He remembers how pleased he was when the contribution holiday started. "Some of the people I know it's gonna be a hardship, because they don't make enough money to make ends meet as it is," he said. "I'm talking about a lot of my friends. They make less than $35,000 a year as it is. People these days are living month by month. They need the money now."
Connerly believes the university has only itself to blame. "You go from performance that had always been consistently good, and if it's now down, and there is a consistent pattern of being down, the employees better be asking some questions here," he said.
While UC workers ponder their new financial reality, Gerald Parsky is enjoying the highest stature of his career. Despite his track record, his position as chairman of Governor Schwarzenegger's special commission has raised no red flags as he sets out to tackle the profound financial problems facing the state's largest pension plans.
Steve Mehlman, a spokesman for the California State Employees Association, said his members were relieved that the governor didn't stack the commission with people who would try to convert the pension funds to a 401(k) system. "We believe the panel seems to be made up of reasonable people, and we're waiting, seeing what the panel is going to come up with," he said. Yet when asked about Parsky's history with the UC fund, Mehlman replied, "We were not aware of this."
While no one can accuse Parsky of purposely sinking any public pension fund, he has shown a clear predilection for hiring external managers even when they don't merit the contracts. What's more, the circumstances regarding Wilshire's hiring suggest that Parsky may be willing to put his political interests ahead of the public good. There's no denying he spearheaded a financial disaster that has led to billions in lost profits, tens of millions in unnecessary fees, and tens of thousands of employees who are now facing life- changing cuts in compensation. Now hundreds of thousands of state employees will have to wait and see how Parsky's leadership might affect their futures. They'll know by year's end.