The Mutual Fund Directors Forum updated its best practices recommendations for mutual fund directors. The October 13 report, Practical Guidance for Mutual Fund Directors – Board Governance and Review of Investment Advisory Agreements, reflects legal developments affecting fund directors over the 10 years since the MFDF’s first report was released.
The report affirms many widely accepted and non-controversial practices concerning the role of fund directors as fiduciaries, and emphasizes the evolving consensus of best practices—including, among other things:
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Directors should focus on oversight, rather than micromanagement;
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At least 75 percent of a fund’s directors should be independent of the fund’s adviser and affiliates;
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Boards should “explore a variety of options to facilitate turnover” of board members;
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Independent directors should meet in executive session at every board meeting; and
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Independent directors “should retain knowledgeable counsel” to advise and assist them.
While the report contains no groundbreaking recommendations that would shock diligent independent directors, it serves as a valuable reminder that fund directors should be well informed, independent and diligent in carrying out their fiduciary responsibilities, particularly with respect to compliance oversight, the contract renewal process and valuation of portfolio securities.
