The Evolving Roles of the Triumphant Triumvirate
May 9, 2005
Just as swiftly as the mutual fund scandal cleaned house among fund advisor C-suites, a new trio of top chiefs have emerged as the triumphant triumvirate.
These include newly knighted chief compliance officers (CCOs), as well as the independent chairpersons who now preside over some - although certainly not all - fund boards.
The official time frame for appointing an independent board chair is still several months off, and the Securities and Exchange Commission rule is currently being legally challenged by the U.S. Chamber of Commerce. Until push comes to shove, in many cases fund boards won't nudge out fund company executives who serve as board chairpersons, although many have lead independent directors in place.
That powerful trio is rounded out with chief information officers - also known as chief technology officers - who are critically important players in many aspects of a mutual fund firm's operation, including legal and compliance areas.
These fearless leaders, all working in tandem, largely have new roles and responsibilities, a new focus and a new sense of purpose. They are also wielding a great deal more power, thanks to the series of new regulations the SEC has fired at the industry as it tries to mop up the mess created by a host of unearthed abuses.
So how are these empowered individuals handling their ever-increasing responsibilities, changing roles and inside interaction among themselves and others?
CCOs: Top Cop on the Compliance Beat
CCOs are the hot commodity right now in light of the new SEC rules that took effect last Oct. 5, and require mutual fund boards of directors to approve the appointment and salaries of these top compliance cops. In their new role, which is still evolving, they are required to carry out the firm's compliance policies and procedures, report directly to the fund's board of directors and prepare annual compliance reports, in addition to carrying out other duties.
While all firms were required to appoint and retain a capable individual to fill the new CCO position, not all CCOs are created equally.
"Companies want their CCO to think like a business owner and be able to relate to top-level executives and board members, all while running a tight ship," said Dan Kreuter, president of DAK Associates, the recruiting firm in Conshohocken, PA. The new breed of CCOs "don't necessarily have to be attorneys, although a law background is a plus, and having worked for the SEC or the NASD is a prize," he said. "What CCOs must have are strong leadership skills." That contrasts with individuals who may fully understand technical matters, but aren't necessarily leaders, he added.
In addition, competition for competent CCOs has driven salaries sky high, with many demanding - and receiving - "multiples of six-figure incomes," Kreuter admitted. This escalation in compensation has, in some cases, created bidding wars, but also turned some new CCOs into likely "lifers," said one former fund industry president who spoke on condition of anonymity.
With one felt swoop, "Eliot Spitzer has created the Compliance Employment for Life Act of 2004," Kreuter quipped.
So how are CCOs approaching their new roles?
For some who are not new to the fund company but have instead agreed to assume the new role, it is compliance business as usual - only with added responsibilities.
"This job, by its nature, is dynamic," said John Gilner, CCO at T. Rowe Price in Baltimore, who stepped up into the new role last Spring after having served as the director of compliance since October 2003. Gilner joined T. Rowe in 2000 and originally served as legal counsel with a compliance focus. Gilner still reports directly to T. Rowe top counsel Henry Hopkins, although he has the added responsibility of reporting to the board, he said. "We are at the center of seeing that acts of the firm are in accordance with SEC regulations and contractual requirements with clients."
There have been no significant changes although the role does add some formality to the reporting lines, Gilner observed. "The role has defined certain specific tasks that need to be addressed, and that has caused increased interaction with the board and its lead independent director," Gilner noted. Not only does he attend regular board meetings, but also attends committee meetings and separate meetings with the lead indy director, as the point person for the whole board, to talk and discuss issues, he said.
More frequent interaction with the board is a direct result of the new CCO mandate echoed industry insiders. At Dreyfus Corp. in New York, for example, the firm's CCO attends all board meetings as well as all executive sessions of the board where independent directors meet separately without a management representative present.