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Re-Assessing the Mutual Fund Board Approach

Efficient and effective mutual fund Board meetings are vital to the success of a mutual fund family, no matter their size and/or complexity. Over time, meeting formats and structures evolve, particularly in recent years, as new rules and regulations have fundamentally altered the role of the Board. What was once a meeting primarily focused on investment management has become a more equally-weighted meeting between advisor oversight and regulatory matters. As we have observed and interacted with Boards, we believe there is an opportunity for fund Boards to review their approach with the goal of better meetings.

 Preparing an Effective Agenda

Our first recommendation is to review the agenda and put the items in the order in which they will actually be covered. Along the way, the attorneys, paralegals, and others involved in this process, forgot that Board members typically do not think in the same manner as '40 Act attorneys, who typically organize the agenda into the following order:

1. Approval of the Minutes

2. Report of the Advisor

3. Committee Reports

4. Quarterly Matters for Review and Approval

5. Annual Matters for Review and Approval

6. Other Business

7. Report of Counsel or Regulatory Update

8. Scheduling of Future Board Meetings

There are some variations, but we've seen this same general approach used by internal and external counsels, and it makes sense from their perspective. Items are grouped based on various '40 Act rules and serve as a helpful reminder of the general content of each meeting. However, we don't believe this approach factors in what makes sense for the Board. Our belief is that Boards would prefer to focus on the most important items first (so things don't get short-changed at the end), focus on exceptions rather than the routine, and have the meeting organized in such a manner that they can interact with the key presenters and cover everything in the event of limited time. For example, the chief investment officer's primary function is to direct the investments of the funds...not necessarily to sit through the report of the Treasurer on the process for finalizing the semi-annual report.

We recommend categorizing the agenda items. Generally speaking, meetings tend to break down into four broad categories, which might result in the agenda being reorganized as follows:

1. Investment Management

a. Economic and Market Review

b. Individual Fund Performance Discussion (perhaps a focused group of funds at each meeting for larger complexes)

c. Any Proposed Changes to Investment Strategy

2. Product Management

a. Sales and Marketing Report

b. Discussions Surrounding New Products

3. Legal and Compliance

a. Approval of Minutes, Compliance Report, Code of Ethics Reports and CCO Report

b. Policy and Procedure Changes

c. Committee Reports

d. Counsel's Regulatory Update

4. Operations

a. Review of the Prior Meeting's Follow-Ups

b. Performance Scorecards from Service Providers

c. Report of the Treasurer

d. Authorized Signers

e. Future Meeting Dates

Everything fits into one of these categories and, almost without fail, it will be one or two individuals responsible for presenting the various items within these sections. Each major section should require an executive summary from the person primarily responsible for the section. So, the CIO would provide the summary for the Investment Management section, the head of Product Management for the Product Management section, the CCO for the Legal and Compliance section, and a representative from the administration team for the Operations section.

To further improve the efficiency for the attendees, arrange the items within the section so you are not shifting from one presenter to another. In this approach, there is no accounting for what is a quarterly matter or an annual matter - there are just agenda items to be discussed for that section. We even change the format of the actual agenda to note not only the item and who is presenting, but also whether or not there are any exceptions (good or bad), what section in the book the supporting materials can be found, and whether or not a vote is required. Your new agenda might emerge as:

Obviously, a change like this requires that everyone maintain a solid governance calendar for the fund complex so the Board is assured nothing is missed. Further, it is still a good practice to review last year's, and last quarter's, book to serve as another layer of confirmation as to the agenda items.

Timing the Meeting

Another important element is your meeting timing. Many Boards employ a structure involving a morning start (usually 8:30 or 9:00, depending on committee meetings), and you might need to account for travel time. In most cases, particularly with small to mid-size fund groups, Boards are able to conclude around 2:00 pm and typically work through lunch. A concern is whether or not the Board had the full "energy" in the afternoon they did at the start of the meeting, so managing time becomes vital.