The role of fund directors was a focus of a recent speech by Norm Champ, Director of the SEC Division of Investment Management. Mr. Champ stated that he is interested in “maximiz[ing] the value of fund boards for fund investors” and would “like to hear from directors about areas where directors believe they are adding value and, in contrast, about areas where they feel that their oversight is more difficult to manage.” He detailed a number of areas he would like the Division to look into, including whether directors are overextended, whether there should be a limit on how many funds directors oversee, and whether directors are equipped to ask tough questions and make difficult calls. The relevant excerpt from Mr. Champ’s speech follows:
There are a number of issues we hope to discuss with fund directors. Are fund directors overextended? Are fund directors’ responsibilities appropriately allocated? Do fund directors spend time on the issues where they can provide the most value?
Are fund directors asked to oversee too many funds? I understand the efficiencies of a single board for multiple funds within a fund family. But at some point, does it become too many funds? How many is too many? Is it 4? Is it 14? Is it 140?
Are fund directors equipped to ask the tough questions, and make difficult calls? For instance, do fund directors focus appropriately on the fees paid to sub-advisers versus the advisers that oversee them? Do fund directors examine whether an adviser’s fee is appropriate given the oversight function they perform, as opposed to the day-to-day portfolio management function?
Do fund directors focus on fee arrangements of securities lending agents, particularly if they are affiliated? Does that focus include flat fees as well as the so-called “fee-splits” for the return on investment of securities lending collateral?
And are fund directors able to focus on these and similarly important issues on a fund-by-fund basis? Many issues related to individual fund expense and fund performance do not lend themselves to consideration on an across-the-board basis. Fund investors in individual funds deserve independent director focus on the particular fund they own, not just a focus on the fund complex generally.