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Blass Remarks on Board Outreach, Efforts to Effectively Focus Director Oversight

In a recent speech, the SEC’s IM Division Director Dalia Blass discussed the division’s board outreach and recent efforts to modernize fund director responsibilities. Blass said she has interacted with a variety of boards and has seen a “a striking amount of commonality among what directors believe boards should be doing and where they believe existing requirements are not serving investors as well as they should.” She noted that directors consistently talked about three oversight issues: the quality of service from the fund’s service providers; the reasonableness of fund costs; and whether the fund is delivering the performance that investors would expect. She discussed recent no-action relief on cross trades and said the relief was in line with her observation that directors want “to focus their time on the inquiries that are more likely to reveal problems” and not on tasks that are already being performed by the CCO.  “Over and over, we heard that this rule and similar affiliated transaction rules require compliance reviews that are duplicative of work that fund CCOs are already doing. Moreover, rather than adding a helpful additional layer of oversight, this duplication is competing for board time with more effective lines of inquiry. … The new no-action letter responds to a request describing an alternative approach to these affiliated transaction reviews that fully utilizes the CCO and the compliance rule structure, and the letter explains that Division staff would not recommend enforcement action if a fund follows that approach.” Blass also touched on the emergence of technology in the boardroom and the need for continued training and education for directors. She noted that the board outreach is ongoing and that the division has developed an informal framework to guide its thinking, leaning toward efforts that “effectively empowers boards to follow robust lines of inquiry.”

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