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Dear Board Doc: How Do We Know We’re Doing a Good Job?

The MFDF’s Board Doc is an occasional feature of the Daily News Feed that features questions from our readers. The answers and commentary provided in our responses do not constitute legal advice and should not be treated as such. Please consult with your independent counsel on questions of compliance with the securities laws and director fiduciary duties. If you would like the Board Doc to consider your questions, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..

Dear Board Doc: My question has to do with evaluating board performance. While I have found the board self-assessment process to be helpful in terms of evaluating my own board performance, I find it less helpful for evaluating the board’s performance. What are some good ways to measure collective board performance? Are there any existing frameworks for internal assessment of the board as a whole? 

A: Your question highlights a key difference between mutual fund boards and corporate boards of directors. Corporate directors have several, unambiguous benchmarks that can be part of a board performance framework, for instance year-over-year stock price.  For a mutual fund board, there are fewer bright-line performance measures, as fund directors do not directly participate in the adviser’s day-to-day operations. However, there are factors that can indicate whether a board has been successful in carrying out its fiduciary duties. Despite its limitations, the annual board self-assessment questionnaire is a good starting point. The feedback and data gleaned from peer assessments can signal governance red flags, uncover hidden talent or skills deficiencies, and indicate broad strengths and weaknesses on the board and its committees. Besides the self-assessment, there are other ways to review board performance. Whether undertaken through the governance or some other committee, the board can assess its strengths and weakness on engagement with management on key fund oversight issues such as fund performance and profitability.  Boards can also assess how efficiently information and communications flow between the board and management and year to year improvements. These assessments can be conducted in the same manner as the self-assessment via oral interviews, written questionnaires, or through a third-party. An accountable, give-and-take relationship with management can indicate that the board is asking all the right questions of management and getting the answers necessary to exercise its fiduciary obligations. Governance experts have weighed in on this topic over the years, and while most of the materials available are geared toward corporate boards, they can point to factors that constitute an effective assessment framework.

Resources: The MFDF’s white paper Practical Guidance for Fund Directors on Board Self-Assessments; a Deloitte white paper geared more toward corporate boards of directors; EY recently authored a paper on how companies are evolving the board evaluation.

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