The Search for New Fund Directors - November 2008
Written by Jay Keeshan and C. Meyrick Payne   

 MPI’s last bulletin discussed the effectiveness of mutual funds and their governance model during the recent economic upheaval.  It stressed the importance of mutual fund boards as well as the prospect of their getting more attention as a new financial regulatory structure is laid out.  While much is still to be determined, it is likely that there will continue to be a need for highly qualified individuals to serve as independent directors to help oversee America’s mutual funds, exchange traded funds, and potentially even hedge funds.

The total number of independent fund directors in the US is approximately 2600, serving on around 600 boards. Tenure for directors is often about 20 years, which would suggest that only 130 positions or so open up each year.  While that is a relatively small number, it does not mean that qualified and interested individuals shouldn’t investigate the possibility of pursuing a directorship.  The fund industry should (and does) attract the best, brightest, and most qualified candidates.  Being elected as a fund trustee is a desirable position.  It provides one with a sense of duty, intellectual engagement, and broader financial experience, as well as compensation that can range from less than $20,000 to up to $200,000 and beyond.  

 Here are some issues for prospective directors, as well as current directors charged with filling a board slot, to keep in mind during the search process:

• Specific skills – A significant trend has been the shift by some boards to recruit experts in particular subject areas, such as compliance, derivatives, valuation, or best execution.  We call this the “T-Shaped” director: one who has a broad business background, as well as deep expertise in a particular financial field.   Aspiring directors with specific skills would do well to highlight them when approaching boards.  And nominating committees should seek to understand gaps in the current board skill sets which will be needed to govern in the next 5 to 10 years.

• Availability – Serving on a board can be very time consuming.  Directors must be available for all board meetings.  While 4-5 per year is still the average, many boards, particularly at large fund complexes, meet from 7 to 12 times per year.  In addition there are often committee meetings as well as the possibility of special meetings called due to specific, unexpected issues.  Meetings are not optional, regardless of the compensation structure.  If a director is unable to attend virtually all meetings, he/she should step down.  Preparation is also of utmost importance, with the board materials typically arriving a week or two before each meeting.  These materials can sometimes be measured in feet rather than inches.  There is a need to stay current with industry developments through continuing education.  Many directors make a point of attending at least one industry conference per year.
• Location – The majority of meetings are held in boardrooms, so proximity to the meeting venue is important.  Long distances can add significantly to both the time and expense required for serving on the board.

• Communication – Directors must be willing and able to express themselves to the rest of the board, as well as to management and other parties involved.  Directors help no one by keeping their thoughts to themselves; conversely directors who monopolize meetings are equally ineffective.  Communication can be in person, by telephone, or often via email.

• Previous board experience – While rarely a requirement, past experience serving on another board (corporate, charitable, etc.) can indicate to both the board and the candidate that he/she has what it takes to serve.  Conversely if a candidate is on too many boards, there may be a question of availability.  Serving on more than one mutual fund board, while allowed, may be seen as a conflict, particularly if the fund groups compete for shareholders, distribution, or human resources.

• Conflicts of Interest – Conflicts are a major issue, touching upon numerous subjects that range from personal investments to family member employers.  Candidates must confirm that there are no current conflicts, and be prepared to resolve them or step down should one present itself.  When a fund group has many sub-advisors or serves as a sub-advisor, the “umbrella of potential conflicts” is surprisingly large.

• Familiarity – It is helpful to have a candidate who is familiar with the fund complex—not specifically with the advisor or its management—but rather an understanding of the structure and history of the fund family.  A minimum personal investment in the funds they oversee is a common requirement for directors, as it illustrates that they share interests with shareholders.

• Chemistry – Finally, as with most organizations, there needs to be a personality fit among the board members. While directors don’t have to be close friends (and perhaps shouldn’t be), meetings are long and the issues are critical, so a positive, well functioning working environment is important. 

Connecting Candidates with Boards

Candidates and boards find each other in various ways, and those interested in finding a position on a mutual fund board have a number of options.  Visiting the websites of the Mutual Fund Directors Forum or the Independent Directors Council is one way to get started.  A few of the board headhunters/executive search firms also look for fund directors.  Any contacts with fund industry participants could be helpful in getting one’s name out in front at the right time.  Direct contact with the nominating committee chair of a fund might also prove effective.


Management Practice, Inc. consults for mutual fund boards and has assisted many boards with the trustee search process.  MPI also publishes “The Uneasy Chaperone” which describes the director’s job in greater detail.