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Getting Fund Directors on Board

Susan Ferris Wyderko, President and CEO of the Mutual Fund Director Fund, interviewed on May 2, 2012.

Morningstar Advisor, 07/25/2012

This article originally appeared in the June/July 2012 issue of MorningstarAdvisor magazine. To subscribe, please call 1-800-384-4000.

1. What’s the Mutual Fund Directors Forum’s mission?

The Forum promotes vigilant, dedicated, well-informed, and well-functioning independent directors and boards through a diverse set of materials and programs. The Forum also provides directors with a voice on issues facing the industry.

2. What traits make a good fund director?

Integrity, intelligence, curiosity, good communication skills, and an ability to listen to and challenge others’ viewpoints in an effective and collegial manner.

3. How do fund directors improve the funds they oversee?

Fund boards monitor fund performance, approve the fees paid for advisory and other services necessary for fund operations, and protect fund shareholders from the conflicts of interest that are inherent in money management.

4. Fund companies often use “fiercely independent” to describe their funds’ boards. How can a shareholder confirm that that’s the case?

All fund shareholders should be comforted by a regulatory structure that demands the presence of an independent board. Also, SEC filings contain a wealth of information about fund boards.

5. How do fund companies try to get on directors’ good side?

Good fund management understands the important role that the board plays and facilitates the board’s work by being open, transparent, and responsive to the board at all times.

6. How much time do fund boards spend on regulatory to-dos versus oversight of the funds’ investment strategy and performance?

The two concepts are not mutually exclusive. Boards have an important duty to oversee compliance. That said, boards have considerable abilities to focus on the issues they see as most critical at any given point in time, whether related to performance, strategy, or regulatory compliance.

7. What could the SEC do to make fund boards more effective?

In its rule-makings, the SEC can help make boards more effective by emphasizing director oversight, without requiring boards to become involved in the day-to-day management of funds.

8. What new challenges have surfaced for fund boards since the 2008 financial crisis?

Oversight of new and sophisticated investment products, enabled in part by new technologies, the continued evolution of alternative trading venues, and in general, a heightened attention to risk management and risk oversight in fast-moving and increasingly complex markets.

9. If we attended a fund board meeting, what would we find most surprising?

You would be simply astounded at the depth of knowledge of the board members—about the fund industry, their funds, shareholder expectations, and about the advisor.

10. What’s the best recent regulatory change for shareholders?

The SEC’s decision to require all mutual funds to have a chief compliance officer who reports directly to the fund’s board. CCOs provide boards with eyes and ears inside the fund. This has resulted in a significant cultural change in the fund industry that was largely unpredicted. It gives boards an invaluable channel of on-site, real-time information.

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