The Mutual Fund Directors Forum (the “MFDF”) issued a report entitled Practical Guidance for Directors on Board Self Assessments. The report is designed to provide practical guidance to mutual fund boards of directors in conducting the annual self assessments required of most registered fund boards. In broad terms, the report addresses how to conduct self assessments and the subject matter to cover. Acknowledging that each board’s self assessment will be different, the report nonetheless identifies three generally accepted base line principles for effective self assessments: (1) each director must be involved in the self assessment process; (2) all directors must have the opportunity to discuss findings that are made during the process; and (3) a plan for follow-up action must be developed based on the findings of the self assessment.
Process. The report discusses the pros and cons of conducting self assessments via each of the following methods: (a) discussion, (b) questionnaire and (c) interview. The report also examines the extent to which third parties can be useful in the assessment process (noting that mutual funds have traditionally been hesitant to use third parties other than counsel to the independent directors in this capacity). The report cautions that a self assessment program may become stale and unproductive if the same process is followed rigidly from year to year and suggests that each board periodically review the process for conducting its self assessment and make any revisions necessary to meet changing industry practices and to address changes in the board itself.
Subject Matter. The report addresses the subject matter aspect of self assessments by discussing a number of topics boards may want to consider in their self assessments, including: number of funds overseen, board composition, information provided to the board, board meeting process, committee structure and board accountability. The report acknowledges that each board may consider other elements in its review, such as the level of director compensation and whether there is an appropriate succession plan in place.Individual Director Assessments. The report notes that under SEC rules there is no requirement to assess the performance of individual directors and that the decision whether or not to conduct such assessments is one for each board. To the extent that a board chooses to conduct individual director assessments the report offers some suggested formats, as well as, topics and questions to be addressed in such assessments.