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New Director Orientation

While the board’s existing independent directors (or a group of them) are likely to play a prominent role in the orientation of new independent directors, it is also important for the investment adviser or management to be involved. In part, this is because the adviser is in charge of the fund’s day-to-day affairs and, as such, has the most thorough and detailed understanding of the business. Further, the adviser and the fund board presumably have developed a collaborative relationship over the years (even though that relationship is conducted at arm’s length) and one way to underscore that early on for a new director is to coordinate at least part of the orientation with the adviser. Finally, the investment adviser is likely to want to be a part of a new director’s orientation. Participating in that orientation enables the investment adviser to:

  • introduce its key personnel to the new director outside the formality and time constraints of a board meeting;
  • establish a working relationship with the new director from the very beginning; and
  • help shape the new director’s impressions about the fund complex.

As part of a new director’s orientation, the director should understand how the funds that he or she will oversee are structured (e.g., internally advised, subadvised); who the principal service providers are for the funds, and how the funds are distributed (the types of intermediaries that sell the fund’s shares and service the fund’s shareholders; and the compensation structure associated with those distribution and servicing activities). In addition to becoming familiar with the funds and fund complex, new directors may wish to meet, or receive biographical information about, representatives of the fund’s management company and principal service providers that regularly attend fund board meetings.

New directors may find it helpful to get together with representatives of the fund’s management company prior to a board meeting and review sample board books. This may provide new directors with insight into the types of reports regularly given to directors, the reasons the reports are provided to directors, the key issues to be spotted in the reports, and the next steps to be taken as a result of the information in the reports.

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