Meyrick Payne is not a fund director and doesn’t want to be.
For nearly 40 years, however, he worked to clarify the role and responsibilities of fund trustees, defend the independence of their oversight over fund advisers and help thousands of new fund directors realize how critically important their role is to the growth of the U.S. economy and stability of American society.
As managing partner of consulting firm Management Practice, Inc. (MPI), Payne published some of the first research specifically for independent fund directors, including surveys of fund-director compensation, reports clarifying their responsibilities, and recruitment guides designed to give boards professional standards to follow at a time when recruitment depended far more heavily on personal contacts and old-boy-networks.
Payne also published The Uneasy Chaperone: A Resource for Independent Directors of Mutual Funds — a now-ubiquitous primer on mutual-fund governance first released in 2000 — and wrote three short plays designed to provide fictional role models to newly minted fund directors by allowing Payne to act out the resolution of conflicts.
His enthusiasm for his work went beyond mere professionalism, according to Jay Keeshan, a partner at MPI who worked alongside Payne for nearly 20 years.
“Meyrick has a true, genuine passion for helping directors serve shareholders effectively,” Keeshan said. “He didn’t view this career just as a career. He really viewed it as a life passion.”
Even though Payne has never sat on a fund board, his influence can be felt throughout the fund board world.
“I cannot think anyone more deserving of a lifetime achievement award than Meyrick,” Carolyn McPhillips, president of the Mutual Fund Directors Forum (MFDF), told Fund Directions.
Or as Thrivent Funds chair Paul Laubscher puts it, “Meyrick literally wrote the book on how to be a mutual fund trustee when he published The Uneasy Chaperone almost 25 years ago.”
For his contributions to the evolution of mutual-fund governance and the growing independence of fund directors, Fund Directions honored Meyrick Payne of Management Practice, Inc. with a Lifetime Achievement Award at the Mutual Fund & ETF Awards gala June 18 at the Metropolitan Club in Manhattan.
Finding a vocation in fund governance
The child of British diplomats, Payne spent his youth moving around the U.S., India, and Europe before finally immigrating to the US for good in 1967 to enroll at Dartmouth College’s Tuck School of Business.
His travels had let him witness the impact of wide disparities of income in India, the post-war U.K. and the U.S., as well as the destabilizing influences of that economic division.
“I saw a lot of that disparity, and knew it was not sustainable,” he said.
Those experiences, Payne said, equipped him to recognize the real economic and social breakthroughs made possible by the US’s Securities Act of 1933, Securities Exchange Act of 1934 and Investment Company Act of 1940, which together made it relatively safe and inexpensive for American retail investors to put money in mutual funds.
“I believe it is the right thing that ordinary people should be allowed to participate [in investment markets], which is not always true in some countries,” Payne said. “It happens to be true in the United States because of mutual funds, which, to me, is a real blessing.”
Payne found his way into the fund industry when he joined MPI in 1984. At the time, 15(c) consulting had been part of MPI’s practice for more than a decade but only made up a small portion of the firm’s overall business.
For Payne, however, reviewing fund fees fit with his priority that any investment-related transaction should include “an audit and assurance for people about what’s happening.”
“For me, this was a calling,” he said.
Rigorous oversight of fees could also, he believed, address the ongoing credibility gap between Wall Street investment firms and the millions of consumers who were just beginning to expand beyond savings accounts to money-market funds, certificates of deposit, and other safe, low-yield investment vehicles.
“Mutual funds were a way people could participate in the growth of the economy at their own volition,” Payne said. “It was mutual fund directors and the whole governance structure that came from the ’34 [and] ’40 Acts that allowed them to have some assurance their money was safe and would be taken care of and that they would have a chance of doing well.”
When Payne took over as managing partner at MPI in 1990, he pivoted its focus toward fund governance and the need to get retail investors to trust fund managers enough to see mutual funds as a real opportunity rather than a potential Wall Street scam.
“There is absolutely no doubt people on Main Street were hesitant to send their money to financial firms they didn’t really know,” Payne said.
The solution, Payne said, was convincing those investment-averse millions that the opportunity was legitimate and that investors from Main Street could get a fair shake on Wall Street.
“It was mutual-fund directors and the whole governance structure that did that,” Payne said. “It allowed them to have some assurance their money was safe and would be taken care of, and that they would have a good chance of doing well.”
Balancing the scales
With an MBA, a CPA, and years of experience as a consultant at McKinsey & Co., Payne brought a unique perspective to the fund board world, which at the time relied mostly on experts with backgrounds in law or accounting, according to Michael D. Griffin, the former investment management executive who founded Fund Directions in 1990 as a medium for connecting the community of independent fund directors and recognized Payne’s efforts at advocacy, education and community building among fund trustees.
“He is interested in the ‘business of the business,’” Griffin said. “His frame of mind is to ensure that mutual funds investors get a fair shake, while keeping the industry attractive to fund managers.”
Rapid growth of the mutual-fund industry through the ‘90s and early 2000s, as well as regulatory changes following the mutual fund timing scandal in 2003, led to rising pressures on fund-board members, who could no longer skate by on their accounting experience and personal relationship with golf buddies in fund-adviser management, Payne said.
As independent trustees’ relationships with fund advisers became more similar to that of an auditor than their previous relaxed relationships, fund boards were beginning to seek out new, non-management sources of training and education.
“I think that’s one of the things he realized: OK, we need to help these directors,” Keeshan said. “They were smart people, but there wasn’t a lot of information on how to be a mutual fund director, and so he really wanted to play a role and help find ways to communicate that.”
Under Payne’s leadership, MPI encouraged directors to embrace a more independent model of board oversight that still acknowledged asset managers’ need to turn a profit — a philosophy Payne has called “balancing the scales.”
He viewed MPI as part of a movement committed to expanding access to resources on fund governance and director independence, along with organizations like Fund Directions and MFDF.
“Over twenty years ago, in the early years of the MFDF, Meyrick shared a vision regarding the importance of educating fund independent directors,” said McPhillips, who described how MPI partnered with the nascent MFDF after its founding in 2002 to organize educational programs for fund directors across the country.
“Those opportunities are notable because it was a time when director education was a fledgling endeavor,” McPhillips said. “The MFDF would not be the organization that it is today [without] Meyrick’s early support.”
It was also during this period that MPI launched its annual fund board compensation survey and published the first edition of The Uneasy Chaperone, a guidebook by James Storey and Thomas Clyde that emphasized the checks-and-balances role of fund directors.
“The clever thing about that book, if I may say so as the publisher, was the name,” said Payne, who co-authored later editions of the book. “The Uneasy Chaperone refers to the role of a director that is a little uneasy, not unlike parents overseeing a teenage dance. … A chaperone, but not a strident advocate, not a unionist, but somebody who wants the industry to work.”
MPI’s training for fund directors used an experiential approach that led Payne to write not one but three plays showing examples of how independent trustees might react to and deal with situations as they came up, Payne said. One showed fund shareholder “Harry” talking directly to the board about what he needed them to do for him. Another revolved around a married couple’s discussion after one of them is offered a seat on a fund board.
Payne performed the plays and other material in board rooms, meeting rooms or anywhere else it was possible to add a little light entertainment when teaching independent trustees about fiduciary duty and what it meant to provide independent oversight of fund advisers that were sometimes not that fond of any kind of oversight.
The plays were memorable enough that others FD talked to about Payne’s history not only brought them up unprompted, but often remembered much of the relatively simple plot and names of the characters as well.
MPI’s output of plays, white papers, op-eds, bulletins and educational pieces was primarily focused on teaching trustees how to recognize what issues needed to be examined closely, how to approach those questions, and what responses would be appropriate on either the adviser or the board side of those discussions.
Payne and MPI set the “gold standard” for research and consulting about mutual-fund governance topics like board compensation and 15(c) analysis, according to Carl Frischling, a partner at Perkins Coie and leading voice among mutual-fund legal specialists.
“I am fortunate that during my own career in the mutual fund industry, I benefited from his wisdom and counsel in dealing with fund independent directors,” Frischling said.
MPI also had to deal with pushback from fund advisers who were nervous about the existence of organizations and training that might encourage independent trustees to discuss controversial issues with one another rather than with management or lawyers working for the adviser.
“Some of them really were not comfortable with directors talking to anyone but them,” Payne said.
That reaction faded over time, he said, helped along by the realization that fund-board members are eager and able to provide oversight, but rarely, if ever, stray so far as to make the basis of the discussion with advisers more adversarial than collegial.
“Fund directors really do have a lot of power,” Payne said. “They don’t use it, but they do have it.”
Displays of power are not always the guiding factor in keeping a fund or its advisers on the straight and narrow, Payne said. The key is to oversee the checks and balances that are supposed to keep decisions within acceptable bounds, and not undermine or overrule the authority of those, like auditors, whose job it is to point out decisions likely to cause problems to grow rather than shrink.
The specifics about who makes the decisions, or even worrisome changes in regulation or strategy, matter much less than transparency, integrity and a clear understanding of the real source of the industry’s success, Payne said.
Wealthy individuals and institutional investors make up a big part of the market, but the customer base that helped the fund industry grow into a $28trn behemoth came from the millions of small-dollar investors who would have put their savings elsewhere if the fund industry had not worked so hard to show it was worthy of their trust.
“I’m not personally terribly interested in what rich, rich people do with their money. For me, it’s all about Main Street,” he said.
Losing the trust of Main Street would be a problem; trust in this case is not something ephemeral and easily rebuilt. It’s the result of contractual and structural requirements developed over years to ensure fund directors will always have the authority – not just the responsibility – to put the interests of investors first.
“I believe in mutual fund governance,” he said. “The rest can take care of itself.”
Have thoughts about this or other Fund Directions stories? Write to us at FDLetters@withintelligence.com.
