2023 Outlook: Will SEC allow hybrid future or force board meetings into past?

For now, trustees happy to experiment with meeting formats under the umbrella of indefinite relief

As an eventful 2022 came to a close, Fund Directions spoke with several trustees and counsel about what they expected 2023 to bring. For nearly everyone, three topics stood out as the most important on the agenda: regulation, hybrid meetings, and the economy.

This month, FD takes a look at how each of those storylines could affect boards and what trustees are expecting. Next up: hybrid meetings.

For many fund directors 2022 was a year of high stress, heavy workloads and unwelcome controversy. It was also the year fund boards were finally able to meet in person again, after two years of remote-only meetings.

During those two years, fund-board members got the chance to demonstrate that they were perfectly capable of providing oversight, looking out for the interests of investors and otherwise fulfilling their joint responsibilities without being in the same room with each other.

Despite their success, however, many told Fund Directions they missed the interactive, often non-verbal level of communication made possible by in-person meetings and said the inability to meet in person created more difficulties for their work than any other effect of the pandemic. Even those who didn’t complain about remote meetings expressed a longing to get back in the boardroom as soon as possible.

Restrictions on travel, social-distancing requirements and other pandemic-era restrictions were lifted early enough in the year that most boards were able to meet in person at least once in person during 2022, according to industry observers.

The board of the RBB Fund series trust is one of many whose members said they expect to hold every meeting in person from now on, just as they did before the pandemic.

“I think there’s no substitute for having both advisers and board members in the same room. You get a different level of questioning and interaction,” chair Arnold Reichman said.

The pandemic also proved there is enough value to remote meeting that even some boards that put a high priority on in-person meetings may allow some management personnel to attend virtually.

“There’s no need to have people travel for a day just to make a half-an-hour presentation,” said George Morriss, an independent director for Neuberger Berman Funds.

The boards of UBS Funds, the Mercer Funds, and the Morgan Stanley Pathway Funds are all back to meeting in person, according to Adela Cepeda, who holds seats on all three, although some subadvisers, service providers, and management personnel attend remotely.

Roughly two-thirds of RBB’s fund advisers and subadvisers regularly attended board meetings remotely even prior to the pandemic, Reichman said.

Other boards still see remote meetings as beneficial to their operations because they can eliminate the need for unnecessary travel, especially during winter months.

The Wilshire Mutual Funds board is even considering going fully remote for one of its quarterly meetings, even after returning to in-person meetings for the other three quarters, according to independent director Liz Levy-Navarro.

“We’re really thinking about whether we should permanently make one of our four quarterly meetings virtual, if we’re able to based on compliance,” Levy-Navarro said. “I know it seems like a minor cost, but anything you can do to help save shareholders money and keep costs down.”

The decision may not rest solely in the hands of board members, however. Effectively all fund-board meetings had to be held in person before the SEC’s Division of Investment Management gave permission during the pandemic for boards to meet in virtual space rather than the real world.

The DIM extended that permission indefinitely as of December 2020, but it’s not clear whether “indefinite” and “permanent” will be synonymous now that travel and meeting restrictions have been relaxed nationwide.

The SEC has given no indication that it intends to modify or terminate the relief, although prior to the pandemic, the commission had had a long history of upholding in-person meeting requirements until 2020, when it started to give indications that it would loosen those requirements for certain kinds of board votes and emergency circumstances.

If the SEC ever addresses the issue again, the result will almost certainly be more restrictive than the current situation, Barbash said.

“I think whatever the SEC does, it will be more conservative than people in the industry would have liked,” Barbash said.

An SEC spokesperson declined to comment on whether the DIM staff planned to address the issue.

As the fund board world looks ahead, trustees are reckoning with the fact that the future of board meetings may not look the same as it did pre-pandemic, and that transition will take time to work itself out, according to Sullivan & Worcester partner Nicole Crum.

“People need to be patient with themselves and realize, we did this tremendous pivot [to virtual meetings] and we learned a lot,” Crum said. “It’s OK to have to feel like you have to pivot and learn again. It’s fresh. It’s not just going back to what we had before, necessarily.”