Peter Burgess joined the board of the John Hancock funds in 2005, six years after retiring as a partner at Arthur Andersen LLP, where he spent 23 years untangling financial and regulatory snarls as an auditor.
That experience made Burgess an obvious candidate for the newly created role of designated audit-committee financial expert in the wake of the Sarbanes-Oxley Act of 2002, and he quickly became chair of the funds’ audit committee.
Over the following 17 years, he applied his careful attention to detail to the funds’ financials, and built a reputation as a thoughtful, dedicated fund director who took seriously the work of the audit committee and encouraged his fellow directors to enjoy themselves while keeping their eyes on the ball.
He also helped the board grapple with the challenges of cybersecurity, market changes, increasingly complex financial products and the growing perception that SEC officials who traditionally use industry feedback to sharpen the focus of their own work have become more reluctant to receive feedback, let alone put it to use.
Burgess retired from the John Hancock board in December 2023, rather than when he hit Hancock’s mandatory retirement age in 2021, because the board voted to delay Burgess’ retirement to help ensure continuity during the first couple of years of the pandemic.
Fund Directions caught up with Burgess weeks after his retirement and discovered he is still trying to keep the mood light, even while helping his community recover from a hurricane.
This interview has been edited and condensed for clarity.
How did you approach challenges that you encountered as a fund board?
What we faced were generally minor issues. For a long period of time back in the early 2000s, late 1900s, for instance, counting and getting the derivatives down was a terrible process in the industry. I mean this was all done by fax transmission, you know, there wasn’t electronic reporting for the derivatives. You had all sorts of things going on that weren’t improper but just impossible to get your hands around easily until a week or two later. Then you said, “Oh, this is what this is.” So you have some of those surprises.
But I mean, as you know, valuation issues pop up. For an organization that has to value every day, it gets exciting. Take the Russian bonds. I mean, those weren’t big positions at the Hancock, but you’ve got to value them. So you’re sitting there with a detailed manual that the board has approved in terms of valuation and you get into a conversation about Russian bonds, and you’re like, “OK, I don’t think we’ve seen this before.” So you find it challenging, interesting, and you’ve got to make a decision between 4 o’clock and 7 o’clock. So it gets exciting.
What was your perception of the SEC when you were a fund director, and did it change over time?
When I was an audit partner, working with the SEC was a very collaborative process. I mean yes, they were the boss, but you were working together to try to get the right answer for shareholders and investors. And so there was, in my history, a lot of give and take. You could call the SEC up and chat, and you weren’t admitting guilt. Sometimes you’d change to their view, and sometimes they changed to our view once they got the details.
You now have appointed people that have a bent toward thinking, “Gee, these products aren’t terribly good.” Well, if you’re the regulator, and you begin a discussion assuming the products aren’t good, that isn’t exactly a winning situation to have, to be able to work with companies you regulate. So I think it’s just a question of maybe perception, but it just seems like it’s an adversarial relationship more than it has been in the past.
What were your thoughts on the new swing-pricing proposal, which elicited quite a strong negative response from boards and others in the industry?
It just seems like, again, that’s an area where the SEC wants to do one thing, and so far isn’t particularly interested in the protestations of people who say this will not solve the liquidity problem you think you see.
You couldn’t have more differences of opinion. If you look at the derivatives rule, yeah, there was some stuff that made the industry say, “Do you really need that?” But they worked on trying to enhance it rather than put a bullet through it.
With this new rule, I think the industry doesn’t think it’s the right answer for what investors need and want. It creates so many oddball situations and changes in the marketplace — and again, I’m not sure it solves the issue.
It has become a situation where the SEC says, “Look, we have the right answer here. Just follow it.” The industry asks, “Have you talked to anybody about this approach?” “Well, no. We [the SEC] understand the problems that happen when people ask for their money back.” But you’ve got to think through these processes. Sometimes perfect in your mind is not perfect in reality.
What are some of the other changes that have made the role of trustees more complicated, or just different, compared to when you started 17 years ago?
The products have changed. I mean, obviously we now have ETFs and various ways to get people more tax-advantaged, lower-cost products but I think the complexity itself has gained great momentum.
And things like cybersecurity. The SEC is now saying to the board, “You provide the oversight.” Well, that’s a tough nut. Not everybody’s equipped. A board can have a great understanding of the big picture but once somebody starts getting into the details, I don’t know that I’m adding value by saying, “Oh, you’re on the right path.”
Every board member that I’ve been associated with is most interested in, knowing whether they’re adding value to this process or fooling themselves. You get reports and say, “Did I really understand all that detail? Maybe I need somebody to do translation.”
Cybersecurity is absolutely an area where you may need translation – as are derivatives.
So you start hiring independent experts, and maybe that’s a good thing, but that creates complexity, because now you’re relying on somebody else. You hopefully are not saying, “Well, I don’t have to worry about it.” Because that’s not happening.
So it’s involvement in those types of things, along with the derivatives rule and the liquidity rule. Maybe that’s appropriate from an oversight standpoint, but it makes it a challenge for a board member to say, “OK, I’m up on all these things.”
How do you think other people evaluate Peter Burgess’ work as a fund director?
Well, I think people reflecting on it would come to the same conclusion they always have: that Peter, I, was willing to dig into the detail and would review things and be on top of things and bring up agenda items and scour financial statement drafts.
To me, it’s interesting the SEC says the board should look at the financials quarterly, because if I only get them quarterly, I’m looking at them in hindsight, you know? The rear-view mirror. If there’s a crash back there, I can only say, “Wow, you got that wrong.”
I didn’t feel that was appropriate. So I’d ask to see the drafts of the financials, and I certainly was known for reviewing in detail, not only the audit committee stuff, but the vast amount of materials that were presented to us.
I think the other was that I could present something with a sense of humor. I remember attending audit committee meetings as an audit partner and you’d have a chairman who would ask you one of those questions that he just wanted a yes or no. That classic, “Have you stopped beating your wife?”
I’d say, “God, I never want to be in that kind of position, because he obviously doesn’t want somebody to inform him. He just wants to check the box.” And I never thought that that was appropriate.
So I kept it light with auditors and people and board members, and I would kid anybody at any time, just to make sure they stayed with me and were listening. I mean, you get a lot of information on one of these boards, and you could struggle with it at times, but I always felt that I could keep people’s attention because they know I’d pick on them if I thought they weren’t staying with it.
When you think about the future of fund boards and registered funds, what comes to mind?
Well it’s certainly not going to get less intense. And products will evolve, and boards were made to evolve.
One of the things that I never really liked in looking at commercial companies were board members who were on four boards. I would be like, “How could you do that?” And these were commercial boards. If you’re doing that at a mutual fund board, my goodness.
I’ve seen this often, and I think if somebody came up with the data they’d find there’s a lot of resignations that have occurred in the last five years, seven years, where people had multiple boards, and they cut it down to two, three, just because it’s been complex on the commercial side, and it’s complex on the fund side.
It’s not a good ol’ boys’ day anymore. And these are boards where you had diverse people who need to stay on top of things and who can bring huge value. I don’t think if you’re on multiple boards, you can do that.
In a sentence or two, how would you sum up your career as a fund director?
Well it whizzed by.
I just think it was an ability to meet with a very smart group of people who I didn’t know before, and learn from them, and watch their techniques and questions and what they paid attention to and how they treated people. And it was just an amazing, comfortable feeling, that you knew you were adding value as a team, and you were working as a team. And that, to me, is critical.
Finally, what is next for you, now that you’re done with ’40 Act boards?
I’m currently the treasurer of a 98-unit condominium association in Florida that experienced five feet of water in its lobby during Hurricane Ian last year. I’m learning more about FEMA and the National Flood program than I ever wanted to know. I’m learning about how elevators work, which is more than I wanted to know. And it’s currently – well, not a full-time job, but it’s certainly been a couple hours every day to stay on top of this.
So that has kept me busy. I’m hopeful that’ll die down a little bit, and I’ll actually retire.