Two-thirds of fund boards plan to recruit at least one new director during the next two years, though the process isn’t quick or simple, according to a recent survey of fund-board recruiting practices conducted by an organization dedicated to supporting fund directors.
The process of recruiting new fund board directors takes between seven and 18 months, but 24% expect to add a new member during the next 12 months and another 34% expect an addition during the following year, according to a survey report released in April by MFDF, formerly known as the Mutual Fund Directors Forum.
The report summarizes recruitment practices and expectations of more than 70 fund boards representing funds with AUMs ranging from less than $2bn to more than $275bn. Respondents represent a wide range of funds and fund structures, including ETFs, series trusts, open-ended funds and closed-ended funds, according to Leslie Beckbridge, the lead author on the report, who serves as operations and member services manager at MFDF.
“The survey was designed to allow directors to see how boards across the industry recruit new directors to their boards and shed light on the tools and resources they use during the recruitment process,” Beckbridge said.
Three quarters of respondents said they had recruited at least one new director during the past five years; 85% said they expect to recruit at least one new director during the next five years.
Widening the search
While searching for candidates, fund boards rely heavily on recommendations from within their own extensive professional networks and those of other members of the board, but almost all insist on casting their nets far beyond old-boy networks, according to the report.
“Boards are now willing to prioritize the needs of the board over comfort with their own personal network,” Beckbridge said.
Many top candidates do come with recommendations from existing directors, trusted advisors and members of their management team, but 40% of respondents said they’d recently appointed a new director who was no previously known to any member of the board.
The volume of work required of directors and the breadth of professional experience required to fully understand the issues they face have pushed boards that may once have relied primarily on personal references to focus as much on a candidate’s specific mix of skills and experience on other boards or in specific industries, especially if their knowledge is useful but beyond the resumes of current members of the board.
“We are pleased to see how diligent fund directors are about selecting the best candidates for open positions on their boards,” Beckbridge said.
General expertise or specific skills?
Even the boards of relatively small fund complexes are increasingly looking for specific types of expertise rather than simply looking for the best candidates they could find with the broadest set of applicable experience, Beckbridge said.
Specifically, 45% reported that they tended to look for generalists, 35% stated that they looked for specialists and 20% said they didn’t have a preference.
That focus on specialist skills was a surprise to Beckbridge and the survey team.
“Before the survey, our anecdotal impression had been that smaller boards generally sought generalists whereas larger boards were more likely to seek specialists,” Beckbridge said.
Less surprising but just as important was the amount of effort boards are willing to devote to evaluating candidates. More than 80% of boards reported using both in-person and virtual meetings as part of an effort to use multiple interview formats to get the best view of each candidate.
Almost 80% also reported using gap analysis and other qualitative analytical tools to rank candidates according to how their specific board skills and experience compared with a list of priorities established by the board.
How well does the process work?
The process does work, according to the 87% of respondents who said they were satisfied with their last recruitment process. Almost two-thirds (64%), however, said they planned to change their approach for the next recruitment cycle at least slightly to improve the selection of candidates among whom they could choose and the information available from each.
Most planned explicit efforts to expand and update the board’s source of candidates, the tools it uses to track and evaluate candidates and the board’s ability to manage the long, complex process of recruitment and evaluation more efficiently.
“From the survey data, I come away with a sense that directors are committed to evolving and keeping pace with developments that allow them to operate at an extremely high level,” Beckbridge said.
