Mutual Fund Boards vs. Corporate Boards Patricia M. Flynn, PhD Trustee Professor of Economics & Management Bentley University pflynn@Bentley.edu “Seat at the Table” Board Options October 26, 2017

I. CORPORATE BOARDS Director Characteristics (S&P500) Average board size: 10.8 Average # of board meetings per year: 8.4 Average age of independent directors: 63 years Average tenure on the board: 8.3 years Retirement age: most (95%) at 72+. % of new independent directors that are first-timers: 32% (all-time high.) % of independent directors that are female: 21% % of new independent directors that are female: 30% % of independent directors that are minority: 15% % of new independent directors that are minority: 15% Source: Spencer Stuart 2016 Board Index

Board Committees Audit Committee* Compensation Committee* Nominating/Governance Committee* Executive Committee Finance Committee Risk Oversight/Crisis Management Other * Members all “independent” directors.

Characteristics of New Independent Directors (S&P 500) 2016 2006 Financial backgrounds 25% 24% Div. Pres./line or functional head 23% 15% Active CEOs/COOs/Pres. 19% 29% Retired CEOs/COOs/Pres. 19% 11% Academics/nonprofit 4% 8% Consultants 3% 5% Lawyers 1% 2% Others* 6% 6% *Mostly retired government and military officials, plus a few other retired executives. Source: Spencer Stuart 2016 Board Index

“Wish List” for New Director Backgrounds, 2016 (S&P 500) Active CEO/COO 63% Retired CEO/COO 58% Financial expertise 55% International expertise 55% Technology expertise 44% Industry expertise 37% Digital or social media expertise 21% Marketing expertise 19% Regulatory/Gov’t experience 19% Minorities 55% Women 64 Source: Spencer Stuart 2016 Board Index

Public Company Director Compensation (2016) Size* Avg.Total Comp. ** % Cash Micro $ 120,286 51% Small 157,292 47% Medium 181,357 44% Large 222,227 44% Top 200 271,456 42% All Firms 191,440 45% *Micro($50-499mil); Small($500-999mil); Medium ($1bil - 2.4bil); Large($2.5 bil – 9.9 bil) Top 200 ($10 bil. +) largest U.S. industrial and service corps ** Includes all compensation, i.e., board cash retainer, meeting fees, committee pay, stock and stock options. Source: 2016-2017 NACD Director Compensation Report.

II. MUTUAL FUND (MF) BOARDS Approximately 2,000 fund directors (trustees) oversee about 9,000 funds with over $16 trillion assets under management (AUM). The largest 10 complexes account for about 2/3s of the AUM. (2016) Black Rock, Vanguard, State Street Global Advisors, Fidelity, JP Morgan, BNY Mellon, PIMCO, Prudential Investments, American Funds, TIAA.

MF vs. Corporate Boards: Similarities MF boards have a fiduciary responsibility to protect the interests of the shareholders. Other similarities: Executive sessions Codes of ethics Board self-evaluations Hire outside experts

MF vs. Corporate Boards: Differences The funds are not an operating company with employees in the traditional sense. A MF board is trustee of the funds, not the board of the fund’s advisor. The funds have no employees, and rely on the adviser to carry out the funds day-to-day operations. MF boards can choose not to renew the contract of the Investment Advisory – not the CEO– but this is rare. No required annual meeting of shareholders of open-ended funds. Meetings called for various required votes, e.g., fund mergers. There are contracts and compliance committees, but no compensation committee. While corporate boards focus on income statements, balance sheets, cash flow, CEO performance, executive comp. etc., MF boards focus on: compliance with the Investment Company Act of 1940; Investment advisory agreements (15C process). Fund performance, fees, contracts conflicts of interest between the Investment Adviser and shareholders; risk.

Mutual Fund Board Trustee Characteristics Management Practice study of 403 fund complexes and 1,902 trustees/directors. Independent trustees: 85% Independent trustee average age: 67 years Independent trustees that are female: 20% Incoming trustees that are female: 33% Retirement age: Shifting to 75 years Average tenure on the board: 12 years Source: MFDF and Management Practice, Mutual Fund Director Compensation: The 2016 MP Annual Survey, May 17, 2016.

Mutual Fund Director Compensation, 2015 Assets under Management (AUM) Median Total Compensation < $ 1 bil. $ 10,000 $ 1bil. - $3 bil. $ 42,000 $ 3 bil. - $ 10 bil. $ 80,000 $ 10 bil. – $ 25 bil. $ 115,000 $ 25 bil - $50 bil. $ 208,125 $ 50 bil - $97 bil. $ 266,500 > $96 bil. $ 295,833 Source: MFDF & Management Practice, 2016.

III. GETTING THERE Discussion How to get on a corporate board or mutual fund board. Other topics/questions.

Resources National Association of Corporate Directors (NACD). NACDonline.org 2016-2017 NACD Public Company Governance Survey 2016-2017 Directors Compensation Report (with Pearl Meyer) Spencer Stuart Board Index, annually. www.spencerstuart.com MFDF www.mfdf.org Reports and webinars on a range of topics Mutual fund candidate database ICI (Investment Company Institute) www.ici.org Investment Company Fact Book, annually Understanding the Role of Mutual Fund Directors (no date) IDC (Independent Directors Council) www.idc.org. Fundamentals for Newer Directors (no date) Overview of Fund Governance Practices, 1994-2016 (Oct. 2017) With IDC. Robert Pozen & Theresa Hamacher, 2015. The Fund Industry: How Your Money is Managed, 2nd ed. John Wiley & Sons.