From Dustin Woodard,
Your Guide to Mutual Funds.
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After a number of mutual fund scandals the past few years, both investors and regulators have been taking a closer look at who is sitting on a mutual fund’s board. The mutual fund board of directors are expected to be watchdogs of the fund company’s movements.

Typical Board of Directors

Though I’ll admit I don’t have first-hand experience with mutual fund board selection, after some rudimentary research, it appears as if most mutual fund boards consist of:

• Fund company CEO
• More upper management
• Friends of the CEO
• Local business owners
• Local celebrities

Does this look like a group of people who are looking out for the best of their real shareholders (investors in the mutual fund)? I don’t think so – nor does the Securities Exchange Commission. The SEC has been beefing up requirements for outside directors, thus many fund companies have been scrambling to find new board members without ties to the company.

Who Should Be on the Board?

Some boards do include university professors, which are a good addition to a fund board, though I wonder how much time they have and whether they are able to grasp the inner-workings of a fund company.

In my opinion, most mutual fund boards would be well-served to hire board members who are known investor advocates. Authors, journalists, former regulators or any person who exudes trust would serve both the fund company and their shareholders well. Previous experience within a mutual fund company would help and an understanding of the laws that govern mutual funds would be a must.

Rather than seeing the new SEC regulations as a thorn in their side, fund companies should see increased board regulation as an opportunity to prove to gain further trust of their shareholders.

Note to fund companies: I'll be considering board positions in the order that offers are received!