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(Article from Registered Funds Regulatory Update, January 2022)

For more information, please visit the Registered Funds Resource Center.

The IDC and Investment Company Institute jointly released a report highlighting trends in fund governance practices and board demographics. The report finds that fund boards generally have set high standards and adopted strong governance practices above regulatory mandates. Additionally, fund boards have made progress in recruiting women and minorities. Some notable data points set forth in the report are as follows:

Fund Governance Practices

• From 1996 to 2020, the number of funds reporting that independent directors held 75% or more of board seats rose from 46% to 84% (though this figure is down from its 2010 peak of 91%).
• Independent directors represented by either dedicated counsel or by counsel separate from the adviser’s counsel increased from 64% in 1998 to 95% in 2020.
• Boards with an independent chair increased from 43% in 2004 to 68% in 2020 whereas boards with a lead independent director increased from 18% in 2004 to 27% in 2020.
• Boards with an audit committee financial expert increased from 89% in 2004 to 96% in 2020.
• Boards requiring fund share ownership by independent directors increased steadily from 6% in 1996 to 36% in 2020.
• Boards requiring formal orientation programs for new independent directors increased from 21% in 2010 to 59% in 2020.
• Boards requiring director participation in continuing education programs increased from 9% in 2010 to 15% in 2020.
• The average age of an independent director increased from 62 in 1996 to 67 in 2020.
• The average length of service by an independent director increased from 9 years in 1996 to 12 years in 2020.

Director Diversity

• Female independent directors increased from 20% in 2012 to 32% in 2020 whereas female independent directors among new directors increased from 32% in 2012 to 41% in 2020.
• Minority independent directors increased from 8% in 2015 to 12% in 2020 whereas minority independent directors among new directors increased from 8% in 2015 to 24% in 2020.

Press Release, New Report Highlights Trends in Governance Practices and Fund Board Demographics (Oct. 20, 2021), available at https://www.ici.org/news-release/21-news-idcofgp.

Investment Company Institute and Independent Directors Council, Overview of Fund Governance Practices, 1994-2020 (Oct. 2021), available at https://www.ici.org/news-release/21-news-idcofgp.