The Song of the Independent Director

As Independent Directors get their feet under the boardroom table, so the spot-light of the FCA falls upon them. There is no such thing as a free boardroom lunch, especially with the Supervisors on the other side of the table. The question is whether the FCA is friend or foe.

Having answered the call of Your Regulator needs You, IDs will bask in the warm glow of satisfaction, knowing that they fill a much-needed role, being the investor’s friend, being the Regulator’s placeman, seeing that everyone is well-served and knowing that they are getting exceptional value from their funds. But there is a chillier aspect awaiting the unwary. And that, as ever, will be the test of character.

Why, after all, did the FCA insist that every Authorised Fund Manager had its pair of IDs, paid to take the executive to task? Although it now seems a long time ago, when reporting on its Asset Management Market Study, FCA made clear its concerns about innocent, ill-informed investors buying funds whose value for money was questionable. While the instincts of most might be to suggest that better investment advice was required, the Regulator is only too conscious that its own measures have resulted in much-reduced take up of advice. So it is that FCA, observing the frailty of the consumer, is seeking to effect the desired change through the producer.

In insisting that AFMs, and other firms before long, you may be sure, act in the best interests of investors, it is not firms’ owners that FCA seeks to protect, but rather that AFMs discard their respect and regard for shareholders in order to promote the interests of the unitholders. And what shall be the mechanism for driving the change? None other than the IDs, aided by the introduction of the Assessment of Value. So it is that they find themselves as the agents of beneficial change, the investor’s and Regulator’s friend.

The perspective of the executive may be a little less rosy. Here is a merry pair determined to dent the company’s profits from its funds and simultaneously costing real money to entertain. That may be the first unwelcome reaction that IDs experience, but the second may be more challenging yet.

How will it be when the Supervisor calls? Summoned to the table, the IDs may look forward to a glad hand and a welcoming smile for services to the investing community. But it may not be like that for long. It may be that the ride is rougher, the regulator more demanding, the glare a little steelier. Imagine the scene. “We thought we would start with the philosophy before we talk about your funds. How do you ensure the company looks after the investors’ best interests while complying with your statutory duties as a director?” Good question. “To what extent do you rely on your indemnification from all comers…except us?” Thank you for asking that. “What conflicts of interest do you recognise in your role?” Next.

“Now Mr Niceguy, what examples can you give us of your challenges to the executive? How have you benefited the investors? How have you ensured the validity of the Assessments of Value? How have you provided input and challenge in the assessment process? How have you ensured that sufficient steps have been taken to address poor value? Where do we find that in the minutes?” Is it time for lunch?

The chair may be comfortable; the ride may not be. It is not for the faint-hearted nor for the uninitiated. And it is not just a rehearsal for meeting the FCA. The substance should be the focus, the Regulator the guide. At least, it will be a guide for the willing and for the diligent; it will be a task-master for the indigent and the supine. Among the challenges must be relationships: relationships with the unitholders, relationships with the shareholders, relationships with the executive, relationships with the Regulator. And all the while, retaining independence, avoiding the group-think, resisting the pressure, maintaining the vision.

But don’t let me put you off; let us help you prepare. Your Regulator needs you.

Originally published by Thomson Reuters © Thomson Reuters



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