The Future of Mutual Fund Board Composition A Discussion on Diversity

Transcription

1 The Future of Mutual Fund Board Composition A Discussion on Diversity Mutual Fund Directors Forum 31 March 2015

2 The Future of Mutual Fund Board Composition A Discussion on Diversity Panelists: Bob Mulhall, Partner, Ernst & Young (moderator) Pat Flynn, Trustee Professor of Economics and Management at Bentley University; Director, Columbia Funds Ruby Sharma, Principal, Ernst & Young Center for Board Matters Sue Cote, Partner, Ernst & Young Page 2

3 The Future of Mutual Fund Board Composition A Discussion on Diversity Discussion topics: What does diversity mean? What does the data show? What can we learn from the corporate sector? What are some leading Board practices? What s holding us back? Next steps? Page 3

4 Board Characteristics - Diversity S&P 500 Data Mutual Fund Data Independent directors that are female 19% Independent directors that are female 18% Independent directors that are minorities Independent directors that are minorities??% (S&P 200) 15% Source: Spencer Stuart 2014 Board Index Source: MFDF and Management Practice (MP), Mutual Fund Director Compensation: The 2014 MP Annual Survey, May 13, 2014 Page 4

5 Increasing percentage of new board members are women Source: Data on this and the next 2 slides is based on the EY Center for Board Matters proprietary corporate governance database Page 5

6 Female directors bring different experiences to the Board A review of male and female directors reveals that female directors tend to be younger, less tenured, and more likely to serve on multiple company boards than their male counterparts. They are also less likely to be current CEO s. Page 6

7 Larger companies have more gender diversity Page 7

8 Women on Mutual Fund Boards Board IQ study of 145 fund boards and nearly 1,100 directors (independent & interested) Fund directors that are female: 20% Fund directors that are female on boards chaired by an independent female director: 32% Fund directors that are female on boards chaired by an interested male director: 13% Fund boards that have at least three women directors: 21% Source: May 20, 2014 Page 8

9 Women on Mutual Fund Boards Largest Complexes Research-in-progress by Pat Flynn on the 50 boards of the 25 largest fund families shows: 22% of the independent fund trustees are female. (in 2013) Of these 50 boards: 88% have at least one female independent trustee 24% have one female trustee 42% have two female trustees 22% have three or more female trustees Page 9

10 Lessons learned in diversifying Boards Get help Don t depend just on current board members for director candidates Executive search firms, Catalyst, The Boston Club, 30% Coalition, ION (the Interorganization Network), 2020 Women on Boards, etc. Perform a skills/knowledge gap analysis when addressing board composition Makes the process more strategic vs. who you now know Enlist men who get it to help Think broadly in terms of backgrounds of candidates Don t need just CEOs Page 10

11 Global approaches to advancing board diversity Focused public sector attention; quotas aren t the only option Committed private sector leadership Corporate transparency to meet growing public demand for change The worldwide percentage of women on corporate boards stood at only 11% in 2013 the top five countries ranked by GMI Ratings were: Norway %, Sweden %, Finland %, UK %, France %. The US ranked ninth with 16.9% Page 11

12 How diversity of perspective in the boardroom leads to better dynamics & governance Clients and customers are diverse, so boards should better reflect the real world Disruption of the status quo and varying perspectives can lead to better decision making Divergent backgrounds means greater knowledge, sensitivity to wider groups and approaching risks and issues in differing ways Counsel from a variety of authorities is good practice Tone at the top can have a ripple effect to the organization Improved reputation and brand Variety of backgrounds can make the company more adaptable to its ever changing environment Page 12

13 Next Steps Make the business case More gender balanced leadership = better all around performance Come up with a plan; It s not a numbers game Be thoughtful about the process Do a Directors expertise matrix May not be able to solely utilize board retirements as a means to achieve results Look for help from experts With globalization, more complexity and shifting demographics, diversity is essential for boards to better address emerging risks Page 13

14 Appendices Page 14

15 Board and director characteristics S&P 500 Average board size: 10.8 Average age of independent directors: 63.1 years Average tenure on the board: 8.4 years Boards with mandatory retirement age: 73% 92% at age % at age 75+. Boards with specified term limit: 3% New independent directors that are first-timers: 39% (up from 30% in 2012) Source: Spencer Stuart 2014 Board Index Page 15

16 Board and director characteristics Mutual Funds Independent trustees: 87% Independent trustee average age: 65 years Incoming age: 52 years Independent trustees that are female: 18% Retirement age: 47% at 72 years 47% > 72 years Average tenure on the board: 20 years Source: MFDF and Management Practice (MP), Mutual Fund Director Compensation: The 2014 MP Annual Survey, May 13, 2014 Page 16

17 Increasing board size to add females is common Source: Data on this and the next 2 slides is based on the EY Center for Board Matters proprietary corporate governance database Page 17

18 Progress towards gender parity on US Boards is minimal Page 18

19 Gradual shift of more women on Boards and executive positions Page 19

20 Characteristics of New Independent* Directors (S&P 500) Active CEOs/COOs/Pres. 22% 33% Retired CEOs/COOs/Pres. 19% 11% Div. Pres./line or functional head 23% 12% Financial backgrounds 20% 24% Academics/nonprofit 4% 10% Consultants 2% 4% Lawyers 2% 3% Others** 3% 8% * With no conflicts of interest through personal or professional ties to the company or its management. **Mostly retired government and military officials, plus a few other retired executives. Source: Spencer Stuart 2014 Board Index Page 20

21 Wish List for New Director Backgrounds, 2014 (S&P 500) Active CEO/COO 60% International expertise 55% Industry expertise 51% Financial expertise 45% Retired CEO/COO 40% Digital or social media expertise 28% IT expertise 27% Risk expertise 24% Marketing expertise 20% Regulatory/Gov t experience 17% Minorities 64% Women 71% Source: Spencer Stuart 2014 Board Index Page 21

22 Types of Experience Most Important in Director Recruiting (NACD) Specific industry 34.8% Finance 26.8 Leadership 24.8 Diversity 17.6 Strategy Development 17.4 Corporate Governance 12.9 International/Global 12.7 Information Technology 10.5 Marketing 5.6% Gov t/regulatory 4.9 Risk assessment 3.8 Medicine/Science 2.0 Legal/Compliance 1.6 Human resources 1.3 Other 8.9 Source: 2014/15 NACD Public Governance Survey Page 22

23 EY Center for Board Matters Contact us: Ruby Sharma Center for Board Matters Ernst & Young LLP Mark Manoff Center for Board Matters Ernst & Young LLP Page 23