In April 2018, the Financial Conduct Authority — as part of a raft of far-reaching changes — confirmed all UK authorised fund managers (AFMs) would have to include a minimum of two non-executive directors on their boards.
Since then, research organisation, UK Fund Boards has been unpicking what this is all going to mean for the some 190 mutual fund managers affected by these changes, and especially what this means for the plethora of smaller firms, who barely have a recognisable fund board, if one at all, making the prospect of having to establish one and then hiring a couple of non-executive directors a daunting one.
Light on independence, weak on gender diversity and the virtual absence of any serious board structure and practice is the current state of corporate governance at the vast majority of the UK authorised fund managers, according to the inaugural State of UK Fund Boards 2018 study.
This study is a detailed analysis of the current set up of mutual fund directors at over 110 UK fund managers across a range of metrics including board size, composition, its independence and gender diversity. The reality is that the majority of these firm are either subsidiaries, divisions or a larger financial organisation, or at the other end independent private firms, and have had to pay little or no attention to many of these governance issues, so far. Though much of that is now going to have to change, considering the some of the far-reaching changes that will be implemented over the next year or so as part of the Financial Conduct Authority’s Asset Management Market Study.
The State of the UK Fund Boards 2018 study finds that on average a fund board has five directors, 11% of whom are independent, 17% of whom are women, and who have an average tenure of just under six years. Other findings show that the vast majority (86%) of directors are resident in the UK, and that about a quarter (24%) are not UK nationals.
The biggest change, and a requirement of the FCA’s AMMS, is that every UK authorised fund manager will need to boost its slate of independent directors from the current 11% to 25% of the board or a minimum of two independent directors. The FCA estimates that the industry will have to bring on board some 480 independent directors.
What is not immediately obvious in the UKFB study numbers, is that there is a marked absence of formalised board practice, procedure and culture, all of which are going to have to become part of the DNA of these firms; an established board culture, for instance, is largely absent from a very large number of the firms.
Another key deliverable, is to ensure a more diverse board than many of the firms currently have. The standout issue is to have a much more gender balanced board. Women currently only make up 17% of UK fund boards, even lower than the 22% of women on UK investment trust boards, and the more broadly accepted target of having 30% of women on FTSE-100 boards by 2020.
UK Fund Boards concludes that there is much work to be done, and not a whole lot of time.
[Words: UK Fund Boards]
WiC Comment: Get ready for those phone calls! Funds will be seeking women for their Boards.