On February 29, 2019, the SEC issued a no-action letter[1] that offered assurance that the Staff would not recommend enforcement action for violations of certain sections and rules of the Investment Company Act of 1940, as amended (the “1940 Act”) that require a Fund Board to meet in-person. Due to the COVID-19 pandemic, the Division of Investment Management recently issued a statement that expands that no-action relief to cover all approvals and renewals (including material changes) of contracts, plans or arrangements, as well as the selection of a fund’s independent public accountant where such accountant is not the same accountant as selected in the immediately preceding fiscal year.[2] During the past month or so, Foreside staff members, in their roles as fund officers, have attended numerous telephonic Board meetings that, under normal circumstances, would have been held in-person. This post shares our observations of emerging best practices for reducing risk and ensuring that such meetings run smoothly and efficiently for all meeting participants.
Initial Resolution - At the on-set of a remotely conducted Board meeting that includes agenda items typically requiring an in-person vote, the Board should vote on a resolution recognizing that the telephonic meeting is being conducted under the guidance provided in the aforementioned no-action letter, including a short statement as to why an in-person meeting was deemed impracticable. In addition, counsel should consider noting to Board members in advance of such vote that while the SEC Staff has indicated that it will take no action, that does not mean that the telephonic meeting is in compliance with the provisions of the 1940 Act and, therefore, the meeting could be legally challenged in the future. Any actions taken that typically require in-person voting should be ratified at the next in-person meeting.
Lines of Communication – One unique challenge for telephonic meetings is the transition in to and out of board executive sessions. An elegant solution we recently observed was the establishment of three bridge lines prior to the Board meeting. The first line is for all participants of the meeting, the second is solely for the independent directors and fund counsel for their executive session, and the third is a back-up line in case one of the other two lines fail. Recent stress on phone infrastructure has increased the likelihood of line failure, as we witnessed during a recent meeting. Keep in mind that this same three-source concept is also recommended when using WebEx or other forms of communication.
Defer Agenda Items – The Board may want to consider deferring to later meetings non-critical agenda items such as training sessions that would be better received during an in-person meeting. However, if the pandemic continues for an extended period, the Board may wish to address such items at a later date telephonically, as prudent.
Preparation – Ahead of typical in-person meetings, participants often take advantage of the time during the Board’s executive session to finalize housekeeping matters related to each planned presentation. The loss of this collaborative time in a remote meeting setting emphasizes the importance of proper planning calls leading up to the meeting. During planning calls, the meeting coordinator should ensure that each presenter has confirmed the order and completeness of their respective materials in the board book. This is especially important during times when many people are working remotely and may not have access to typical office support resources.
Prior to the circulation of board books, meeting planners should validate delivery addresses for physical books, with particular attention to updating recipients’ preference for home vs. office delivery. Email addresses should also be confirmed and meeting planners should obtain express confirmation from each presenter that they have received their copy of the board book, ensuring that no firewall or other technical issues blocked the delivery of a file. This time should also be used to do a “dry run” of the Board meeting and to review the agenda to ensure smooth transition during the actual call.
Administrative – Board meeting participants should dial in at least five minutes early to ensure they’re able to connect. At the onset of the call, the coordinator should ensure that each participant can hear and be heard, which can be accomplished as a roll call is taken. Lastly, the coordinator should remind participants to mute their lines when they are not speaking to reduce background noise, while also noting that patience and understanding should be extended to speakers who may not be able to fully control background noise that might arise during their presentation.
The breadth and diversity of our clients allow Foreside’s fund officers to be at the forefront of the events that are shaping the financial services industry. Our experiences are shared internally and developed into best practices that are then shared with our clients, such as through this forum. If you have any questions or comments about this posting, please reach out to your Foreside relationship contact.
[1] Independent Directors Council, SEC Staff No-Action Letter (February 28, 2019)
[2] Division of Investment Management Staff Statement on Fund Board Meetings and Unforeseen or Emergency Circumstances Related to Coronavirus Disease 2019 (COVID-19) (March 4, 2020) This IM Statement is effective through June 15, 2020, but it may be extended as circumstances warrant.