Senior Managing Director, Legg Mason & President and CEO of the Legg Mason-affiliated funds
Jane Trust makes no bones about the fact that UK fund boards have a tremendous amount of work in front of them if they wish to produce what she describes as “robust” annual assessment of value documents, and will need to count on skills and resources across the organisation they seek to represent.
Jane brings a wealth of US and international fund board experience to her role as President and CEO of the Legg Mason-affiliated mutual funds, and in this wide-ranging discussion for the UKFB Interview Series, she address several key issues, including the value of fund boards, the role of board leadership, and the huge value that diversity can contribute to good board decision-making.
Excerpts from the interview:
Can fund boards be a force for good, and can you cite a few examples of where a fund board has not just benefited the investors, but has also been good for the manager concerned.
The primary purpose of a fund board is to represent the interests of shareholders. The board also serves a critical function of overseeing management.
Even for managers, such as Legg Mason, who embrace serving shareholders as a core value, boards can be helpful. They can provide a differentiated view that a manager may not otherwise be able to access on a variety of matters.
They can provide direct feedback on the perceived attractiveness of new investment strategies. They can also critique the effectiveness of portfolio manager presentations in a way that institutional clients or prospects generally will not.
According to the FCA, some 190 UK fund managers are soon going to be looking for as many as 490 independent directors to sit on their boards. They have till Sep 2019 to get organised. What advice from your US experience do you have for the managers here as they begin their search for these independent directors?
In our experience in the US, and I’m sure it is similar in the UK, there is an abundance of director candidates with exceptionally strong academic and professional credentials.
However, simply putting together a group of smart, experienced individuals will not necessarily create a productive, much less harmonious, board.
It is essential to consider how the individuals will work together and contribute their unique perspectives in a way that advances, rather than disrupts, the work of the board. Board leadership will be key to establishing a productive board culture and to finding directors with the personal characteristics that promote and reinforce that culture.
The AMMS’ Assessment of Value analysis seeks to measure both quantitative and qualitative criteria. Given that it draws a lot of sustenance from US case law (Gartenberg principles), what has been the US experience and what lessons should UK managers take away?
Based on our experience in the US, UK managers are likely to find that producing a robust annual Assessment of Value analysis will require a tremendous amount of work and time.
Producing meaningful performance comparisons, fee comparisons and profitability analyses, along with commentary on relevant qualitative factors, will involve staff spanning the organisation and likely require expensive third-party consultants and databases.
Finally, U.K. fund boards have a lot of distance to travel on the diversity trail – gender for sure, but also on other diversity criteria. How important do you think diversity of experience is when it comes to choosing independent directors? Or given the complexities of the issues on hand, they’re better off sticking to candidates from the industry?
If you look at either academic research or your own experience, diversity of thought is critical to good group decision making. Having some directors with investment management or fund industry experience may be helpful, especially as the board is starting up. However, this is the type of knowledge that directors gain relatively quickly from serving on the fund board.
Beyond the investment arena, fund boards deal with a wide range of issues such as cyber security, regulatory matters, and marketing and sales. Looking forward, it seems that the issues are likely to get broader and more complex.
Casting a wide net in terms of professional experience, including non-profit or government work, seems like the right approach to get the necessary diversity. It will also provide a larger pool of potential directors at a time when there is likely to be high demand.
The common characteristics of all directors should be good common sense, strong character, and a willingness to focus on doing what is in the best long-term interest of shareholders.
Jane Trust is the president and CEO of the Legg Mason-affiliated mutual funds, and serves as an interested director for the firm’s six US ‘40 Act and the Legg Mason Dublin-based fund boards.
She has worked with Legg Mason since 1987, across a range of different roles within the global money manager, having started her a career as a management consultant.
Jane holds a B.A. in Engineering Sciences from Dartmouth College and an M.A.S. in Finance from The Johns Hopkins University. She received the Chartered Financial Analysts designation in 1991, and is a member of the CFA Institute and the Baltimore CFA Society.