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Board games

You noted:" Separate entities established by offshore law firms to provide directors to funds are great in theory, but can these directors ­really vote independently when their parent law firm is the fund’s legal adviser?" My question is - what standards were originally applied when these separate entities were deemed "independent" in this new model? Was it a self proclamation? How can the individuals in these separate entities be deemed independent when an affiliate receives remuneration for legal advice to the manager? I am not suggesting that it is not possible for one of these "independent directors" to think in a truly independent fashion, but why tempt fate? What we need are clear guidelines for what constitutes "independence". There is a clear definition of independence in the U.S. registered fund regulatory scheme and it references in part when remuneration of an affiliate would cross the line into materiality and thus negate the characterization of independence, and that is a good starting place if none other is being applied or suggested under the best practices for corporate governance that are currently evolving. You also noted: "Indeed, it is this that causes major ­allocators to expend considerable resource on additional due diligence rather than rely on fund directors to provide the governance culture they can be comfortable with." I believe that major allocators should never wholly rely on a board's governance no matter how strongly independent the board may be, as allocators have a continuing responsibility/ fiduciary duty to conduct continuous monitoring on their own.

18-Jul-2011

9:58 pm