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Succession Planning for Mutual Fund Boards

Peter D. Fetzer
Foley & Lardner LLP - Milwaukee Office

Terry D. Nelson
Foley & Lardner LLP - Madison Office

June 6, 2014

Previously published on May 30, 2014

With the scrutiny of boards of trustees increasing, it has become more important that each board consider succession planning to ensure that a fully staffed and knowledgeable board is always in place. If a board member leaves the board, for whatever reason, it is in the best interest of the individual and the funds to ensure that the replacement is fully qualified.

The composition of mutual fund boards are subject to change, whether due to retirement, death, disability or another opportunity, and sometimes this change is unexpected. So, it makes sense to consider the need to have a succession plan. While the board may ultimately determine that a formal succession plan is not needed, it is a useful exercise to go through the process of making this determination.

The following discussion provides some insight and background into the process of selecting new trustees.

Identifying Candidates. Mutual fund boards should strive for balance and diversity when identifying a potential candidate. Diversity can be in the form of gender, race, age or experience. Depending on the needs of the funds and the composition of the board, it may make sense to select an individual with a great deal of experience and connections in the industry. On the other hand, circumstances might suggest that an individual with specific expertise, like expertise in derivatives or complex securities, might be a good addition to the board.

When bringing a new candidate onto the board, disinterested trustees must select and nominate any other disinterested trustees.

Vetting Candidates. When vetting an individual, the board will use a questionnaire to solicit information about the trustee candidate. This questionnaire may be bifurcated to speed up the process. First, a limited questionnaire is sent to the individual that is designed to quickly determine whether the candidate possess any disqualifying interest or relationship with the funds. Second, upon successful completion of the first part, the individual is sent a more lengthy questionnaire that solicits additional information that is needed to assess the individual’s candidacy.

Upon the candidate’s selection, there may be an opportunity for the candidate to transition onto the board. Overlapping service between the incumbent trustee and the newly selected trustee may provide the new trustee with a mentor and the ability to get up to speed without too much pressure. However, overlapping service is not always possible, and may not be desirable in some circumstances.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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