fi360 Blog

Conflicted Board Member

Just recently an AIF designee came to us with the following scenario: she had assumed a position as board member on a local school board and one of the existing members was acting as an investment advisor on the school district's 403(b) plan.  This was causing the designee a good deal of discomfort.

Even though an argument could be made that through proper disclosures the dual roles of board member and investment advisor were permissible, there was at least the appearance of self-dealing.  The finalized IRS 403(b) Plan Rules, which become effective in January 2009, clearly raise the bar with respect to 403(b) plan sponsors ensuring that the plan works to the exclusive benefit of the participants.  My advice was complete removal of the conflict of interest.  This particular board member should either resign their position on the board and continue serving as the investment advisor, or discontinue the advisory relationship and maintain their membership on the board.  A third scenario is to continue in both capacities, but recuse themself from any decisions related to the management of the investments; in this case, however, the apparent conflict remains.  We say in class that in any fiduciary relationship, mere disclosure of a conflicted position will rarely suffice.  In that light, removal of the conflict is always the best course of action.

For more information on the subject, please refer to Practice 1.3 of the Prudent Practices for Investment Stewards handbook and the Legal Memoranda. Learn more about the Practices.

A fiduciary's duty to monitor proxy voting

Do you vote your own proxies? Or do you delegate that duty to your investment managers? If so, do you always know how they vote? You should know; as a fiduciary, it is your duty to know how proxies are voted and to ensure they are always voted in the best interests of the beneficiaries.

Under the old rules, this was often times a daunting task. However, rules introduced in 2003 have provided the instructions for managers to create proxy voting and reporting policies and procedures, as well as making access to these records available to shareholders.

Beyond being a clearly defined fiduciary duty, why is this such an important issue? Because it gives shareholders more ammunition to positively affect change. While litigation can be both costly and difficult to find real success, ensuring proxies are always voted to the benefit of the shareholder forces good corporate governance.

View Blaine's most recent Fiduciary Corner column in InvestmentNews for more information on proxy voting.

Welcome to the fi360 National Conference

Greetings from the fi360 National Conference! For those of you joining us in Charlotte, we are glad you could make it. Please take the time to introduce yourself and let us know how we are doing (fi360 staff can be recognized by our orange lanyards). For those of you who couldn't come, we hope you can make it next year. This is our favorite event of the year and a great opportunity for us to meet our designees and subscribers in person. The speakers and attendees here are the true trailblazers of fiduciary responsibility.

Attendees are arriving and registration is under way. We have a welcome reception scheduled for tonight, with two full days of content on Thursday and Friday. If you haven't mapped out your conference experience yet, you can still visit the conference portal and choose the sessions you want to attend. If you have any comments about the conference thus far, feel free to leave a comment on the blog or send us an email.

Below, Tools subscriber and AIF designee Keith Carpenter gets checked in by our Training and Designations Coordinators Sarah Borchart.