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Best practices recommended for fund directors Back  
A report for the the US Investment Company Institute last year set out the following best practices for funds
Super-majority of independent directors
At least two-thirds of the directors of funds should be independent directors.

Formerly affiliated persons
Former officers or directors of a fund’s investment adviser, principal underwriter or certain of their affiliates should not serve as independent directors of the fund.

Control of the nominating process
Independent directors should be selected and nominated by the incumbent independent directors.

Compensating independent directors
Independent directors should establish the appropriate compensation for serving on fund boards.

Fund ownership policy
Fund directors should invest in funds on whose boards they serve.

Qualified independent counsel
Independent directors should have qualified investment company counsel who is independent from the investment adviser and the fund's other service providers. Independent directors should have express authority to consult with the fund's independent auditors or other experts, as appropriate, when faced with issues that they believe require special expertise.

Annual questionnaire on commercial relationships
Independent directors complete on an annual basis a questionnaire on business, financial and family relationships, if any, with the adviser, principal underwriter, other service providers and their affiliates.

Audit committee
1. investment company boards should establish audit committees composed entirely of independent directors;
2. the Audit Committee should meet with the fund's independent auditors at least once a year outside the presence of management representatives;
3. the Audit Committee should secure from the auditor an annual representation of its independence from management; and
4. the Audit Committee should have a written charter that spells out its duties and powers.

Separate meetings
Independent directors should meet separately from management in connection with their consideration of the fund’s advisory and underwriting contracts and otherwise as they deem appropriate.

Lead independent director
Independent directors should designate one or more ‘lead’ independent directors.

Insurance coverage
Fund boards should obtain directors’ and officers’/errors and omissions insurance coverage and/or indemnification from the fund that is adequate to ensure the independence and effectiveness of independent directors.

Unitary or cluster boards
Investment company boards of directors generally should be organized either as a unitary board for all the funds in a complex or as cluster boards for groups of funds within a complex, rather than as separate boards for each individual fund.

Retirement policy
Fund boards should adopt policies on retirement of directors.

Evaluation of board performance
Fund directors should evaluate periodically the board’s effectiveness.

Orientation and education
New fund directors should receive appropriate orientation and that all fund directors keep abreast of industry and regulatory developments.

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