FYI: The SEC’s Division of Investment Management has issued a no-action letter to the Independent Directors Council (IDC), indicating that fund Board voting will no longer be required to be in-person in certain circumstances where current law would otherwise require that it be so. This appears to be one step in the effort to modernize and improve the regulations governing funds and their Boards in order to better allow Boards to dedicate their time and attention to areas where director oversight is most valuable.
Currently, in-person Board voting is generally required when the Board votes to approve or renew certain key fund arrangements, such as investment advisory agreements, 12b-1 plans, interim advisory agreements, and independent public accountant appointments. However, in-person Board voting is not always practical or possible in the case of unforeseen or emergency circumstances, such as during a natural disaster or terrorist event where planes are grounded and Board members cannot travel to attend a Board meeting in person. Indeed, that exact situation meant the SEC had to issue emergency relief for funds exempting them from the in-person Board voting requirement for a period following 9/11.
According to the IDC’s no-action request, another case where in-person voting should not be necessary is in cases where the Board has already considered and fully discussed an action at an in-person meeting, but has chosen to defer voting until a future time. This might occur, for example, where the Board has fully considered a matter but has deferred its vote until further requested information is provided or confirmed, in particular where it is determined at the in-person meeting that the nature of that further information would not be likely to change the vote of any director needed for the approval. In that case, requiring another in-person Board meeting just to formalize the vote would be burdensome and costly to the fund, without adding any shareholder benefit.
In providing the requested relief, the no-action letter incorporates the conditions described in the IDC’s request. Among the conditions are that any Board vote covered by the no-action letter that would otherwise be required to be taken in person, must be taken instead telephonically, by video conference or by other means by which all participating directors may participate and communicate with each other simultaneously during a meeting.
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