Home etftrends.com “Building the Mosaic” – What Goes Into Establishing an Independent, Diverse ETF Board?

“Building the Mosaic” – What Goes Into Establishing an Independent, Diverse ETF Board?

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By Stephanie Pierce, CEO of ETF, Index, and Cash Investment Strategies, BNY Mellon Investment Management

Fund boards can be a subject of mystery to many—just who are these folks, what do they do, and what’s the value they might bring? Having helped launch in the spring BNY Mellon’s first-ever ETF offerings, I was fortunate to gain special insight into the recruitment process and ongoing activity of a board, the creation of which I’ve come to think of as a brilliant mosaic in which a myriad of different skill sets, experiences, and perspectives reflect off each other and are critical for overall success.

First, what does the board do? The ETF Board serves as the governing body to oversee the management and operations of the funds, and are not involved in the day-to-day management of the funds. Trustees have a fiduciary duty to protect the interests of ETF shareholders. Their responsibilities include the review and approval of all new ETFs as well as changes to existing ETFs and the ongoing review of performance, people and process for the investment teams managing the ETFs.

Collaboration across functions and divisions has been a key element of our process. While BNY Mellon is a large, multi-faceted business that has been a leader in the ETF ecosystem for years, in certain ways we took a kind of entrepreneurial approach to the debut of our first ETF offerings, and we looked upon the board recruitment process with the same kind of spirit. To identify our “dream team” we established a team across the organization, including senior leaders in human resources, legal, board governance and executive leadership as well as engaging outside counsel, and an external search firm to identify, interview and select the board members.

Just as the conductor of an orchestra brings together expert musicians to play different instruments to perform a symphony, my role as CEO was to bring together a group of people with the collective skills and experience to recruit and establish a world-class ETF board. In certain respects the question was similar to that orchestra conductor asking: “Who plays where?” At the outset, we identified some key criteria for our ETF board, including:

  • Diversity of background, experience, and perspective;
  • Governance and fiduciary board experience;
  • ETF expertise;
  • Independence matched with ability to collaborate/serve as a team player;
  • Experience in large, complex organizations; and
  • Investment management, distribution, legal, compliance, and operational expertise.

We knew it was unlikely that we would find any single candidate who would satisfy all of our criteria. Instead, we built a team of individuals who each bring some of these attributes to bear and whose skills and experience complement one another.

We reviewed well over 100 resumes and met with dozens of candidates in person, and each proved a valuable a learning experience. I was fortunate to co-interview with the head of our legal team who has worked with fund boards for years and has a wonderful sense of the inner mechanics of what makes them tick. Each candidate we interviewed in the first round was asked to complete a confidentiality agreement and a detailed questionnaire. Our head of governance interviewed our second-round candidates. We recruited our prospective board chairman first, and he served as the third and final interview for our chosen candidates.

Recently we’ve been seeing different businesses across America take a renewed look at what they can be doing better for their current and future employees—both given the role corporations have as important social enterprises and related to how that kind of engagement empowers them to deliver for clients. As we considered our board recruitment process, diversity and inclusion of backgrounds, perspectives, experiences, and ways of thinking was a significant priority. Diversity is a well-known challenge in the ETF marketplace. This is such a new industry that there are relatively few ETF leaders who are no longer in an operating role, and even fewer ETF leaders with diverse backgrounds. We met with a number of diverse candidates for our ETF board, and we are pleased that half the board members are women, each of whom brings with them unique skills and insight.

An especially happy “a-ha” moment occurred during our inaugural ETF Board meeting—a marathon, nine-hour event of mostly formal presentations with a few short breaks for meals and snacks. None of the board trustees had met one another before. As the day wore on, instead of losing steam, the team increasingly riffed off and built upon each other’s ideas and questions. The energy in the room was electric. Instead of checking their phones during breaks, they spent time getting to know one another. Seeing this diverse group of leaders making connections with one another and developing relationships was a wonderful way to conclude our first board meeting, and in certain ways validated the rigor with which we conducted our board recruitment process. The mosaic glittered—as all good boards should. 

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Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement.

BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. BNY Mellon ETF Investment Adviser, LLC is the investment adviser and BNY Mellon Securities Corporation is the distributor of the ETF funds, both are subsidiaries of BNY Mellon.

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©2020 BNY Mellon Securities Corporation, distributor, 240 Greenwich St., New York, NY 10286.

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