ORLANDO, Fla.-As mutual fund boards assume greater responsibility-and regulators continue to monitor them more closely-the demands on management are likewise increasing, making reporting procedures more complex.

"Preparing for these meetings is almost a continuous process," said Gregory R. Seward, vice president and treasurer for Franklin Templeton Investments of San Mateo, Calif., speaking at the Investment Company Institute's annual Tax & Accounting Conference here last week.

Gone are the days of quiet, quarterly board meetings when directors can take management's presentations at face value, rarely challenging its recommendations.

Today's boards know that they are accountable to shareholders for a host of policies and protocol, ranging from fair value pricing to investment advisor contracts, and they take it seriously.

"At the end of the day, I am trying to get a distilled point of view that will serve me well and help me make decisions," said Katherine MacWilliams, an independent director for Boston-based Selected Funds. "I require and expect unfiltered communication. I'm listening for a shareholder orientation from management," she added, noting that hers is a "watchdog" role, monitoring the relationship between shareholders and investment advisors.

And just as management must negotiate the balance between information overload and providing key data, directors must strike the equilibrium between being comfortable with the process and slipping into complacency, MacWilliams said.

"I am always evaluating the leadership, management and, in particular, the culture of the investment advisor, not just during contract renewal time" she said. "If you get too comfortable, that's a [sign to] watch out."

Independent directors like MacWilliams have changed the tenor of board meetings. Perhaps in the spirit of this watchdog role, industry-wide, boards have been meeting more frequently-on average six times a year, according to Jon S. Rand, a partner in the investment management practice at NewYork-based Dechert. In step with this, the volume of materials board members receive to prepare for these meetings has gone from slim preparation packets to epic-length tomes.

The challenge for fund companies' management is to provide information that is critical without inundating members of the board so much so that it becomes meaningless.

"It is possible to give them too much information," Rand said.

One way to avoid such a deluge of data is through regular intra-meeting memos, which keep directors apprised of events as they happen. Directors should also receive meeting materials at least seven days before a meeting, and that time period should straddle a weekend, since most directors have other jobs and responsibilities.

"If I don't have it the previous weekend, I consider it a miss," MacWilliams said.

Another way to manage the message is to ensure all reports to the board are consistently presented in a uniform way, to acclimate directors accustomed to a certain routine, Seward said.

That works for MacWilliams, who receives an annual letter a few months before the meeting when the investment advisors' contracts are reviewed, simply outlining the law, the directors' fiduciary responsibilities and obligations. The chairman of the board, who at Selected Funds also happens to be independent, then follows up with a phone call. "It sets the table for the entire process," she said.

But simply handing information to directors is not enough, panelists said. Directors, many of whom come from other industries, must also be provided the tools to fully understand the implications of the information they receive.

"You have to create confidence in your board that you are putting everything right in front of them," Rand said.

Including the board in meetings with the audit committee helps achieve that, especially during a review of any financial statements, said Barry Benjamin, leader for the U.S. investment management practice at New York-based PricewaterhouseCoopers. "Dialogue with the audit committee makes the conversation more robust so that everything is not so compartmentalized," he said.

Including the chief compliance officer in all meetings is also a good idea, said Brian Wixted, senior vice president and treasurer for OppenheimerFunds in New York.

If an upcoming audit report is expected to address significant weaknesses or deficiencies, boards should be made aware prior to its release. Likewise, if the auditing company is contracted to conduct services for the fund complex in any capacity, board members should be aware.

"The point is, there needs to be full transparency to the audit committee," Benjamin said.

Transparency-and education-are both imperative when dealing with issues in which many board members may not be an expert, such as pricing, valuation and profit reporting, said Seward.

"Fair valuation is the responsibility of the board, but in reality, we all know that duty is delegated to management. Therefore, management needs to manage the process, apply it and bring it back to the board," he said.

"Most directors find the process impenetrable, and are completely reliant on the management process," Rand said.

Still, board members are acutely aware of their fiduciary function, which means that management must furnish them with documentation, such as minutes of pricing meetings, or memos.

Profitability is another tricky topic for boards members, but no less critical when it comes time for the requisite board certification of the audit and financial records.

"If assets go up and expenses go up, part of that really needs to be explained," Seward said. Rand offered the example of a fund that tripled in assets in only a few years, but became less profitable, because in his entrepreneurial effort to attract investors, the manager waived certain fees and expenses. In cases like that, it's important to give the board the whole picture, for example, a three-, five- and 10-year overview. Likewise, if profits or costs vary by anything more than 5% of what had previously been projected, board members should receive a thorough explanation, and that explanation should be in writing, Benjamin said.

"Show where the efforts go," he said.

Only through such tight control of communication, establishing routines and ensuring boards are provided with the data and disclosures that truly affect the fund can investment company representatives manage the message they convey to the board.

"Remember that you have a monopoly on information," Rand said. "You want to manage the decision-making process."

And that means providing both data and guidance.

"You don't want to keep your opinion a mystery," Rand said. "The board will vote however it votes, but if you don't make a case, then you don't have a chance."

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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