CAYMAN 2012 - HFMWeek

CAYMAN 2012
CORPORATE GOVERNANCE
tor all the activities of the fund and those to whom functions
have been delegated.
It is also desirable that they belong to a recognised association
requiring him to subscribe to a code of conduct
for directors. Above all else they should be completely independent
of all the other service providers to allow them
to make totally independent decisions in the interest of
the fund only. It is true, the director will often have been
THE DIRECTOR MUST BE FREE TO ACT FEARLESSLY ON
BEHALF OF THE FUND WITHOUT FEELING FETTERED BY
THE THREAT OF BEING FINANCIALLY RESPONSIBLE FOR
EXPENSES IN RESPECT OF LAWSUITS
”
appointed or recommended by the investment manager
and although the shareholders may not have personally
appointed the independent director he still owes a fiduciary
duty only to the fund. In the exercise of his fiduciary
duties, a director assumes two roles, as an ‘agent’ acting on
behalf of the company, and as a trustee who controls company
assets. If, having reviewed reputation and past performance,
the shareholders do not trust the independent
director to be capable of exercising the necessary fiduciary
duties, they should insist the director be replaced. If that
cannot be achieved, the investors would be wise to look
elsewhere for investment opportunities.
Today, investment managers have accepted that shareholders
are looking for independence and loyalty from
independent directors and will normally ensure that only
ones who will be acceptable to investors or their advisers
are selected. Having faith in them is the key. They are responsible
for ensuring all the information in the offering
document is true. Therefore if the shareholders have faith
in the competence of the independent directors of the
company they may be reassured that what is contained in
the offering document is accurate.
Not only that, but directors should ensure there are systems
in place and professionals appointed to see that what
is promised in the offering document is indeed delivered.
This will mean they will have to continually monitor the
performance of the professional service providers they
have appointed or ensure systems are in place that will ensure
this is done.
SHAREHOLDERS’ ROLE
What can the shareholders do to assist independent directors
perform their ‘watchdog’ role Shareholders should
ensure they are properly remunerated to be able to properly
carry out their fiduciary duties and to put in place any
systems or procedures that may be required. They should
also ensure that the fund indemnifies and insures the independent
director against any claims that may arise against
them as a result of acting in the service of the company.
Of course fraud or willful misconduct will be excluded.
However, the directors must be free to act fearlessly on
behalf of their funds without feeling unduly fettered by
the threat of being financially responsible for expenses or
costs in respect of lawsuits. They must also have sufficient
resources available that will allow them to engage independent
professional advice when necessary.
As an illustration of how important the role of the independent
director has become and how seriously it is
regarded, the Cayman Islands, home to the great majority
of the world’s hedge funds, now has its own directors’ association
(CIDA), the members of which subscribe to a
code of practice based, with permission, on the Code of
Conduct of the Institute of Chartered Directors in the UK.
In addition CIDA has partnered with the Institute of Chartered
Secretaries in Canada to offer courses to CIDA members
leading to the accredited director qualification. n
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