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Directors: The Crucial Role of Challenge in Governance and Investment Valuation

Sandy Cameron Jun 9, 2025

Another audit ‘busy season’ is successfully behind us, congratulations to all involved as each year we are improving quality through stronger processes and more rigorous challenge (which can feel intense). Now, as we reflect on the lessons learned and consider opportunities for improvement, there is one point that I believe to be crucial within our financial services industry in the Channel Islands; the role and interaction of directors. 

In today’s increasingly complex and regulated financial landscape, the role of directors on fund boards has never been more critical. This is especially true in the Channel Islands, where we act as a trusted jurisdiction for international fund structuring and administration. Yet, in our experience as auditors and professionals, we continue to see gaps in board level interaction and challenge, particularly when it comes to investment valuations. 

As custodians of investor capital, directors have a fiduciary duty to ensure that financial reporting is fair, accurate, timely and based on sound judgement. This role cannot be appropriately executed when treated as a secondary responsibility or a ‘corner desk job.’ The role requires adequate time to be set aside to understand the underlying business, its operations, objectives and crucially, in the Channel Islands, the underlying assets they own. The challenge here should not only come annually when the external audit happens, but I would expect this challenge to be evident quarterly, or align with the frequency of when the Board meetings occur.  

Independent directors can play a vital role in upholding this standard by bringing objectivity, experience, and a healthy level of scepticism to boardroom discussions. However, all directors, bound by a duty of care, must demonstrate challenge and be willing to ask the difficult questions.  

The Duty to Safeguard Assets
Directors, whether executive or independent, carry the responsibility of safeguarding the assets of the fund and acting in the best interests of investors. This responsibility extends far beyond compliance or regulatory checklists. It is about stewardship, oversight, and ensuring that proper governance frameworks are not only established but also actively maintained. This includes ensuring the integrity of the valuation process. For many funds, the majority of net asset value comprises unlisted investments, meaning that the reliability of valuations directly impacts investor reporting, performance fees, and even investor decisions. As directors, you do not need to be the expert in this field, but you should know how to ask the right questions, the experts will then be able to explain and justify their valuation.

Valuation Risk and the Importance of Challenge

Valuation is not a tick-box exercise. We have observed numerous instances where investment managers present valuations that, on the surface, appear robust, complete with third-party reports, complex models, and supporting narratives. Yet, when challenged (either by us as auditors or by a more sceptical director), these valuations have at times been materially adjusted. In some cases, we’ve seen full write-downs of investments which previously looked acceptable to directors. 

Why? Because valuation is part science, but mostly art. It involves judgement, assumptions, and forecasts, all of which are inherently subjective and prone to bias. In the absence of rigorous challenge, there is a risk that management optimism or conflicted interests go unchecked. 

This is where independent directors can and must, add value. It is not enough to rely on the reputation or expertise of investment managers. Directors should ask: 

  • What methodology has been applied, and is it consistent with prior periods? 

  • What are the key drivers of value for the business? 

  • Are you on track with your milestones and overall business plan? 

  • What are the biggest risks that the business faces? What is the impact? 

  • What level of judgement has been applied, and where are the critical assumptions? Have market comparables or inputs changed materially? If so why? If not, why not (it could be strange if nothing has changed in today’s environment)? 

  • Was external advice sought, and if not, why not? 

  • Has there been any litigation for or against the entity?

These are not just technical questions, they are governance questions. They speak directly to a board’s role in overseeing a fair valuation process.  

Independent Advice: A Tool, Not a Crutch
It is also important to recognise when the board itself may not have the technical expertise to robustly challenge a valuation. In such instances, independent advice from valuation specialists or financial consultants can be invaluable. However, this should support, not replace, the board’s judgement. This is where we at Baker Tilly Channel Islands can assist, either through the audit process, or through independent reviews. Outsourced valuation opinions should be critically reviewed, not rubber-stamped. A true governance culture means directors are comfortable pushing back, asking the difficult questions, and demanding clarity, even when dealing with seasoned investment professionals.

Lessons from the Field

In our audit practice, we have come across several Channel Islands funds where valuations provided by general partners went unchallenged for years, despite market inconsistencies or deteriorating performance. When boards were prompted to engage more critically, the results have been substantial.  This includes the following: 

  • Change of valuation methodology 

  • Change / introduction of formal valuation policy 

  • Change in comparable inputs 

  • Increase / decrease in valuation (including full asset write-off) 

  • Prior year misstatement 

  • Change in underlying operations (including but not limited to): 

  • New board members 

  • Change of strategy 

  • New insurance providers 

 Improving this process can improve investor confidence within both the fund and with the Channel Islands as a jurisdiction (‘the Jersey/Guernsey plc’).  

A Call to Action for Channel Islands Directors
The Channel Islands have built a reputation as a centre of excellence for fund administration and governance. To maintain this, we must continually raise the bar on board performance, particularly when it comes to valuation oversight. All directors must embrace their role not just as overseers, but as active participants in governance. That means being prepared to challenge investment advisors, probe assumptions, seek independent advice where appropriate, and document their thinking.
At Baker Tilly Channel Islands, we believe in leading with ambition, and that includes encouraging directors to take a more proactive, challenging, and engaged role.
Strong governance is not about ticking boxes, it’s about fostering an environment where robust debate is welcomed and decisions are made in the best interests of investors. Let’s not wait for issues to emerge after the fact. Let’s embed challenge into our culture.
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Sandy Cameron
Client Director
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