If the Independent Directors Council has its way, the transformation of mutual fund boards will go well beyond the Securities and Exchange Commission's independent chairman rule, which takes effect Jan. 16, 2006.

In a 25-page report recommending how fund boards might conduct self-evaluations that the council released Tuesday, it encourages board members to prohibit considering a director independent if that person has ever worked as an executive or officer at the investment firm the board oversees.

In addition, the council's 11-member task force suggests holding board meetings off-site so that independent directors feel more comfortable speaking up. The days of directors determining their own six-figure salaries could soon come to an end, too, as the council's task force advises that a third party be hired to set appropriate compensation levels.

But that's just a snapshot of the material covered in the task force's report, which was released yesterday at the website of the IDC, an offshoot of the Investment Company Institute.

The task force further recommends that a board committee be established to closely review investment advisors' performance to prevent rubberstamping of contracts. It also offers its take on whether self-evaluations should be oral or written, and urges boards to examine whether they're devoting enough meeting time to increasingly larger agendas.

The task force acknowledges in its report that the SEC has stipulated that self-evaluations should only cover the effectiveness of committees, the number of funds a board oversees and that meeting minutes are accurate. However, it explains that it decided to offer practical guidance to boards that will be undertaking self-assessments for the first time or re-examining their existing practices.

"The IDC Task Force report contains some practical ideas from mutual fund board veterans and should be helpful to boards as they continue to refine their governance processes to best serve the interests of our shareholders," said James H. Bodurtha, chairman, IDC.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.