A federal appeals court has denied a request by the U.S. Chamber of Commerce to delay new rules requiring mutual funds to have an independent chairman, the Wall Street Journal reports. The worlds largest business group had launched a campaign to postpone more stringent governance measures adopted by the Securities and Exchange Commission this past summer pending the outcome of its lawsuit challenging the move.
In a ruling Monday, the U.S. Court of Appeals in Washington denied the chambers motion to delay the rules, which are scheduled to go into effect in January 2006. Still, the court granted its request for speedy consideration of the case, the newspaper said.
- The chamber contends that the SEC does not have the legal authority to set higher standards for fund directors. It further argues that placing restrictions on mutual fund companies board decisions and management is not in the best interests of fund shareholders and that a one-size-fits-all approach could have negative, unintended consequences.
The move represents a significant change to the dynamic of the boardroom and has already begun imposing costs on funds as they scramble to hire more independent directors. SEC Chairman William Donaldson proved to be the deciding vote in the Commissions 3-2 decision to approve rules requiring a 75% independent board with an independent chair. Republican Commissioners Cynthia Glassman and Paul Atkins opposed the rule arguing that there is no empirical evidence that funds with an independent chairman perform better than those without one. An estimated 20% of mutual funds had an independent chairman in place at the time of its adoption.