A task force organized by a unit of the Investment Company Institute, the investment management industry's leading trade group, has determined that oversight of multiple funds by quality independent directors enhances the efficiencies and effectiveness of a fund family and drives shareholder value.
The Independent Directors Council (IDC) task force was formed to answer two issues: a recent public discussion of whether oversight limits might be appropriate and, per a mandate from the Securities and Exchange Commission, whether the matter should be included in board annual assessments.
"The IDC task force noted that the mutual fund industry is structurally unique and found that it is far more efficient for a single board or small number of boards to review the common regulatory structure, common personnel and service providers and common oversight mechanisms of the funds in a single family of funds," said James M. Bodurtha, chairman of the IDC and leader of the task force.
The IDC, an ICI initiative that serves the mutual fund independent director community, organized the task force. The IDC was formed in response to a new SEC rule that calls for mutual fund boards to include an independent chairman. The rule also raises the number of independent directors with seats on a fund board from 40% to 75%.
About 80% of all mutual funds would have to make personnel adjustment to comply with the new SEC guideline. The rule is scheduled to take hold Jan. 1, 2006, although the U.S. Chamber of Commerce is currently challenging the SEC's jurisdiction in the courts.
In addition to determining that multiple oversight is more efficient, the task force also concluded that adding the matter to board annual assessments is consistent with good governance. The task force also found that oversight of multiple funds could enhance independent directors' knowledge and expertise, which is contrary to a key argument fund complexes have made against the new SEC rule.
The task force also said that multiple fund oversight could drive greater contact between independent directors and senior management at those funds, as well as foster ongoing and productive dialogue with management.