The rule that the Securities and Exchange Commission proposed in 2004 that would require fund boards to be overseen by an independent chairman and be 75% comprised by independent directors, including the chairman now that the comment period ended on March 2, is about to be discarded by, writes Dow Jones column Chuck Jaffe.
Few of the current SEC commissioners are in favor of the rule, which has been rejected twice by federal appeals courts and is adamantly opposed by the Investment Company Institute and a number of fund giants, including Fidelity Investments. The best that investors and consumer groups can hope for is a statement from the SEC that putting an independent director in place is a best practice.
Still, Susan Ferris Wyderko, executive director of the Mutual Fund Directors Forum, maintains studies have shown that increasing the number of independent directors improves fund governance at little cost. And Jaffe agrees, citing studies that show funds run by a board with an independent chairman have lower fees, negotiate the lowest prices from service providers—which often are not affiliated with the fund complex, and have more focused chairmen.
Geoff Bobroff, president of Bobroff Consulting, believes the independent rule is more for show. “It’s hard to say that funds function better with an independent chair,” Bobroff said. “But what you can say is that the independent board could eliminate conflicts of interest and generally just make us feel better.”