Fund boards, even those with a majority of independent directors, hardly ever fire an inept manager, content to protect the status quo, writes MarketWatch columnist Chuck Jaffe.

Even Warren Buffett once wrote in his Berkshire Hathaway shareholder report: “a monkey will type out a Shakespearean play before an independent mutual fund director will suggest [firing an inept manager].”

A recent example of this, Jaffe notes is the Phoenix Market Neutral Fund, which has never posted positive returns since its inception nine years ago. Richard Gates of TFS Capital sent a letter to the fund’s board offering to act as sub-advisor. Gates noted that TFS runs a similar fund and has delivered average annualized gains of nearly 15% since its launch three years ago. But the Phoenix Market Neutral Fund has ignored the letter.

“In all other industries, there is competition and people bidding for services,” Gates notes. “All we want is to open up the mutual fund business to a little competition. They have almost nine years of track record, ample opportunity to display their talents or lack thereof. We are confident that if the board searched for a new manager, and picked us from the competition, we could go in there, add value and make the shareholders better off.

“If it’s unseemly to ask board members to make a decision that looks out for the best interest of shareholders, we shouldn’t go through the exercise of approving advisory contracts every year,” Gates added. “It’s just a show.”

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