Mutual fund directors, lawyers and academics will meet in Washington tomorrow and Wednesday to examine the state of mutual fund governance and consider possible changes.

The Securities and Exchange Commission is sponsoring the "Roundtable on the Role of Independent Investment Company Directors" to discuss issues such as improving the effectiveness of fund directors and directors' role in scrutinizing mutual fund fees. The sessions will be held from 9 a.m. to 5 p.m. Tuesday and 9 a.m. to 5:30 p.m. Wednesday at SEC headquarters.

The sessions "will explore the critical watchdog role that independent directors play in protecting the interests of fund shareholders," the SEC said in a statement last week.

Mutual fund independent directors- individuals who are not employees of or affiliated with the fund adviser- are the key check in the system of fund governance. Under federal securities laws, at least 40 percent of each fund's directors must be independent. A majority of the independent directors must vote to approve the contract which sets the fees a fund pays the investment adviser and sales arrangements between a fund and those who sell it.

In 1970, Congress revised the Investment Company Act of 1940- the key piece of federal legislation which governs mutual funds- to strengthen the role of the independent director. Those changes came after Congressional hearings in the 1960s raised questions about how effective fund directors had been at monitoring conflicts between fund advisers and the funds themselves.

Nevertheless, the issue persisted. In a 1992 internal report, the SEC expressed concern that independent fund directors "may not be able to act with genuine independence" because of "direct or indirect influence by the adviser."

The concerns that led to legislative action nearly 30 years ago have now re-surfaced. The major concern is that independent fund directors- who sometimes receive six-figure compensation from funds for serving as directors- have not been diligent watchdogs. In a speech in May, SEC chairman Arthur Levitt questioned whether directors were "doing a good enough job of governing ... with integrity" when it comes to the issue of mutual fund fees.

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