The SEC is eying a new regulation that may force Edward "Ned" C. Johnson III, chairman of Fidelity Investments and its mutual funds' trustees, to relinquish one of his senior titles, The Wall Street Journal reports. The proposed SEC rule calling for mutual fund boards to install independent chairman would effectively unseat Johnson from one of his senior roles at Fidelity. Fidelity, which has not taken the news lightly, argued in a recent letter to SEC that mandating independent fund directors potentially works against shareholders' interests. In the letter, Fidelity referenced self-funded research and concluded that more than half of the mutual funds in a control group overseen by chairmen with management ties were more likely to outperform peer investments that other funds with independent chairmen. In addition, the report also found that fees in the two groups were roughly equal. The study examined fund families with more than $10 billion of assets. Only 14 out of the 57 fund families cited, which approximated 87% of the wealth in the fund industry, maintained independent chairmen. Fidelity also notes that some competitors, such as Putnam Investments, with independent fund chairmen, also succumbed to scandals. Despite the findings of Fidelity's study, shareholder advocates say fund chairmen who serve dual roles as senior executives at investment firms are in danger of siding with management. Mercer Bullard, a University of Mississippi professor and former SEC attorney, supports the proposed SEC rule and calls Johnson's dual positions at Fidelity a strong potential conflict of interest.
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