As expected, the Securities and Exchange Commission voted Wednesday to require funds to have independent chairmen and for 75% of a funds board to be independent, up from 50%. The new rule will require major changes at fund companies, where approximately 80% of the chairmen are currently affiliated with the investment advisor.
"This is the capstone decision of the rules and regulations we have put forward," said SEC Chairman William Donaldson after the open meeting. Donaldson and commissioners Harvey Goldschmid and Roel Campos voted for the measure. Paul Atkins and Cynthia Glassman voted against it.
Paul Roye, director of the division of investment management pleaded at the open meeting that the commission vote in favor of the two new measures. In his remarks, Roye proposed a change in recordkeeping that would mandate all advisory contracts to be kept by boards so the SEC could review them. A separate piece of the meeting agenda also addressed the need for more public disclosure of those contracts.
"We believe that a fund board with an independent chairman and independent leadership is more likely to ask the tough questions, more likely to say no when necessary, and more likely to be an effective check on fund management," Roye said
The meeting also broached other topics, such as an amendment to the short sale rule. In addition, the SEC voted 5-0 to require funds to tell shareholders their reasons for hiring or retain an investment advisor.