Securities and Exchange Commissioners Paul Atkins and Roel Campos continue to publicly voice their opposing viewpoints on the value of requiring mutual fund companies to have Independent Board Chairmen, even as the rule itself continues to be tweaked, according to The Wall Street Journal. The rule, passed in 2004, which required fund boards to be 75% independent and lead by a non-fund-company affiliate, has been overturned in federal court twice. Last week, Atkins called justification for the independent chairman rule “tenuous” before a Washington audience. Last month, Campos gave a speech to fund directors in which he claimed, “The economic studies and current rulemaking record would fully support a 75% independent board and chair requirement.” Industry groups are likewise divided. Even the SEC’s Office of Economic Analysis concluded that “optimal governance structures are likely to vary from fund to fund,” in a December report. Fidelity Management & Research Company hired a Harvard Law professor to analyze the benefits. The result was a 100-page report submitted as part of the SEC’s request for comments that said even the SEC’s Office of Economic Analysis December assessment of the rule’s benefits shoed “optimal governance structures are likely to vary from fund to fund.” The Investment Company Institute-affiliated Independent Directors Council said in its statement that the reports failed to prove a financial root for the rule, and that funds should be able to choose for themselves. The Mutual Fund Director’s Forum, on the other hand, said that the reports actually bolster the case for independent directors in order to avoid conflicts of interest arising between fund companies and their shareholders. “Independent fund boards are ideally positioned to oversee and, if necessary, manage and resolve conflicts of interest,” the organization said in its statement. Likewise, Chicago-based fund rater Morningstar noted that interested directors have caused an erosion in the effectiveness of many boards. “As long as those conflicts exist, shareholders are not being serves as well as possible,” said Morningstar Analyst Laura Lutton. Shareholder groups such as Fund Democracy and the Consumer Federation of America have argued that the study fails to show that adding independent directors poses a burdensome cost for fund companies. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.
