Tougher Rules Urged for Fund Directors
A U.S. mutual fund industry trade group Thursday unveiled guidelines aimed at strengthening the ability of independent fund directors to protect investors’ interests.
The Investment Company Institute’s recommendations go further than changes proposed this year by Securities and Exchange Commission Chairman Arthur Levitt, who has been pushing for independent directors to take a more aggressive stance as shareholder watchdogs.
The recommendations are not binding, but the proposals are expected to carry considerable weight within the industry.
“This is a realization that, with funds so widely held, the reputation of the industry is vital for its success, and they want to tighten [the guidelines],” mutual fund consultant Burton Greenwald said.
The proliferation of new, smaller funds whose “housekeeping” may not meet a large fund family’s standards may be considered a potential source of problems for a scandal-free industry, Greenwald said.
As of March 31, there were nearly 7,500 U.S. money market and mutual funds, compared with 2,900 in 1989, according to the ICI, which sponsored the Advisory Group on Best Practices for Fund Directors.
Among the 15 “best practices” cited in the report are that at least two-thirds of directors on any fund’s board should be independent of the fund company itself, up from the 40% now required by law, and that they should meet separately from management to consider key decisions such as hiring investment advisors to manage assets.
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