The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
Thursday, January 08, 2004|
Six Steps Fund Directors Must Take
Fund directors had better remember the critical role they play in the industry warned SEC chief William Donaldson Wednesday evening. The SEC Chairman made his remarks to attendees of the Mutual Fund Directors Forum. During the speech, he also warned directors that the SEC is taking a careful look at the role independent directors played in the scandals that have been uncovered since September and that if directors are found to have harmed shareholders they will be "aggressively" pursued.
"We are asking whether the directors were aware of these abuses, and whether there were red flags that were ignored," he said.
Donaldson reminded the gathered directors of their fiduciary role to protect shareholders and that they "must play a key role in helping to restore trust in the mutual fund industry." As part of that service, independent directors, in particular, should serve as "independent watchdogs" guarding investors' interests, he said.
"You are the investors' first line of defense in ensuring that their interests are being served, that conflicts of interest are appropriately managed and disclosed, and that investors' money is being managed responsibly. While the SEC shares this mission to protect investors, we cannot be in the boardroom when investors' interests may be compromised. Investors are depending on you to stand up for them."
"It is not enough that you follow the letter of the law and the rules that the Commission has adopted. It's not even enough that you follow the best practices that the Forum will outline in the coming weeks. To be truly effective, you must be forceful in requiring your funds and their service providers to establish new standards of integrity. Investors must be able to see for themselves that fund companies, and fund directors, are living up to their fiduciary obligations and the spirit underpinning all of our securities laws," added Donaldson.
He said that directors of implicated funds should be asking themselves "What could we have asked of management to surface these issues?" and "What kind of reporting or information could we have requested that would have indicated that there was a problem?"
Lessons for Directors
Regulatory ReformsDonaldson also outlined steps that he expects the Commission to take to ensure better governance practices at funds. The components of the fund governance package will include:
"I believe that increasing the percentage of independent directors on fund boards will strengthen the hand of independent directors when dealing with fund management and will better serve the needs of fund shareholders," explained Donaldson.
He added that the he feels a boardroom culture conducive to decision-making and a focus on the long-term interests of fund shareholders is more likely to prevail when the chairman of the fund's board is completely independent of the fund's adviser.
"A fund board can be more effective when negotiating with the fund adviser over matters such as the management fee, if it were not at the same time led by an executive of the adviser with whom the board is negotiating," he said.
Printed from: MFWire.com/story.asp?s=6445
Copyright 2004, InvestmentWires, Inc.
All Rights Reserved