Obviously, Paul Schott Stevens isn't afraid of a little controversy.
As the new president of the Investment Company Institute, the 51-year-old Mr. Stevens is joining the organization amid major upheaval within the mutual fund industry and the organization itself.
In the 11 months since the $7.5 trillion fund industry found itself at the center of a major trading scandal, the powerful Washington-based lobbying group has faced a barrage of criticism for behaving more like a lackey for its member companies than a champion of reform. What's more, the 64-year-old group has been hit by a wave of staff defections.
Mr. Stevens, who was the ICI's general counsel from 1993 to 1997, on June 1 replaced Matthew P. Fink, who retired after 33 years with the organization.
Meanwhile, Julie Domenick, who was in charge of the ICI's lobbying efforts on Capitol Hill, quit in May after 23 years at the organization. Craig Tyle, who served as general counsel, quit in March after 15 years.
Mr. Stevens, most recently a partner at Philadelphia law firm Dechert LLP, conceded that he is coping with a "generational shift" within the ICI.
Nevertheless, he is optimistic.
"We've got a new set of players coming in," Mr. Stevens said. "You'll see some innovations about the way the institute operates that are important and hopefully will have long-term beneficial consequences for the business."
His appointment is being viewed as a breath of fresh air by recent critics of the ICI. In the few months since Mr. Stevens has taken over, he has already begun to refashion the ICI as a proponent of change, said Don Phillips, managing director of Morningstar Inc., a Chicago-based fund tracker.
Indeed, Mr. Stevens has already gone on record as being an advocate of what he terms the "broad-based reform process being pursued by the [Securities and Exchange Commission]." He has also come out in favor of measures aimed at increasing transparency, such as the Financial Accounting Standards Board's proposal to require the expensing of stock options and the SEC's proposal to mandate registration of large hedge fund advisers.
"Everything they've done under his short tenure has been positive," Mr. Phillips said. "That's a huge step in the right direction."
Q. Why did you accept this job?
A. I am a great believer in mutual fund investing. Secondly, I know the institute. I was here as a general counsel. I know the organization, and it is really a great place, both in terms of the work it does and the people who are here. Finally, there are challenges here. There's work to be done. There are ways of having an impact and doing some good. I am really committed to the mission and objective of the organization.
Q. What is the biggest challenge you face in running the ICI?
A.This may be a little inside baseball, but we are still trying to fill out the complement of our personnel. There are management issues internal to the ICI that are claiming a lot of my attention.
Q.Given how regulators are holding fund trustees responsible for some of the problems within the fund industry, is it going to be difficult to find people willing to serve as trustees?
A. I hope not. To be very candid, it is a very heavy set of responsibilities that people take on. The expectations are great. There's potential liability associated with it. Plus, there is an enormous investment of time and energy, and there is an enormous amount of public scrutiny involved. It's dismaying to me to read in the newspapers, "Gee, we need to give independent directors this, that and the other new set of responsibilities, and raise the bar." The next day you read a story that says, "Boy, these guys are getting paid too much." As I look at it, they are a community that has done, and continues to do, an outstanding job for fund investors, and I think the job is underappreciated, and it is growing in difficulty.
Q. Given that the ICI claims to serve both the industry and shareholders, why did it oppose the SEC mandate for independent board chairmen?
A.I don't know that anyone has said that boards without independent directors as chairs have been unable to manage and address the conflicts of interests. I simply reject the notion that funds that have boards that are chaired by folks associated with the management company have not been successful in managing those conflicts of interests. It is not a necessary ingredient, if you will.
Q.What do you say to critics who claim that the ICI has acted as a mouthpiece for the fund industry?
A.I think we ought to be judged by the positions we've taken. Look, I am not going to engage in mudslinging or personal recriminations, but I am happy to talk to anybody about what it is the institute has supported, what it stands for and what it will stand for.
Q.The ICI claims to serve both fund advisers and individual shareholders, but how does it navigate those instances where the interests of the fund shareholder diverge from the interests of fund advisers?
A. That's the dichotomy that everyone is saying exists. Look, we don't get involved in individual business decisions. We're not addressing conflicts that arise at the operational level. We're looking at broader issues of policy and industry responsibility. There, quite frankly, I reject the notion that it is fraught with the kind of conflicts that you are positing.
Q. How do you intend to make your mark at the ICI?
A.I have tremendous admiration and respect for my predecessor here. Matt Fink did an enormous amount of good for mutual funds and for their investors working here for almost a third of a century. In the wake of the scandal, the challenge is a little different. The challenge is trying to make sure we rededicate ourselves to the fiduciary culture, that we work hard every day to continue to sustain the trust that investors have in mutual funds. In connection with the regulatory reforms, we need to support the process and make sure [the new rules] get their full potential realized on behalf of fund shareholders. That's a little bit of a different challenge, and that is what I am focused on principally as president of the institute.
Q Do you think the ICI should have responded differently to the scandal?
A. I don't know that anything should have been done differently in substance.
Q.You have said you would like to find someone to build the ICI's public communication effort. Why?
A.So I can do other stuff than simply talk to reporters. The sheer number of people in the working press who are interested in mutual fund issues has exploded. There are many new reporters who have come to the process, frankly, who are rookies. The issues are also getting more complicated.
Q.What can the ICI do to enforce good conduct of its members?
A.We are not a self-regulatory organization. We have no powers of compulsion. We do not set and enforce standards as some other trade organizations do. Nonetheless, we do have as our members about 95% of the industry assets accounted for, so I think we have means with which to do it, and we've tried hard over time to have an influence over standards in the business.
Q. What are your thoughts about establishing an SRO for the mutual fund industry?
A. I don't believe an SRO is what is lacking in this equation. What we need is a very capable and effective SEC.
Q. What do you say to critics who claim most funds are captive to their fund management companies and cite as proof the fact that fund boards fire very few advisers?
A.It's a curious thing, this notion that the [hallmark] of a really independent fund board is its proclivity to manage the person who is running the money.
In my experience, most people are attracted to mutual funds not as a result of their excellent board but as a result of their conviction that the ultimate money manager running the fund is going to do a good job for them. We have had instances in the industry where some fund boards - having forgotten that simple reality - have sought to move the contract to another adviser and lived to regret it.
It also is the case that fund boards have lots of mechanisms available to them short of moving to another adviser to discipline the system.