HALF A MEASURE IS AS BAD AS NONE

Half-measures. That’s the best that can be said of last week’s proposals by Securities and Exchange Commission Chairman Arthur Levitt to strengthen mutual fund boards of directors.

Mr. Levitt offered some good first steps, such as requiring directors to report how much money they’ve invested in the funds they oversee and to disclose their business relationships with the fund company.

Still the proposals he announced leave mutual fund directors with too little power — and too beholden to the fund companies that secured them their sinecures — to represent shareholders adequately.

Too many fund boards are merely rubber stamps. And there’s little reason to expect much enlightenment when it comes to the Dark Ages ethic ruling most pay disclosure practices.

Among Mr. Levitt’s proposals:

* A majority of directors should be independent of the fund management company.

* Independent directors should nominate their replacements

* Lawyers and auditors for the boards should be independent of the management company.

All well and good. But surely Mr. Levitt knows that the most substantive solution would be proposals that clarify the legal right of fund boards to terminate, or take other actions, against fund management companies. He must also make it clear the boards may use fund assets to pay for lawsuits against the management company under certain stringent conditions.

These should have been the first step. They now must be the next step.