To preserve their watchdog role and face down calls for change, independent mutual fund board chairmen and lead independent directors are banding together.
They are collaborating with The Millstein Center for Corporate Governance and Performance at the Yale University School of Management in New Haven, Conn., and the Washington-based Mutual Fund Directors Forum to found the Conference of Fund Leaders.
The conference, open to all independent board chairmen and lead independent directors, is scheduled to hold its first meeting in New York on Oct. 27.
"Funds leaders have prime responsibility for ensuring above all that mutual funds serve the interests of citizens who entrust their savings to them," said John Hill, founding chairman of the CFL and independent chairman of the Putnam Funds, advised by Putnam Investments LLC of Boston.
"This new body is designed to fortify that oversight," he said.
Fortification is needed now, more than ever, some industry experts said.
NEW GLOBAL STRUCTURE
Treasury Secretary Henry Paulson appears to have adopted the stance of the Investment Company Institute, the Washington-based mutual fund trade organization, that there is a need for a new global investment company structure to remain competitive.
His blueprint for a modernized financial regulatory structure, released on March 31, talked about the need for such a global structure.
If that global structure looks anything like the European structure the ICI has advocated, it would not include an independent fund board.
Independent directors and those who support them say that would be a mistake.
"Independent directors ... provide a great deal of investor protection," said Susan Wyderko, executive director of the Mutual Fund Directors Forum. "We have not seen an alternative form that would duplicate that important benefit to shareholders."
But that hasn't stop critics of fund boards from pushing their agenda.
The American Enterprise Institute, a Washington-based think tank, has been particularly vocal. Last year the institute released a book, "Competitive Equity: A Better Way to Organize Mutual Funds," by Peter Wallison and Robert Litan (AEI Press, 2007), suggesting that funds would be more competitive if they operated without boards and instead relied on full-time trustees to look out for the interests of shareholders.
Both the book's authors and the ICI claim that the United States is losing market share in part because of its mutual fund structure.
With the creation of the Conference of Fund Leaders, however, independent board leaders have greater access to academic research to bolster their position, Ms. Wyderko said.
But the CFL won't just be about advocacy.
"Mutual fund boards have chosen an independent chair, or independent lead director, only in recent years," said Peter Clapman, vice-chairman of the CFL and independent chairman of the AARP Funds, advised by AARP Financial Inc. of Tewksbury, Mass. "Our conference can serve as an opportunity and platform for independent leaders to discuss how this relatively new role can best be performed for the benefit of fund shareholders."
DISCUSS STICKY TOPICS
It may end up being the perfect place to hash out best practices as they relate to sticky topics such as 12(b)-1 fees, soft dollars and best execution, said C. Meyrick Payne, a senior partner at Management Practice Inc., a Stamford, Conn., consulting firm for independent fund directors.
That may be true, but the CFL's role as advocate may provide the most benefit to independent directors.
"When you have a group that's created from the leads and heads of all the fund boards, that's a powerful force," said Jeff Keil, president of Keil Fiduciary Strategies LLC, an industry consulting firm in Littleton, Colo.
Only time will tell how powerful.
A pilot meeting of the new organization, held on Jan. 22, drew independent chairmen and lead directors from 43 funds across the United States.
Those involved in the creation of the CFL believe it will grow.
"The conference is poised to become a key resource for mutual fund boardroom leaders," said David Ruder, chairman of the Mutual Fund Directors Forum.
E-mail David Hoffman at [email protected].
