A meeting of some 50 independent mutual fund chairmen and lead directors this week could result in the creation of a permanent organization for independent fund executives.
The event, to be held tomorrow in New York, is the brainchild of Stephen Davis, project director and fellow of the Yale School of Management's Millstein Center for Corporate Governance and Performance in New Haven, Conn., which is sponsoring the event. Other sponsors include the Los Angeles-based search firm Korn/Ferry International, which recruits fund directors; the Mutual Fund Directors Forum, a Washington association that represents independent fund directors; and Boston law firm Ropes & Gray LLP, which has a mutual fund practice.
Forming a permanent organization of top independent fund executives is a possibility, confirmed John Hill, chairman of both the event and Putnam Investments of Boston, which manages $190 billion.
In addition to the Mutual Fund Directors Forum, there is one other group for independent directors, the Independent Directors Council, which is part of the Investment Company Institute in Washington. This would be the first group for independent fund chairmen and lead directors.
"If there's a sense that this is useful, we could have a similar meeting once a year to share ideas on this role and how it can evolve over time," Mr. Hill said. "It may be more a separate forum for the independent chairs and independent lead directors."
About 60% of mutual funds are led by independent chairmen or have independent lead directors, and up to 90% of the more than $12 trillion invested in mutual funds is under independent leadership, Mr. Hill said.
Interest in having fund leaders independent of a fund's management company and the mutual fund business generally took off after mutual fund scandals erupted in 2003.
"We suddenly have in the mutual fund industry a new avalanche of independent leaders. It's becoming standard operating procedure," Mr. Davis said.
"We thought the time was right to bring together for the first time the independent chairs and independent lead directors of mutual funds in the U.S. for a round table to share experiences about the different models of leadership — what works effectively and what doesn't work," he said.
Mutual fund boards are at a stage of development similar to where corporate boards were a decade ago, Mr. Davis said. Regulators are pushing independent fund directors to take more responsibility for ensuring that conflicts of interest are managed in the best interests of shareholders and that fees are kept in check, he said.
Fund boards have different models, Mr. Davis said. For example, some boards directly oversee proxy voting, while others allow fund company management to control it.
There are many questions about the proper role of independent mutual fund chairmen and lead directors, Mr. Hill said. That will be the general topic of discussion at the round table, which is closed to the public.
"There are lots of terms like 'independent chairman' [and] 'independent lead director,'" said Peter Clapman, vice chairman of the event and chairman of AARP Mutual Funds in Washington, which oversees $137.9 million in assets. "There's imprecision in terms of what they mean, and there may not be the same perception of what they are supposed to do."
The dialogue among participants will include a discussion of how they see their role, what they do and what they don't do, Mr. Clapman said.
"One size shouldn't fit all," he said. "We should agree on a common goal of the role."
Different models of fund leadership will be discussed. Topics include how independent leaders run their boards, whether the leaders have independent information resources, how to set agendas and communicate with other board members between meetings, and how independent leaders interact with fund advisory firm staff and outside counsel.
"It's very helpful for people who have issues with, say, other board members of the adviser's staff, to hear whether other people have similar issues," Mr. Clapman said. "It's helpful to just talk about these issues, which are not cut and dried."
Sara Hansard can be reached at [email protected].
