Seven former chairmen of the Securities and Exchange Commission have thrown their support behind a controversial agency plan to require that leaders of mutual fund boards be independent.
The former heads of the SEC said in a letter released yesterday that independent chairmen of mutual fund boards would best set the agenda and promote honest discussion with day-to-day managers at the fund companies.
"We believe an independent board chairman would be better able to create conditions favoring the long-term interests of fund shareholders than would a chairman who is an executive of the adviser," wrote David S. Ruder, now a law professor at Northwestern University.
The letter was signed by all of the living former SEC chairmen -- Ruder, Richard C. Breeden, G. Bradford Cook, Roderick M. Hills, Arthur Levitt Jr., Harvey L. Pitt and Harold M. Williams. Five were appointed by Republican presidents and two by Democrats.
SEC spokesman Matthew C. Well said the agency is "delighted to have the support of the former SEC chairmen with regard to this important issue."
The agency will take up the issue for a vote on June 23, as part of a broader package of initiatives to overhaul the $7.5 trillion mutual fund industry. The industry has been tarnished by federal and state probes that uncovered evidence some managers allowed favored clients to profit at the expense of average investors. In recent months the SEC has sued 12 of the 25 biggest fund companies, extracting multimillion-dollar settlements from many of them.
The SEC's five commissioners are likely to pass the independent chairman proposal, though it will face opposition, according to two SEC sources who spoke on the condition of anonymity because the deliberations are being conducted in private.
The Investment Company Institute, a trade group for the industry, strongly opposes the SEC plan. John Collins, an ICI spokesman, said, "We think the answer seems to be to leave to the directors the decision" on whom to elect as chairman because independent directors are already in the majority on fund boards.
Collins said about 20 percent of mutual fund companies already have an independent director as their chairman.
If approved, the SEC plan would lead to a shakeup in the ranks at some large fund companies, including Fidelity and Vanguard, whose chief executives are also chairmen of the fund boards.
Prominent lawmakers, including Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee, support the SEC proposal.