The chairman of the Securities and Exchange Commission told Congress on Tuesday that he supported a plan for an overhaul of the way mutual funds govern themselves, forcing their chairmen and three-quarters of their directors to be independent.
Responding to a crisis both in the mutual fund industry and at the commission, which until recently never looked for trading abuses, the SEC chairman, William H. Donaldson, outlined proposals beyond those he announced on Friday.
The proposals would require more independent directors, 75% of the board, up from the current 50%. They would require directors of funds to perform annual evaluations of their effectiveness and would permit them to hire their own staff so they would not rely too heavily on the fund’s investment advisers. They would also require funds to disclose more details about their fees.
Donaldson’s plan did little to discourage some lawmakers from pushing legislation that would go beyond the steps being considered by the commission.
Representative Richard H. Baker, a Louisiana Republican who heads a subcommittee of the Financial Services Committee, said he expected that the House would soon take up a measure he has sponsored that would tighten regulation.
“We all — regulators, legislators, investment advisers, mutual fund managers, broker-dealers, the financial press and investors — have spent much time lately wondering how the current abuses could have happened,” Donaldson said in testimony before the Senate Committee on Banking, Housing and Urban Affairs. “A significant reason is because the industry lost sight of certain fundamental principles – including its responsibilities to the millions of people who entrusted their confidence, the fruits of their labor, their hopes and dreams for the future to this industry for safekeeping.”