A deeply divided Securities and Exchange Commission proposed rules on Wednesday that would force most of the nation’s mutual funds to replace their board chairmen with outsiders independent of the firms that manage the funds.
The proposal, which is expected to win final approval in the next few months, will affect not just mutual fund companies that have figured in recent investigations but giant firms like Fidelity Investments, the Vanguard Group and T. Rowe Price Associates, which have been left unscathed by the industry’s scandals. And several mutual fund companies involved in the investigations have independent chairmen and boards for their funds.
Still, some industry experts and government officials said that the proposal, if adopted, could begin to alter the way mutual funds govern themselves. Analysts estimate that the boards of about 80% of the nation’s mutual funds have chairmen who are senior executives of the funds’ management companies and would have to be replaced under the new rule.
Critics of the plan, including two Republican members of the commission, argue that by removing insiders from leadership roles at fund boards, the SEC could seriously undermine those boards’ effectiveness on behalf of investors.
But the supporters of the proposal — including the SEC’s chairman, William H. Donaldson, and the commission’s two Democratic members — reject that view, saying fund managers would still be consulted and could have a voice on the board, albeit a less dominant one.