Fund Directors Look Outside

A majority of mutual fund directors are independent members who are increasingly meeting without management and more often, according to data released Thursday by an industry trade organization.

The study by the Investment Company Institute found that in recent years the ratio of independent directors to total board members has “consistently exceeded” requirements of the Securities and Exchange Commission and the ICI’s recommendations.

Congress mandated in 1940 that at least 40% of fund directors have no ties to fund companies, but the SEC in 2001 called for a majority of directors to be independent. New rules set by the SEC in 2004 upped the requirement to 75%, including board chairmen, starting in January 2006. The ICI recommends that two-thirds of board members be independent.

The stricter SEC rules have not been implemented pending the outcome of a lawsuit filed by the U.S. Chamber of Commerce.

The survey showed that the average ratio of independent directors increased to 78% in 2004 from 71% ten years earlier. The average number of independent directors for each fund complex held steady at eight during that span.

The majority of board chairmen are not independent, however. The data showed that 43% of funds had an independent chairman in 2004, compared to 22% in 1996. Another 18% had an “independent lead director,” who served as the primary liaison between independent directors and fund companies. The ICI had recommended that boards name an independent lead director.