The SEC's requirement that mutual fund boards be stocked with more independent executives met with jeers when it was passed last year. Now, the raspberry blowers have some research to back up their disdain.
Missouri University's School of Economics looked at the 448 largest fund families — constituting 97 percent of capitalized mutual fund value — to see if those with more independent directors had lower fees or fewer scandals. The school found no evidence of such a correlation.
“We thought the presence of an independent chair might be commensurate with effective governance, but it just wasn't there,” says Steve Farris, an author of the study. “We found no empirical evidence of any relationship between independent directors and lower fees.” The study's conclusion: board size, the number of funds overseen and director compensation are much better indicators of a fund's quality. (See related story on page 65.)