April 8, 2004
Edward M. Tighe
608 NE 13th Avenue
Ft. Lauderdale, FL 33304
April 8, 2004
The Honorable William H. Donaldson
Security and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Chairman Donaldson:
I serve as an independent trustee for the Ivy Funds and the Hansberger Institutional Series. Recalling the resilience of the industry to recover from the Investors Overseas Services scandal of the late 1960s, I am confident that the industry will correct the recent abuses and continue to provide shareholders with quality investment alternatives for financial planning. As we implement the controls to stop further abuses, I respectfully caution our regulatory bodies not to overreact and stifle the industrys ability to operate efficiently. I recognize that the SEC has a very difficult challenge to delicately balance the current environment and satisfy the needs of all parties.
Towards that end, I am writing to comment on Commissions proposal that requires an independent director or trustee to be the chairman of the fund board as proposed in the SECs Proposed Rule: Investment Company Governance Release No. IC 26323. Before I elaborate on that issue, I want to inform you that I fully support the proposed adoption of governance practices to enhance the independence and effectiveness of fund boards including the proposal that requires 75 percent of the board be comprised of independent directors.
Over the past thirty years the mutual fund industry has developed into a mature industry evolving from the family-run investment management organizations of the 1960s and 1970s to the large corporate entities that provide a wide range of financial services to serve the investing public. During that time, with few exceptions, the industry has been a model of self-regulation and has exercised good corporate governance. Senior management and, in many cases, the chairmen of the boards of large and small investment companies have been the driving forces in this industrys success. Mutual fund investment management companies have worked diligently to keep the shareholders interests above all with respect to their investment stewardship. It is unfortunate a few individuals have recently abused the system. I strongly believe we should strengthen our controls to prevent these abuses from reoccurring in the future, however, we should not mandate that fund chairmen must be independent directors or trustees.
The controls are already in place to accomplish what is intended by this proposal. We, the independent directors, already control the fund board and, if required, can take appropriate actions to protect shareholders by October, we will have a named chief compliance officer reporting to the board we have the right to hire independent counsel and other support staff, if required we hire the independent auditors and receive reports directly from them the Sarbanes-Oxley Act has added additional reporting that requires appropriate review and sign-offs by senior management and we approve the management contracts each year for each fund after reviewing extensive information provided by management. I am not certain what additional controls would be added by requiring the chairman to be independent, but I am certain that there will be costs of such a requirement.
From my perspective, the costs of the this proposal are as follows:
Expense ratios will increase, as fees and the expenses of running a fund will escalate even higher than the increased expenses experienced since the passage of the Sarbanes-Oxley Act accounting fees have already risen and legal fees are escalating at an ever-increasing pace.
Continuity and efficiency in the operation of funds would be impaired current fund chairmen are well-versed in all aspects of the industry, including product development, investment management, performance measurement, distribution, transfer agency, custodian functions, accounting issues, legal issues and regulatory issues. Additionally, extensive management experience is needed to have employees, managers of all types, vendors, directors, regulatory bodies and shareholders all work together in harmony while attempting to increase the value of fund shareholdings. An independent fund chairman to add any value to this process would, as a practical matter, have to become well-versed in the aspects of the industry and have extensive management experience and would be required to become more involved with the day-to-day management of the fund. This would extend the role of the independent director well beyond the primary historical role of independent directors as providing oversight responsibility for the funds. This would be disruptive and counter-productive. Even if it could be accomplished, in many cases, it would be expensive, and it would be extremely difficult, if not impossible, to fill the chairmans position with anyone more qualified than the existing chairman. I do not believe, in most cases, that it would be in the best interests of the shareholders for the independent directors to replace the existing fund chairman with someone less qualified and at a higher cost for the fund.
Chairman Donaldson, I personally believe that mandating that the chairman be independent of either of the two relatively small fund groups I serve would add no value and at the end of the day it more than likely would prove to be detrimental to the interests of our shareholders. I respectfully request that the Commission reconsider requiring the fund chairman to be independent. Please contact me should you want to discuss this issue further. Keep up the good work.
Edward M. Tighe,
Independent Trustee of the Hansberger Institutional Series Board
Independent Trustee of the Ivy Funds Board