From: Wilmot H. Kidd
Dear Sirs and Mesdames,
I am writing with respect to the two conditions for funds relying on the Exemptive Rules. I have been the President of Central Securities Corporation, an internally managed closed-end investment company with assets of approximately $580 million, since 1973. As a result I have had a long experience in managing a small investment company.
The requirement that Central's Board of Director's be chaired by an independent director would preclude me from becomming board chairman in an orderly transition of management even though my interests are and would be very much aligned with those of shareholders. It can be difficult for a company to keep its culture in tact during a management change and in our case I believe it would be beneficial if I were to be able to be in a position help the process. The main place where conflict arises in the mutual fund business, I think, is in the negotiation of management fees with external advisors. Central is internally managed and, incidentally has had an expense ratio well below 1% for a number of years. So the conflict does not arise in our case.
Secondly, requiring that 75% of our directors be independent would force us to enlarge our board of directors. Were we to hire a president and make him a director we would have to enlarge our board to eight members. For many years we have operated with a small board of directors, having five or six members. I firmly believe that having a small board of directors who are stockholders and who take the shareholder's point of view has been one of the reasons for our long term success. A small board with continuity has
Requiring that 75% of fund directors be independent would force small investment companies with small boards (eg 5 total members and 2 interested members) enlarge themselves to at least eight members in order to meet the conditions. The dollar cost may not be significant, but the difficulty of finding good directors and the time and effort required to educate and keep these added individuals informed on the strategy and business operations of the company would impose, in my opinion, a substantial additional burden on a company president. In the example cited above the condition would increase in the the number of non-interested directors required by 100%. I believe the current requirement of 60% is sufficient
Secondly, the requirement that the company be chaired by an independent director would preclude me from becomming chairman in an orderly transition of management even though my interests are very much aligned with those of shareholders.
I suspect there are many cases with which I am not familiar which present similar issues. I believe that the conditions are tighter than necessary and that the current rules should be maintained. I think the appointment of a lead independent director would be a satisfactory condition.
Wilmot H. Kidd