S. Leland Dill
5070 North Ocean Drive
Singer Island, Florida 33404
January 28, 2000
VIA E-MAIL AND FEDERAL EXPRESS
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Attention: Jonathan G. Katz, Secretary
File No. S7-23-99
As a non-interested director of the Phoenix-Zweig funds and their predecessor funds, as well as the BT family of funds, in each case since 1990, and the Phoenix-Euclid fund since its inception, I'm pleased to provide comments on the Commission's proposals in Release Nos. 33-7754; 34-42007; IC-24082; File No. S7-23-99 regarding investment company governance.
I want to commence by saying that, in general, I and my fellow independent directors applaud the Commission's initiative which has very many good aspects in promoting their independence. I should mention that I come to my views from a long background as an independent director and a participant in the investment company industry. For many years, I was a partner in the Investment Services Practice of KPMG LLP, with my last 14 years prior to retirement as the national head of that practice with responsibility for all of the registered and private investment company practice of KPMG LLP. I also served as a member and then Chairman of the AICPA Committee on Investment Companies.
While I support the Commission's initiative in general, I must draw your attention to one area of the proposals which I believe is an unwarranted limitation on the ability of the independent directors to choose the most capable legal advisors. The Commission has rightly placed a great deal of responsibility on independent directors, as does the Investment Company Act itself. To fulfill those responsibilities we must have access to the proper tools, and among the most important is the ability to retain qualified counsel of our choice. I believe that in this regard the proposals of the Advisory Group on Best Practices for Fund Directors of the Investment Company Institute regarding Independent Legal Counsel are far superior to the proposals incorporated in the Commission's release.
Most particularly, I believe that the Commission's requirement to select counsel that has not had any meaningful representation of the fund's investment advisor or its affiliates for the last two years is unrealistic and unnecessarily burdensome, and that it will in fact subvert the very aims the Commission is furthering. In dealing with counsel, there are first the built in safeguards of lawyers' professional responsibility, second the oversight of the independent directors themselves who independently select their own counsel and third, where the Advisory Group's proposals are utilized, the assurance that the selected counsel's primary responsibility is to the independent directors that have selected it. Prohibiting counsel from having served in any meaningful capacity with the investment management or its affiliates for over two years is unduly restrictive and unnecessarily interferes with the attorney client relationship. The obligation and responsibility to choose the best counsel to enable directors to fulfill their function is most appropriately left to the independent directors themselves. The Commission should not hand-cuff the Board in this way.
I understand that the Commission seeks to put in place certain exceptions for minor representations. However, this creates some troublesome issues of having the directors choice of counsel challenged by a plaintiff's lawyer should the directors choice of counsel become an issue. The desire to avoid any implications of impropriety, I believe will only serve to restrict the ability of independent directors to retain the best possible counsel. This issue becomes especially troublesome in the context of today's consolidating financial community where fund management organizations are often owned or controlled by large financial conglomerates. The most prominent and most capable law firms, the very ones best able to serve the independent directors, are the very ones most likely to be arbitrarily barred from assisting the independent directors. Furthermore, in today's environment, with many fund organizations involved in consolidations and dispositions of control, and management organizations changing with some regularity, the fact that a particular counsel provided services in the past, even the relatively recent past, to an advisory organization whose control has changed, should not itself preclude representation of the independent directors in their dealings with the new owners. Once ownership of an advisory organization changes, absent special factors which the Board itself (guided by the principles enumerated by the Advisory Group) is best able to judge, there should be no mandatory waiting period (which effectively becomes a permanent disqualification).
Moreover, in these cases there is the difficulty of forcing independent directors to abandon existing sound relationships as a result of subsequently passed rules, disrupting working relationships and abandoning the benefits of experience. I again urge you to eliminate this aspect of the proposal and either leave the matter in the discretion of the independent directors themselves or codify the proposals of the Advisory Group. As the Advisory Group noted:
The Advisory Group recognizes that there are situations where it may be most efficient for the counsel for the fund and independent directors also to provide some legal services to the investment adviser or other service provider. The Advisory Group believes that the rendering of such services by counsel for the independent directors is not inconsistent with its recommendation as long as (a) counsel has made clear that, in the event of a conflict with the fund, counsel will represent the fund and its independent directors and (b) the adviser or other service provider waives any objection and understands that any disclosures that it makes to such counsel are not privileged against disclosure to the independent directors. Counsel should disclose to the independent directors the nature and type of services it performs for the investment adviser or other fund service providers and the amount of fees earned from such services so that the independent directors can evaluate whether the nature and volume of work might have the potential to affect counsel's independence.
I believe that these conclusions of the Advisory Group set the most appropriate standard for judging the independence of counsel.
Very truly yours,
S. Leland Dill