March 10, 2004
Dear Mr. Donaldson:
We are pleased to have the opportunity to comment on the Investment Company Governance proposal.
We agree with Commissioner Glassmans concerns, stated in the January 14th SEC open webcast, that increasing the number of independent directors and specifically requiring an independent chairman may only provide a false sense of confidence to shareholders. The Commissioners examples of Bank of America, Bank One, Putnam and the Alliance Funds, all having one or more of these characteristics, and embroiled in the recent scandals, clearly illustrates this is not an effective measure.
With regard to the concept of independent staff being reintroduced, since this is already an option it seems that the SEC is suggesting it would be prudent to utilize it. This, along with increasing a funds board size to meet a 75 percent requirement, are new fund expenses which would adversely affect shareholders.
As mentioned in the webcast, approximately 60 percent of funds already have a super-majority of independent trustees. As such, they currently have the ability to elect the appropriate director best suited for the chairman position. We respectfully suggest that interested chairman are better suited for the position, due to the fact they are deeply committed to the industry. With day to day working knowledge of a fund, an interested chairman should in fact be the most capable to lead the agenda. The fact that 80 percent of mutual fund boards are structured in this manner would seem to support this conclusion. If independent trustees feel they are being poorly served, they have the option to remove the chairman or even resign themselves. We agree with Commissioner Glassman when she noted there is no evidence to suggest an independent director could have better detected or prevented any of the industries mishaps. Additionally, we appreciate the Commissioners research showing no correlation between expense ratios or year to date performance returns and the ratio of independent directors. We also respectfully suggest that having an independent vice chairman in place is an effective measure for handling any issues of conflict of interest.
As the industry currently stands there are independent auditors, independent counsel, a majority of independent trustees and in many cases independent third party administrators. It is important to note that up until recently the industry also had a sterling reputation. The vast majority of funds were not involved in the scandals. We believe the interests of shareholders would be better served by aggressively enforcing the current laws without creating unintended expenses.
Edward E. Sammons, Jr.
President, Asset Management Fund and
Shay Assets Management, Inc.