January 2001

SEC Adopts New Rules for Mutual Fund Independent Directors

By Jay Dismukes

In an effort to better protect investors, the Securities and Exchange Commission recently announced the adoption of a number of initiatives that should enhance the role of mutual fund independent directors.

Some of the major changes accompanying the initiatives include the provision that independent directors constitute a majority of the fund’s board of directors as opposed to the 40 percent currently required. Additionally, independent directors must be nominated and selected by other independent directors and must receive independent legal counsel.

“Mutual fund independent directors are an investor’s front-line defense against conflicts of interest and other potential abuses,” said Paul Roye, director of the SEC’s division of investment management. “[The initiatives] represent a significant step in providing fund directors with the tools, the access, and the power to faithfully fulfill their legal duty and moral mandate as the shareholders representatives.”