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SEC's Levitt Offers More Questions Than Answers

Joe Bousquin

WASHINGTON -- Like the already murky roles played by independent directors of mutual funds, Securities and Exchange Commission Chairman Arthur Levitt was anything but clear in his vision for the directors' jobs in his opening remarks at a conference on the subject this morning.

Citing the need to protect the more than 66 million mutual fund investors in the U.S., Levitt said, "I will ask the commission to make improved investment company governance one of its top priorities. I expect that this roundtable will help shape our agenda."

But he also said, "The purpose of this roundtable is not to have the commission tell independent directors how to do their jobs," and "I want to make it clear that I do not favor government intervention in this area."

The SEC's two-day roundtable on the topic comes on the heels of the Yacktman fracas last year, when manager Donald Yacktman's independent directors tried to fire him as the adviser to the (YACKX Quote)Yacktman fund and the (YAFFX Quote)Yacktman Focused fund, citing lagging returns and alleged mismanagement.

But the directors failed to get shareholder approval to boot Yacktman; instead, through a shareholder vote, Yacktman essentially managed to boot them. And that ugly mess came only a year after independent directors unsuccessfully tried to remove manager Louis Navellier from his funds.

During his opening remarks for the conference, Levitt asked, "Should independent directors have the right to terminate the [managers'] contract?"

Levitt offered no answer. He said he was looking to mutual fund executives for solutions.

"This morning I have posed many questions," Levitt said. "Some of you are probably thinking of that line, 'Question everything, learn something, answer nothing.' Well, I hope together we can develop the right answers."

We'll see over the next two days whether this conference produces answers or just muddies already murky waters.

Please see our earlier column by Anne Kates Smith on independent directors and this conference.