The Investment Company Institute on Thursday released its recommendations for strengthening the role of independent directors at mutual funds.
Among its 15 recommendations is that at least two-thirds of a fund's board should be independent directors, rather than the 40% required by law. The institute's panel - composed of independent directors and fund company executives, who also serve as directors - also proposed that independent directors meet separately from management to discuss key issues such as the selection and compensation of fund advisers.
It also recommended that former officers or directors of a fund's investment adviser, principal underwriter, or certain affiliates not be allowed to serve as independent directors.
In addition, the group called for giving independent directors access to independent counsel.
The institute's report was prompted by pressure from the Securities and Exchange Commission to strengthen the role of independent directors, who are responsible for protecting shareholder interests. In February, SEC Chairman Arthur Levitt hosted a conference with fund industry leaders to discuss how to make fund boards more effective.
The report is to be presented to the institute's board of directors on July 7. Its recommendations are expected to be widely adopted throughout the industry. Other recommendations include that independent directors nominate and hire their peers and that independent directors have enough insurance coverage so they will be comfortable aggressively acting as watchdogs for shareholders.