The mutual fund industry and its regulator are taking steps to strengthen the role of independent directors, but experts are split about whether the changes will be meaningful.
On Monday, Securities and Exchange Commission Chairman Arthur Levitt Jr. proposed requiring that mutual funds' boards have a majority of independent directors; that independent directors nominate any new independent directors; that outside counsel for directors be independent from management; and that fund shareholders have more information to judge the directors' independence.
The same day, the Investment Company Institute announced the formation of an advisory group on "best practices" of fund directors. The group's report is to be submitted to the SEC and fund companies in the summer, around the time the SEC proposals could be implemented.
"This is really a watershed event in terms of the fund industry," said Burton Greenwald, a consultant in Philadelphia. "It's really shifting the responsibility for the integrity of the entire fund process to the independent directors."
But Louis Harvey, the president of the Boston-based consulting firm Dalbar Inc., said the new SEC rules would for the most part just formalize prevailing industry standards. For instance, most funds' boards already have a majority of independent directors, he said.
And though three of the advisory group's six members are independent directors, Mr. Harvey questioned the objectivity of an industry-appointed group.
"It's the fox in the henhouse," he said.
Others said the way the fund industry is regulated - through a combination of laws, self-regulation, and occasional jawboning from regulators - has been effective.
Indeed, the fund industry has by and large been untainted by major scandal since its birth 75 years ago. And the SEC's decision to propose relatively limited changes means that "they didn't find very much to complain about," said Geoffrey H. Bobroff, a consultant in East Greenwich, R.I.
The Investment Company Institute's advisory group will study fund companies throughout the industry to find which "activities are most effective in enhancing the independence of independent directors and the effectiveness of boards as a whole," said Chris Wloszczyna, a spokesman for the trade group.
The institute has convened blue-ribbon panels to deal with pressing issues before. A group five years ago issued a report after ethical questions were raised about fund portfolio managers' personal trading.
That report recommended tough standards that are now widely used throughout the industry.
"The industry has a long history of voluntarily adopting strict codes of behavior, ethics, and standards," Mr. Wloszczyna said.
The role of independent directors has been scrutinized more closely in recent years because of the directors' run-ins with fund managers and because they oversee an industry that is growing at an explosive rate.
Mutual fund assets under management are closing in on $6 trillion, and some say that figure could double in 10 years.
"That scares the regulators, as it should," Mr. Bobroff said. "We haven't heard the end of the discussion."