Independent directors are no better for shareholders than insiders, in fact they may even be worse contends Fidelity Investments. The Boston fund firm based its conclusions on a study it commissioned examining the investment performance of mutual funds with independent chairs against the performance of funds with insider board chairs.
Fidelity General Counsel Eric Roiter has also written up the results in letter form and mailed it to the SEC, reports the Wall Street Journal.
"The results of the study raise serious questions regarding the wisdom of forcing independent chairmen upon funds that have delivered superior performance to their shareholders," wrote Roiter.
The letter supports the record of insider chairs and, not coincidently, comes after the Commissioners have recommended a new rule that would require fund board chairs to be independent directors. That rule would, if enacted, force Fidelity CEO Edward "Ned" Johnson to step down as chairman of Fidelity's fund boards.
For the study, Fidelity hired Geoffrey H. Bobroff and Thomas H. Mack to examine performance data provided by Morningstar for the past 10 years for fund firms with more than $10 billion in assets. Just 14 of the 57 fund complexes making the cut have independent fund chairs.
Bobroff and Mack found that funds with a member of management holding the chairman seat topped their peer group in 59 percent of cases. Meanwhile, those funds with independent chairs beat their peer group average just 48 percent of the time.
The study also found that the expenses in both groups of funds were comparable.
The performance of funds with independent chairs was pulled down by weak performance at Putnam Investments and Nations Funds. Both Putnam and Bank of America's Nations Funds have been tied to the improper fund trading scandals.
Meanwhile, the top performers among fund complexes with insider chairs were all scandal free. That group included Fidelity, Vanguard Group and American Funds.
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