The Securities and Exchange Commission on Wednesday reapproved a contentious rule requiring mutual fund boards to hire independent chairmen.
Adding new details to the independence rule was one of the last actions for Chairman William Donaldson, a champion of the rule who steps down today. Donaldson, apparently determined to go out with a bang, pushed for the rule over the objections of three former SEC commissioners and eight Republican members of the Senate Banking Committee, USA Today reported.
The action, which was approved on a 3-2 vote, was taken in response to a U.S. Court of Appeals decision last week to nullify the rule because the SEC had failed to consider the cost to mutual fund companies in approving the rule last year.
Former SEC Chairman Harvey Pitt criticized Donaldson for quickly scheduling a new vote rather than leaving the matter to his successor. He said Donaldson's timing “breeds and encourages disrespect for the agency's actions – not just this action, but all of them."
But Donaldson told reporters that the SEC had studied the matter for two years before its vote last year, and had all the information it needed to satisfy the appeals court. "The concept of punting to a new commission and a new chairman is not only inefficient but unfair," he said. "The delay in doing that presents an intolerable risk to the 90 million investors out there who have been waiting to make sure they have independent directors representing them."
SEC officials have estimated that about 3,700 funds, or about 80 percent of them, would have to replace their chairmen next year when the rule goes into effect. Not only do chairmen have to be independent from the companies managing the funds, but at least 75 percent of the directors must be independent – that's up from the current 50 percent.
The U.S. Chamber of Commerce, which brought the original lawsuit, said in a press conference that it intends to sue the agency again.
In other action, the SEC unanimously decided to end the so-called “quiet period” that stopped company executives and others from making public statements prior to an initial public offering of stock. The move will increase the amount of information that will be available while the stock is being offered. Public presentations and written material, in addition to the prospectus, will be allowed to promote the sale of stocks and bonds to investors.
The communications rule “will create a quiet revolution and make capital formation in the United States far more efficient,” Commissioner Harvey Goldschmid told Bloomberg News.