Independent Directors

IT LOOKS as if the mutual fund industry is about to reopen a reform battle and will use an interesting new study as the first shot. The research doesn't support what the fund world is pushing, but that is almost inconsequential. The matter is interesting not only because it will affect investors, but also because the research shows fund owners an indicator that might change the way some people evaluate funds. The study, "Does Skin in the Game Matter," was written by four college professors.

Baltimore's Constellation Energy Group has divested its minority stake in a gas and oil production company under a deal worth $22.5 million. Under the agreement announced Tuesday, Oklahoma City-based PostRock Energy Corp. agreed to buy all of Constellation's 28.5 percent stake in Constellation Energy Partners LLC. Constellation formed the Houston-based limited liability gas and oil production company and spun it off in late 2006. Under the deal, Constellation will receive $11.25 million in cash and $11.25 million in PostRock common stock and warrants to acquire additional shares.

Independent directors of mutual funds have come under scrutiny for allowing fees on funds to go ever higher. But another practice that has been receiving much less attention raises the same question of whether these directors are, indeed, fulfilling their mandate to act in the interests of the shareholders.At issue is a relatively new high-finance niche in which banks advance loans to mutual fund companies against sales charges and fees they expect to collect from shareholders years in the future.

T. Rowe Price Group said Wednesday that its board has elected Robert F. MacLellan as a new independent director, bringing the total to 10 members. MacLellan is non-executive chairman of Northleaf Capital Partners, Canada's largest independent global private equity fund manager and advisor. Previously, MacLellan was chief investment officer of TD Bank Financial Group. The board also approved a 15 million-share increase under its stock repurchase plan, bringing the total repurchase authorization remaining to 22.4 million shares.

Baltimore Bancorp pushed for the recent resignations of three outside directors who had sought a review of the bank's new management by independent directors, according to letters of resignation submitted by the directors and filed yesterday with the Securities and Exchange Commission.The angry departures last week, which followed the resignation of another director and the withdrawal or firing of the bank's law firm, marked a break in the cobbled-together coalition that ousted former Chairman and Chief Executive Harry L. Robinson in a proxy fight last year.

Baltimore's Constellation Energy Group has divested its minority stake in a gas and oil production company under a deal worth $22.5 million. Under the agreement announced Tuesday, Oklahoma City-based PostRock Energy Corp. agreed to buy all of Constellation's 28.5 percent stake in Constellation Energy Partners LLC. Constellation formed the Houston-based limited liability gas and oil production company and spun it off in late 2006. Under the deal, Constellation will receive $11.25 million in cash and $11.25 million in PostRock common stock and warrants to acquire additional shares.

In the town where I live, the motto of the local high school is, "If better is possible, good is not enough." In the community where most Americans invest - the mutual fund world - the motto seems to be, "If good is possible, why make it better?" That's not a statement on performance - though it could be in many fund shops - but rather an indictment of the industry's steps toward improving fund governance. The industry proved the point again last week by giving itself a big loud pat on the back with the release of a joint survey by the Investment Company Institute, the trade association for the industry, and the Independent Directors Council that details "increased commitment" to shareholders.

When Congress wrote the Investment Company Act of 1940, the framework for the regulation of mutual funds, it permitted as many as 60 percent of a fund's board of directors (or trustees) to be people affiliated with the fund or its investment adviser.Although one objective of the act was to prevent self-dealing by insiders, members seem not to have been concerned about the potential conflicts of interest inherent in annual board votes on the continuance of funds' investment advisory contracts.

Baltimore Bancorp pushed for the recent resignations of three outside directors who had sought a review of the bank's new management by independent directors, according to letters of resignation submitted by the directors and filed yesterday with the Securities and Exchange Commission.The angry departures last week, which followed the resignation of another director and the withdrawal or firing of the bank's law firm, marked a break in the cobbled-together coalition that ousted former Chairman and Chief Executive Harry L. Robinson in a proxy fight last year.

Of all the costs involved in investing in mutual funds, perhaps none is more controversial than so-called 12b-1 fees, named for the Securities and Exchange Commission rule under which they may be imposed.Adopted in 1980, the rule allows a fund to pay certain expenses out of its assets -- your assets, if you're a shareholder -- for promoting sales of its shares.To do this, a written plan, describing how the money would be used, must be approved by a vote of shareholders, the fund's board of directors, and, in a separate vote, its independent (or "outside")

In the town where I live, the motto of the local high school is, "If better is possible, good is not enough." In the community where most Americans invest - the mutual fund world - the motto seems to be, "If good is possible, why make it better?" That's not a statement on performance - though it could be in many fund shops - but rather an indictment of the industry's steps toward improving fund governance. The industry proved the point again last week by giving itself a big loud pat on the back with the release of a joint survey by the Investment Company Institute, the trade association for the industry, and the Independent Directors Council that details "increased commitment" to shareholders.

In the words of my youngest daughter, it was "ginormous" news when the wordsmiths at Merriam-Webster announced this month they would add one of her favorite words to its collegiate dictionary. "Ginormous" combines gigantic and enormous, and it's tough to tell from my daughter's use of it exactly what qualifies. It can be applied to the stuffed animal grand prize in some contest booth at the county fair, or the bruise she got during a game she played last weekend, or to a just-bigger-than-normal piece of pie. But no matter how it's applied, it's clear that she and her friends certainly know what "ginormous" means.

Santa Monica, Calif. -- Brokeback Mountain won big at yesterday's Independent Spirit Awards, setting the stage for what could be a great weekend for director Ang Lee's gay-cowboy drama. The movie stars Heath Ledger and Jake Gyllenhaal as 1960s ranch hands who fall in love atop a Wyoming mountain one summer, then spend their lives alternately reveling in and concealing that love. The movie, which is up for eight Oscars tonight, won the best feature Spirit, and Lee won for his direction.

IT LOOKS as if the mutual fund industry is about to reopen a reform battle and will use an interesting new study as the first shot. The research doesn't support what the fund world is pushing, but that is almost inconsequential. The matter is interesting not only because it will affect investors, but also because the research shows fund owners an indicator that might change the way some people evaluate funds. The study, "Does Skin in the Game Matter," was written by four college professors.

PARK CITY, Utah - Show-business auditions are as old and varied as Hollywood itself, but in their newest incarnation at the Sundance Film Festival, these make-or-break tryouts have become a lot less private: Now you have to sell yourself in front of hundreds of spectators. The new audition instrument is the short movie, a cinematic calling card that may not last two minutes but can change a director's professional life. The Sundance short has become the SAT for admission into the independent film community, and many of today's top independent directors - from Wes Anderson to Alexander Payne - first attracted attention with a Sundance short.

FORTUNE magazine says "it's cleanup time in corporate America." We'll see. New laws are on the books, and more may be coming. But true gains in corporate governance will come not from executives personally vouching for their accounts and other photo ops but from a hundred small things that won't make the headlines or the statute tomes. Directors meeting more often, for example. Audit and compensation committees asking hard questions. CEO pay pegged to long-term performance, not one-year stock pops.

FORTUNE magazine says "it's cleanup time in corporate America." We'll see. New laws are on the books, and more may be coming. But true gains in corporate governance will come not from executives personally vouching for their accounts and other photo ops but from a hundred small things that won't make the headlines or the statute tomes. Directors meeting more often, for example. Audit and compensation committees asking hard questions. CEO pay pegged to long-term performance, not one-year stock pops.

Has the time-honored system of mutual fund directors served shareholders well, providing an important independent watchdog for investors' money? Or is there a connection between the six-figure salaries the directors are paid and the fees that mutual fund shareholders are charged?Those are questions more easily asked than answered. But the mutual fund industry believes that the current system works and is moving to protect it, whether in the courts or the legislatures. Massachusetts' mutual fund companies last month quietly secured final approval for state legislation that would make it more difficult for unhappy shareholders to challenge the independence of directors.

Has the time-honored system of mutual fund directors served shareholders well, providing an important independent watchdog for investors' money? Or is there a connection between the six-figure salaries the directors are paid and the fees that mutual fund shareholders are charged?Those are questions more easily asked than answered. But the mutual fund industry believes that the current system works and is moving to protect it, whether in the courts or the legislatures. Massachusetts' mutual fund companies last month quietly secured final approval for state legislation that would make it more difficult for unhappy shareholders to challenge the independence of directors.

Independent directors of mutual funds have come under scrutiny for allowing fees on funds to go ever higher. But another practice that has been receiving much less attention raises the same question of whether these directors are, indeed, fulfilling their mandate to act in the interests of the shareholders.At issue is a relatively new high-finance niche in which banks advance loans to mutual fund companies against sales charges and fees they expect to collect from shareholders years in the future.