Mutual Fund Compliance Officer Independence and Corporate Governance

W. Michael Hoffman, John D. Neill and O. Scott Stovall

Corporate Governance: An International Review, 2008, vol. 16, issue 1, 52-60

Abstract: Manuscript Type: Empirical Research Question/Issue: We examine recent SEC regulations that are intended to increase the independence of mutual fund compliance officers. Research Findings/Insights: The new SEC regulations require mutual fund compliance officers to report directly to the board of directors. The board is also now responsible for hiring/firing, and for approving the compliance officer's compensation. After a literature review and a survey of compliance officers and mutual fund board members, we conclude that SEC Rule 38a‐1 represents a positive step toward increasing compliance officer independence in the mutual fund industry in the United States. Theoretical/Academic Implications: The direct reporting relationship established by Rule 38a‐1 between mutual fund compliance officers and boards of directors sets the industry apart from corporate America, in general, where compliance/ethics officers typically report to management. We assert that the increased board involvement in ethics and compliance‐related matters that results from the new SEC regulations allows mutual fund boards to govern more effectively. Practitioner/Policy Implications: We contend that the SEC and other international regulators could improve independence and corporate governance even further if they required mutual fund compliance officers to be totally independent of management, by not allowing them to be employees of investment adviser companies.

Date: 2008
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