Ethics in Mutual Fund Management Companies

Paper Summary:

In the summer of 2002, when Congress was attempting to decide how to clean up the shady financial practices of corporate America, mutual fund company lobbyists convinced lawmakers to exempt their area of the financial services industry. Since then, this industry has occupied center-stage in the spotlight targeted at ethical problems in financial management. This paper shows that there are a number of important ethical issues that have been ignored by mutual fund managers and their firms, issues that are of great concern to investors, legislators, and regulators. These areas of concern include conflicts of interest, director independence, and transparency of fee and expense reporting.

From the Paper:

"There is a notable lack of independence among the members of the boards of directors who are supposed to be making sure mutual funds are run in the best interest of the investors. The watchdog role of a fund's board of directors theoretically includes not only watching the big picture, but also the minutiae of the funds' service contracts, operations and investment policies. These board members should be free of potential conflicts of interest in order to play the biggest role possible in making sure the best interests of their funds' shareholders are served."

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