In the governance soap opera known as the mutual funds scandal, the SEC voted narrowly to insist on Chairmen being Independent [1]. This was a hard fought battle, and quite rightly - it is hard to see just how this is going to make a difference.
It doesn't take a doctorate to realise that those funds that have insiders as chairmen - 80% of them - can simply find a mate who is nominally independent. This reminds me of the George Bernard Shaw joke about how any woman can be a prostitute, we just have to establish the price. For money, most will claim whatever they are told to say, including independence.
The core issue seems to come down to the conflict of interest. It's pretty clear that any appointees of the management company have two masters - the investors and the management company. But, this is generally resolved by aligning their incentives, not by making up yet another rule.
And here's the clanger: mutual funds are set up by the management company, and they take a fee for service. There's no getting around the fact that the management company's incentive is aligned towards egregious fee inflation (Elliot Spitzer's 1st complaint) and insider fraud (2nd complaint).
So, mucking around at the titular notion of independence will have little or no beneficial effect on the core issue. It's the incentives that are mucked up, and the only question is, where next will the fire break out?
Having said that, it's hard not to have sympathy with the SEC. It has to do something, but what? The shrill apologists for the mutual funds aren't exactly offering a solution [2]. Instead, what they appear to be saying is "we don't want any changes so we can get back to raiding the funds..."
The only thing I've heard so far that makes any sense (other than our own RTGS solutions of course) is Fidelity's push to have DTCC take over the settlement. Yet, they are embroiled in the Stockgate scandal, so the shine is certainly off that idea [3].
[1] SEC Says Mutual Funds Must Have Independent Chairmen
http://www.accountingweb.com/cgi-bin/item.cgi?id=99395&d=815&h=817&f=816&dateformat=%25B%20%25e,%20%25Y
[2] Mutual Fund Folly By JAMES K. GLASSMAN
sorry, no URL, but seems to be the Wall Street Journal.
[3] DTCC accused of counterfeiting shares
http://www.financialcryptography.com/mt/archives/000157.html