Trustee's Independence Is Questioned
January 22, 2001
Coming on the heels of the SEC's issuance earlier this month of mutual fund trustee independence rules, the occasion of the new president's inauguration has raised a new question about trustee independence.
Since 1994, Lynne Cheney, wife of vice-president Richard Cheney, has served as one of the independent trustees of the 17-member board of directors of American Express Funds of Minneapolis, Minn., formerly known as the IDS Funds family.
Her husband's new status has raised the question of whether her objectivity and independence might be compromised by virtue of her close ties to the executive office. At least one Washington advocacy group which tracks the impact of money and politics believes that there is an inherent conflict of interest and has called for Lynne Cheney to step down from the board.
The Center for Responsive Politics, a non-partisan, non-profit Washington, D.C. research organization and watchdog group, believes that to prevent even the perception of a possible conflict of interest, Cheney should resign her position as a trustee of the board.
"Lynne Cheney seems to be overlooking possible concerns that she serves on the board of a large financial services fund group," said Steve Weiss, spokesperson for The Center. "By staying on in any capacity, she invites questions about her ties. If she removes herself, any link anyone would attempt to make is removed."
The group is concerned that a conflict could arise when the administration makes decisions that would affect financial services companies, including mutual funds,
"By continuing to be associated with a corporate [fund] board, she raises the possibility that the decision on the privatization of Social Security or regulatory matters could be decided in part because of her position on the board," said Weiss.
Mercer Bullard, founder and CEO of Fund Democracy, a mutual fund advocacy group in Chevy Chase, Md., agrees that there could be conflicts of interest if Cheney sits on the American Express Funds' board.
"Any time someone in government is on a fund board, even if that person is a relative, a conflict of interest can be argued," said Bullard. Right now, the issue of mutual fund fees is being discussed in Congress now as well as what standards mutual fund trustees should use in assessing whether fund fees are appropriate, he said.
Another conflict could arise if the American Express Board's independent trustees are ever called to task by the SEC he said.
"The SEC may be less interested in going after her because she's the wife of the vice president," he said.
The relationship between a husband and wife should have no bearing on the job of an independent fund trustee nor necessarily mean that the fund trustee's independence is compromised, said Arne Carlson, chairman of the board of the American Express Funds, and the former governor of Minnesota.
The wives of several prominent senators have served as mutual fund trustees without conflict of interest issues being raised, Carlson said. Moreover, a thorough background check has been conducted on Cheney and no potential conflicts have been uncovered, said Carlson.
To assure independence from the fund family's corporate parent, trustees are not allowed to own shares of the American Express company, Carlson said.
"Lynne has always been a very independent person, an individual unto herself, and frankly, that is one of the reasons she was selected to be on the board," Carlson said. "She is the board's leading advocate for consumers and is a very vibrant member."
Lynne Cheney, 59, is a distinguished fellow at the American Enterprise Institute for Public Policy Research, a research foundation in Washington, D.C. From 1986 to 1993, she was the chair of the National Endowment for the Humanities. She has a Ph.D. in 19th Century British Literature from the University of Wisconsin and has written several books. She was also the editor of Washingtonian Magazine from 1986 to 1993. Cheney had not responded to a request for comment.
Serving on a single fund board for the American Express group of funds, each of the independent trustees oversees 78 funds and portfolios, according to public documents. The American Express Fund's board of directors is comprised of fourteen independent trustees and three affiliated trustees. Among the board's other independent board members with political ties is Alan K. Simpson, who was a three-term senator from Wyoming.
For her service to the American Express Funds' board, which included attendance at up to 27 meetings last year, Cheney was the second highest paid independent board trustee and received total compensation of $125,233, according to the fund documents.
Last summer, she took an unpaid leave of absence from the fund board to campaign with her husband, said Carlson. She was expected to return to her board position at the fund board's first meeting of the year, which was scheduled for Jan. 10,
It does not have to be an all or nothing situation in which Cheney either stays or resigns her board seat, said Daniel Calabria of South Pasadena, Fla., former president of the Templeton Funds and now an independent trustee with the Idex Funds of St. Petersburg, Fla.
"She doesn't have to step down," he said. "She could excuse herself from voting on a particular issue or issues."
If the American Express Funds were the only fund complex being considered under a Social Security privatization initiative, then that would be an entirely different story, he said. Furthermore, it is the Congress which really must approve such a plan, not the vice president, he said.
"I don't think she should resign," said Lacy Herrmann, founder and chairman of the board of the Aquila Funds group in New York. "I don't think people should be tainted by what could happen but by what is happening and Social Security privatization isn't a given."