Mutual fund governance in Canada: Recent Lessons

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Investment Funds Bulletin
November 2005

In 1993 Stephen Erlichman, partner of Fasken Martineau, concluded an article he wrote for an investment funds conference by asking whether it was "time to re-examine potential conflicts of interest in the mutual fund structure and the possible role of independent directors to monitor or approve such conflicts". Over five years ago the Ontario Securities Commission published "Making it Mutual: Aligning the Interests of Investors and Managers - Recommendations for a Mutual Fund Governance Regime for Canada" (the "Erlichman Report"), which is the report Stephen was commissioned to write for the Canadian Securities Administrators ("CSA") to assist them in formulating a mutual fund governance regime for Canada.

The Erlichman Report contained numerous recommendations to establish a "made in Canada" mutual fund governance regime. Of those recommendations, to date two have come to fruition – one being Stephen's recommendation for limited liability protection for unitholders of mutual fund trusts (such legislation now has been enacted in the Provinces of Alberta, Ontario and Manitoba largely as a result of the growth of income trusts and the lobbying efforts of that constituency), and the other being his recommendation for disclosure of proxy voting guidelines of mutual funds (which now is part of the CSA's National Instrument 81-106 – Investment Fund Continuous Disclosure). The other recommendations in the Erlichman Report have yet to be implemented.

This Investment Funds Bulletin refers to three recent developments in the Canadian mutual fund industry and asks if there are lessons to be learned which could provide the impetus to implement a mutual fund governance regime in Canada soon.