II. Industry Hallmarks: Conflicted Management and Redeemable Securities
Freeman, John P., Journal of Corporation Law
Typically, companies are "internally managed" in that the managers are full-time employees working for the benefit of the company's owners, not independent contractors owing their primary allegiance to an outside entity. The typical American business thus has managers and boards of directors who operate with their eyes focused on doing what is best, within legal constraints, to serve the pecuniary interests of the entity and its owners. Most mutual funds are different.
Funds typically have their own boards of directors or trustees, but when it comes to the crucial tasks of investment management and marketing fund shares, the norm in the fund industry is "external management" of the enterprise. (31) A mutual fund is normally created and managed by an outside entity. It is this outside entity's control that gives rise to the fund industry's predominant external management governance structure. (32) The fund's sponsor or an affiliate functions as the fund's investment adviser, managing the fund's investment portfolio, and as the fund's principal underwriter, handling sales and marketing or "distribution" activities involving the sale of fund shares. (33)
This phenomenon means that the investment decision making for most funds is not done by fund employees operating under the oversight of the fund's …
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Publication information: Article title: II. Industry Hallmarks: Conflicted Management and Redeemable Securities. Contributors: Freeman, John P. - Author. Journal title: Journal of Corporation Law. Volume: 32. Issue: 4 Publication date: Summer 2007. Page number: 746. © University of Iowa, Journal of Corporation Law Oct 2008. COPYRIGHT 2007 Gale Group.
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