Strong hires president to oversee compliance
New position to be ‘eyes and ears’ of board
By KATHLEEN GALLAGHER kgallagher@journalsentinel.com, Journal Sentinel
Saturday, January 17, 2004
The Strong mutual fund board said Friday it has hired a former KPMG LLP partner for the newly created position of president to oversee compliance and implement recommendations from an ongoing internal investigation of Strong Capital Management Inc.
Phillip O. Peterson, who managed KMPG’s mutual funds practice in the 1990s, will serve as the “eyes and ears of the independent directors . . . to monitor the performance of all Strong mutual funds and to make sure that we have an exceptional compliance program,” board Chairman William F. Vogt said in a statement.
Peterson will work full time from Strong’s Menomonee Falls offices and be paid by the mutual funds, said Claire Papanastasiou, a spokeswoman for the directors.
He will oversee the funds’ compliance officer and compliance functions, and the review of fund performance, fees and sales, she said. Strong’s compliance officer, Thomas Hooker, reports to both the board and Strong Capital.
Technically, the fund directors manage the mutual funds for shareholders and choose which investment adviser — in this case Strong Capital Management — to hire.
Peterson will also handle board governance issues and the funds’ code of ethics, and be available to employees who want to raise compliance concerns, Papanastasiou said.
“This is good for the directors because they aren’t there every day, and they need someone to be their eyes and ears,” said Douglas M. Hagerman, a lawyer in Foley & Lardner’s Chicago office.
The Strong funds board was singled out in November by New York Attorney General Eliot Spitzer when he told a congressional committee the Strong case was “Exhibit A” in dereliction of duty by mutual fund directors.
The Peterson hire may be the fund directors’ attempt to show they’re going further than the Securities and Exchange Commission rule proposals regarding mutual fund board chairman and chief compliance officer functions, said Geoffrey H. Bobroff, a mutual fund industry consultant at Bobroff Consulting Inc. in East Greenwich, R.I.
“The role of a president is quite limited in a fund setting” because in management agreements, fund directors typically give most of the responsibility to the money management firm, Bobroff said. “So unless they’ve taken things away from the adviser in terms of functionality, it may be more form than substance.”
A management agreement often delegates to the management company responsibilities for managing the money and handling distribution of a fund.
Peterson has been a trustee at Hartford Mutual Funds and Fortis Mutual Funds since he retired from KPMG in 1999.
Strong has lost more than $4.5 billion of investor assets since September, when Spitzer said the company had allowed a hedge fund to make improper trades. Spitzer later accused Richard Strong of personally profiting from improper trading in his company’s mutual funds.
Strong has said his trading was not disruptive to the funds, and Spitzer has not filed criminal or civil charges against him or the company. Strong resigned Dec. 2 from his top jobs on the fund board and at the management company and hired Goldman Sachs to explore selling the company.
A longtime friend of Strong’s, Minneapolis investment banker Kenneth J. Wessels, was hired to replace Strong, who owns about 90% of the firm.
Strong Capital Management had about $38 billion in assets as of the end of December.
David S. Ruder, a former SEC chairman hired by Strong Financial Corp., the holding company for Strong Capital Management, has been conducting an internal investigation of the company since October. He made public on Dec. 19 four initial recommendations, including adding a 2% fee that would be imposed for most fund sales within 30 days of purchase, which the board has said it intends to adopt at its next meeting, in February.
