Question: What do the Big Dig and the mutual fund industry have in common?
Answer: Government's job was to oversee both of them, and it failed. Then, as usual, when the public becomes outraged — by tunnel leaks in the case of the former and the highly publicized payola scandals afflicting the latter — government finally "does something."
In the case of the Big Dig, it holds hearings and makes noise about recouping taxpayer dollars. We've all been following that story.
In the case of the mutual fund industry, it creates new regulations attempting to belatedly protect investors from criminals parading as managers.
When the government finally gets engaged, it often overreaches, as with the Patriot Act, for example, it won't engage in politically incorrect targeting of Middle Eastern immigrants, but will consider making all of us carry a national ID card.
Mutual fund stalwarts Putnam and MFS were caught cheating, and have mainly addressed this themselves by getting rid of the bad guys and bringing in new people. The U.S. Securities and Exchange Commission created new regulations that affect good, as well as bad, businesses; and it is now going after the one mutual fund giant that did not get in trouble and whose CEO is the embodiment of everything a businessman should be — and who, it seems, is fighting back.
Fidelity chief executive Edward Johnson III does not need my support. He has the best lawyers money can buy. But I am reading about his lonely battle against a common enemy — the government — and it makes me want to write a sequel to Ayn Rand's
"Atlas Shrugged."
In 1972, Ned Johnson's father, Edward C. Johnson II, supported a fledgling taxpayer group that was fighting the graduated income tax.
Of course, whenever Citizens for Limited Taxation opposes the grad tax, which would hurt the economy, most of the business community supports us. It's when we fight primarily for ordinary taxpayers that Big Business joins the other side. Most establishment companies don't contribute to CLT; they're too busy kissing up to government; too afraid to offend someone who has the power to investigate, tax and regulate them.
Fidelity has been an exception. It has supported ordinary taxpayers by backing Proposition
2½, state tax cuts, various kinds of legislative reform, and the recent rollback of the income tax rate. It buys a table at our annual dinner every year because Ned Johnson, like his father, believes that a permanent grass-roots taxpayer group is a vital part of the political scene.
Though I've met him only twice, I understand why he is fighting the SEC. Johnson has consistently opposed Big Government when it becomes overbearing. In this case, it is requiring that a fund chairman be completely disconnected from the investment firm that manages the funds. And if implemented, Ned Johnson as CEO of Fidelity could no longer also be the chairman of the fund group that was founded by his father.
Back in those days a man like Edward Johnson II built his company for the long term, for a legacy, for his children to continue. One way to assure its permanent survival was to make sure all funds were managed honestly, effectively, with the best possible returns in order to keep and attract clients. His son has carried on this tradition. Who better to manage the fund group than someone who has a commitment to the company as a whole?
I recognize that not all businessmen behave honorably for the good of their business, its employees and its clients. Some trusted managers have grabbed greedily for the short-term gain, with no thought for what will happen to the company, its customers, or, for that matter, the free market. These white-collar criminals should lose their shirts and hopefully will go to jail. But their dark malfeasance should only make the honest men stand out more brightly as they create jobs and value while inspiring confidence.
The Fidelity battle makes me think of my father. He managed, not a mutual fund firm, but a mom-and-pop hardware store and every decision, every transaction, was based on sound and decent business values. Nevertheless, the government kept a close eye on him, lest he forget to collect a tax or blindly obey a regulation. He finally sold his little business and went to work as an employee for another local store. Free of ownership responsibilities, he could spend his weekends playing horseshoes with his friends instead of doing government-required paperwork.
Dad didn't invest in mutual funds; his choice of savings vehicle was U.S. Savings Bonds. Yet he and Ned Johnson are kindred spirits, men of integrity and honor. Those who are quoted as "not understanding" the latter's fight against the SEC ruling wouldn't have understood my father either.
"Atlas Shrugged" was about the kind of businessmen and businesswomen who carry the economy on their backs. If Ned Johnson, like Rand's John Galt (and my dad), were to get fed up and quit, the SEC would have to take its lantern and go in search of another honest man — one who wouldn't mind being told he can't be trusted to do the best thing for his own beloved company.
Barbara Anderson is executive director of Citizens for Limited Taxation. Her syndicated columns appear weekly in the Salem
News and Lowell Sun; bi-weekly in the Tinytown Gazette; and occasionally in the Providence
Journal and other newspapers.