“Morningstar Inc., the firm that made its name rating the performance of mutual funds, is at loggerheads with some in the industry over its plan to grade them on how they run their funds,” writes Tom Lauricella in today’s Wall Street Journal.

“A number of major fund companies are complaining and, in some cases, refusing to answer questions about how they set fund-manager compensation and about investments that portfolio managers have in their own funds. These questions — part of a broader look at fund governance in the wake of recent scandals — are designed to gauge the degree to which the personal interests of fund managers are aligned with the shareholders they are bound to protect, Morningstar says.”

“Soon after Morningstar began sending out questionnaires seeking this information in late March, officials of several fund companies discussed how to respond, during a conference call held by members of the Investment Company Institute trade group. Ivy McLemore, director of corporate communications for Aim Investments, and Brian Mattes, a senior public-relations officer at Vanguard Group, then trooped to Morningstar’s Chicago offices to express their firms’ concerns, Mr. McLemore says. Mr. Mattes declines to comment. Separately, Eaton Vance Corp. sent a letter to Morningstar complaining about the questions. Eaton Vance refused to fill out a portion of the questionnaire.”

“Mr. McLemore says he argued that the funds shouldn’t be forced to disclose information to Morningstar that they don’t provide to fund shareholders. Eaton Vance raised privacy concerns on behalf of its fund managers.”

“But Morningstar is standing its ground. Funds that don’t respond could end up with lower governance scores. ‘One of the most basic investor rights is that investors have the right to know if a manager’s interests are aligned with theirs,’ says Don Phillips, managing director at Morningstar.”

“Even more detailed disclosures could soon be required. The Securities and Exchange Commission has proposed a rule that would force funds to reveal to shareholders more data about both areas than has been requested by Morningstar.”

“This isn’t the first time Morningstar has run into objections from some corners of the fund industry for pushing for more disclosure, Mr. Phillips says. A few fund companies initially balked at providing the names of fund managers and at Morningstar’s inclusion of sales fees when comparing fund returns. Moreover, many companies are answering the questions. Putnam Investments, for one, says it plans to respond fully to the questionnaire.”