Governance Institute calls for superfund board independence bill to be scrapped

Governance Institute of Australia is calling on the Federal Government to abandon legislation introducing the requirement for one-third of superannuation fund boards to comprise independent directors, arguing that the process has become overly politicised to the detriment of genuine governance outcomes.

In its submission to the Senate Economics Committee, Governance Institute argues that a legislative solution with prescriptive criteria for director independence will have unintended consequences, is unlikely to be effective and should be replaced by a principles-based approach to assessing ‘independence’ similar to that applying to listed companies under the ASX Corporate Governance Council’s principles and recommendations.

“Superannuation governance is in vital need of reform and we support moves to increase the number of independent directors on superannuation trustee boards,” Governance Institute chief executive Steven Burrell said today.

“However, the blunt club of legislation is not the way to do it.

“We believe a better solution is to take the principles-based approach recommended by the Cooper Review and establish a superannuation industry-led body to collectively develop guidance on governance matters, similar to the ASX Council’s principles and recommendations.

“The guidance would incorporate indicators of director independence and it would be up to each fund’s board to assess its non-executive directors against the criteria, then decide if there are any conflicts affecting their independent judgment and ability to act in the best interests of fund members.

“A principles-based approach has been road-tested and proven to be effective, provided boards are transparent and disclose their decision-making,” Mr Burrell added.

“Given the problems with defining independence in legislation, the Bill before the Parliament should not proceed in its current form.”

Mr Burrell said that given the importance of superannuation governance for all Australian investors, it was critical that reforms focus squarely on governance rather than political outcomes, and not lose sight of what is in the best interests of fund members. 

“An issue that needs to feature in the debate on board composition is members’ rights. We believe it is very important that fund members have the right to appoint and remove directors of trustee funds as an essential accountability mechanism,” he said. 

“Good fund governance should seek to empower members and give them a voice.

“Public company shareholders have long had the right to vote in directors of their choice and hold them accountable with their vote. Similarly, members of managed investment schemes can remove the scheme’s responsible entity, which gives them genuine influence over the body managing their investment.

“It’s high time fund members have the same rights to decide whether a director is independent and acting in their best interests, particularly in view of the growing size and importance of the retirement savings industry,” Mr Burrell said.

For further information contact Viv Hardy on 02 9283 4113 or 0411 208 951, or Su Lin Ho on (02) 92834110 or 0421 616 617, or Steven Burrell on (02) 9223 5744 or 0407 708 485.

About Governance Institute of Australia

Governance Institute of Australia is the only independent professional association with a sole focus on whole-of-organisation governance. Our education, support and networking opportunities for directors, company secretaries, governance professionals and risk managers are second to none.

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