Superannuation governance

Assistant Treasurer the Hon Josh Frydenberg MP is expected to present the government's position on superannuation board governance in the coming months. Given recent commentary on the possibility of mandating the appointment of a minimum of one-third independent directors to superannuation fund boards, it is useful to refer to research on this topic. In July 2014 Mercer released a report into the governance arrangements of superannuation funds — the first since APRA introduced new governance standards, including risk management. Mercer surveyed 33 superannuation fund CEOs, fund secretaries and governance, risk and compliance managers and found that more than half of the funds do not currently have independent directors on their trustee boards.

Currently, trustee boards are not required to have independent directors but the report points to majority independence as the most prevalent standard internationally and notes that retirement schemes in developed countries are moving towards appointing more independent directors. The report also signals that an expectation has developed that super funds should be subject to the same standards as their investee companies.

Of the 19 funds that do not currently have independent trustee directors, eight thought it was probable or possible that they would appoint independent directors within the next two years, but five of that eight said they would do so only if it becomes a legal requirement. Of the 14 funds that did have independent directors eight had an independent chair of a committee (usually an audit or audit-related committee); only four had both an independent chair of the board and a committee; three had neither an independent board nor committee chair.

The report points to the benefits of good governance practice as an enabler of performance, and canvasses other key governance arrangements such remuneration philosophy and board performance evaluations. Mercer notes that many of these governance arrangements are at a fledgling stage in some funds.

Funds expressed confidence on fund strategy, risk management and high level investment decisions but less confidence was expressed on decisions concerning the selection or replacement of investment managers, medium-term dynamic investment decisions and effective member communications and marketing strategies.

The report can be found at http://www.mercer.com.au/content/mercer/asia-pacific/au/en/newsroom/2014-superannuation-governance-survey.html

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