Superannuation funds one step closer to independent directors
The Senate Economics Legislation Committee tabled its report this week on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, which introduces one-third independent directors and an independent chair for all APRA-regulated superannuation funds.
The Committee recommended that the bill pass, while recognising that various submissions expressed concerns at the ambiguous and prescriptive definition of 'independence' contained in the bill (including some submissions expressing 'in-principle support' of the bill). Governance Institute recommended that legislation should set out the principle of independence, but not prescribe a definition, while Mercer Consulting, in its a report on the governance of superannuation funds, also proposed a principles-based definition. Other bodies were of the view that the definition of independent could be broader, and that the definition of independence was overly restrictive.
The Committee’s report also noted that APRA strongly supports independent board appointments to trustee boards and quoted from a speech given by APRA member Mrs Helen Rowell to the AIST Governance Ideas Exchange Forum in Melbourne on 20 October 2015, in which she said:
APRA's long-held view is that independent directors play a very important, positive role on boards — not just in superannuation but across all APRA-regulated industries. APRA's experience, over many years and across all our industries, is that having at least some independent directors on boards supports sound governance outcomes. Independent directors broaden the skills and capabilities that can be brought to the board table, and improve decision-making by bringing an objective perspective to issues the board considers. They are also well placed to hold other directors accountable for their conduct, particularly in relation to conflicts of interest. As outlined in our submissions to the Financial System Inquiry, we consider the diversity of views and experience that independent directors bring supports more robust decision-making by boards.
Many submissions agreed that independent directors improve diversity, given that the board can access a broader pool of applicants and skill sets. At its appearance at the public hearing into the bill held by the Senate Committee, Governance Institute of Australia expressed the view that independent directors would minimise risk by drawing on a larger pool of decision-makers, with particular regard to gender, age and experience.
However, a number of submissions, while not necessarily opposed to the appointment of independent directors, were strongly opposed to the repeal of equal representation. There was concern that this would change the culture of funds.
The dissenting report from Labor Senators on the Committee was deeply worried that the reform:
blindly conflates and confuses trustee governance with shareholder governance, rather than contrasting the two. Under a trustee governance model, board directors have a fiduciary duty to their trustee-members: the customers who are buying into the fund. Under a shareholder governance model, board directors have a fiduciary duty only to their shareholder owners.
It is concerning in turn to see such a misunderstanding expressed in a Senate Committee report of the fiduciary duties of directors under the corporations law. The Corporations Act does not state that directors and other officers must exercise their powers and discharge their duties in the best interests of shareholders, although case law has tended to grant primacy to shareholders’ interests. The legislation states that the fiduciary duty is to act in the best interests of the corporation, which generally coincide with the best interests of shareholders. However, not all case law grants primacy to shareholders’ interests.
The bill is now before the Senate.