New code supports equal representation model for industry super funds
In mid-February, the Australian Institute of Superannuation Trustees (AIST) released a draft code reinforcing the importance of the equal representation model for industry super funds, adding another detour in the Federal Government’s path towards reforming the governance of Australia’s superannuation funds.
The AIST’s code requires not-for-profit (NFP) super funds to maintain a 50:50 split between employer and employee representatives on their boards, but also allows them to appoint up to one third independent (non-representative) directors to the board.
The code was released on the same day as former Reserve Bank Governor, Bernie Fraser, released his long-delayed review into superannuation board governance in which he rejected calls for the mandatory appointment of independent directors and chairs to the boards of NFP super funds.
‘It is far from self-evident… that simply mandating minimum numbers of ‘independent’ directors will deliver quality or ‘best practice’ board governance for all super funds. That case has to be made, not inferred or asserted,’ Fraser said in his review.
‘In the interests of their members, NFP funds should always appoint the best of the available candidates (from within the existing board or, if necessary, from outside) as chairs, whether or not that person was ‘independent’, and irrespective of any previously established rotational arrangements,’ he added.
Fraser’s review was commissioned by Industry Super Australia (ISA) and AIST, allegedly to provide key Senate crossbenchers with a reason to delay the passage of the Superannuation Legislation Amendment (Governance) Bill 2015 in the Senate in 2015.
The Government’s Bill requires that one third of directors on super fund boards be independent and that fund boards have an independent chair.
Last week, Minister for Revenue and Financial Services, Kelly O'Dwyer, confirmed the Government’s intention to proceed with the legislation.
Last month, she described Fraser’s report as ‘a delaying tactic’ to stop reforms, noting that it ‘appears to at best entrench the status quo and at worst further dilute the value of independent directors on superannuation fund boards’.
‘There is nothing in this report that negates the need for legislation to lift the standard of accountability, transparency and choice across the entire superannuation sector,’ she said.
For its part, Governance Institute supports moves to increase the number of independent directors on super fund boards, although it sees this as a pragmatic first step towards its preferred model: a majority of independent directors.
It believes the independent director model delivers better governance outcomes in the interest of members than the current representative model, not only because it is more likely to deliver the appropriate mix of skills, experience and diversity of view on a board, but also because it reduces the potential conflicts of interest inherent when directors or are appointed by third parties.
Governance Institute is also against enshrining a prescriptive ‘black letter’ definition of independence in legislation and recommends a principles-based approach instead – similar to that which applies to listed companies under the ASX Corporate Governance Council’s principles and recommendations and operates on an ‘if not why not’ basis.
AIST’s draft code – which has a proposed start date of 1 July, 2017 and has been circulated to AIST’s membership for feedback and consultation – will apply to more than 50 funds. It covers a broad range of governance issues, with 22 recommendations including suggestions on member engagement opportunities, equal director voting rights, strong risk culture, board renewal, chair appointment, disclosure, transparency and remuneration.
AIST CEO Tom Garcia says the code recognises that a host of factors contribute towards best practice governance. ‘You can’t sound-bite good governance – it doesn’t come down to one factor. Good governance is fundamentally about a group of people making good decisions, having the right skills and also having a strong commitment to the members they serve.’