Coping with change

The governance of industry superannuation funds may not be broken but the sector is more than capable of dealing with the Government’s proposed legislative fix. 

It is hardly surprising that the industry funds movement has questioned the rationale behind the Federal Government’s move to impose changed governance arrangements on Australian Prudential Regulation Authority (APRA) registered funds given how few failures have actually occurred. 

The industry funds, as represented by the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) have pointed to the relative outperformance of industry funds in terms of investment returns and to the fact that there have been no spectacular collapses. 

Their claims are entirely valid. But it is wrong to suggest that governance could not be improved in circumstances where MTAA Super suffered a significant reversal less than five years ago and where, only last year, big building industry fund Cbus was found to have passed on confidential member information to the Construction Forestry Mining and Energy Union (CFMEU). 

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The rub, then, would appear to be the Government’s proposal to also impose an independent chairman. 

The governance regime being proposed by the Government and outlined by the Assistant Treasurer, Josh Frydenberg, just ahead of the Parliamentary winter recess entailed super fund trustee boards being required to have at least one-third independent directors plus an independent chair. 

Importantly, the AIST has been on the record as stating that while it does not think governance changes are warranted, it is prepared to accommodate a third-third-third regime based on one-third independent directors, one third union nominated directors and one-third employer nominated directors. 

The rub, then, would appear to be the Government’s proposal to also impose an independent chairman. 

Not surprisingly, in circumstances where there is resistance to a Government move, a number of lawyers have become animated about the nature of the Government’s intended legislation while some commentators have suggested that the governance rules applying to publicly-listed companies have not always proved a winner. 

That a number of publicly-listed companies with a majority of independent directors have run into trouble is undeniable, but some of the semantic legal arguments focused on the structure of the exposure draft of the legislation are hardly relevant – an exposure draft exists and is made public to tease out such issues and have them addressed. 

Beyond the views of commentators and lawyers, there has been significant discussion within the industry funds sector about how funds should position themselves to address the new legislative requirements if and when they become law with a number of strategies having been canvassed. 

Among those strategies has been the development of lists of people capable of being deemed “independent” but who are likely to be sympathetic to the not-for-profit approach of the industry funds movement. There would appear to be nothing wrong with adopting such an approach in circumstances where most publicly-listed companies carefully choose those whom they invite to join their boards. 

Less acceptable, though, would be any attempt to use board committee or sub-committee arrangements to alter the objective balance intended to be generated by the new governance arrangements. 

While the industry fund sector has every right to point to its comparatively solid governance track-record, it should have nothing to fear from new governance arrangements based on one-third independent directors and, in fact, a number of funds have already achieved that target. 

Nor should the industry fund sector have difficulty accommodating independent chairs in circumstances where many have already done so.