Shining a light on superannuation trustee boards

The trustee boards of superannuation funds wield considerable power - something the Federal Opposition has suggested may need to be more closely scrutinised and opened to member sanction, writes Mike Taylor.

Should the trustee boards of superannuation funds be any less responsible to their members than the boards of publicly listed companies are answerable to their shareholders?

That is the key question that has been asked by the Opposition spokesman on Financial Services, Senator Mathias Cormann, and it is a question that the superannuation industry would do well to take extremely seriously given the finely balanced nature of the Federal Parliament.

Over the past decade key sections of the superannuation industry have been at the forefront of calls for shareholder activism, and of the need for superannuation funds to exercise their voting rights with respect to issues within major publicly listed companies - such as executive remuneration and ethical investment.

In circumstances where the average Australian is likely to hold vastly more in their superannuation account balance than they do in shares in publicly listed companies, it should follow that superannuation fund members should be allowed more of a voice in the running of the funds in which they are members.

However, as things currently stand, the trustee boards of superannuation funds are in a unique position.

Provided they act within the strictures and regulations of the Superannuation Industry (Supervision) Act they need not consult with their members on any particular matters affecting the fund - up to and including entering into a merger with another fund.

Thus, members of West Australian fund Westscheme ultimately have no direct say in the merger of their fund with AustralianSuper. They need to accept that the fund's chief executive, Howard Rosario, and the trustee board have acted in their best interests.

Equally, the members of AustralianSuper will have to accept that their CEO, Ian Silk, and the trustee board are not diminishing their overall position by merging with Westscheme and therefore taking on that fund's assets and liabilities.

As Cormann succinctly put it: "The current framework relies entirely on the trustees doing the right thing in satisfying their trustee fiduciary duty to act in the best interests of their members."

However he also noted: "There don't seem to be any independent checks and balances along the way to ensure a particular merger is in fact in the fund members' best interests."

The bottom line in any of the recent fund mergers that have occurred is that the decisions have ultimately been made by fewer than 30 people and have not been subject to either audit or oversight by the regulators.

Nor has there been any significant level of questioning around the issue of those holding multiple trustee directorships across the superannuation industry.

For his part, Cormann has raised the need for better regulatory supervision, a review of merger arrangements, and the delivery of more adequate remedies for members when a merger ends up disadvantaging them or does not end up delivering any of the advantages originally promised by the relevant trustee boards.

If the superannuation industry were driven simply by commercial and financial realities in much the same way as the broader financial services sector, then the issues raised by Cormann would not prove to particularly significant.

However, the superannuation industry is unique because it draws in the highly volatile elements of politics and industrial relations - largely as a result of the evolutionary process from award superannuation through to the development of industry superannuation funds.

It is undeniable that the position prosecuted by some elements within the industry superannuation funds has its origins in deeply held political philosophy, and it is also undeniable that some of the people whose careers have taken wing within the industry superannuation fund movement cut their teeth in the trade union movement and, very often, the Australian Labor Party.

It would therefore seem to be in the best interests of superannuation fund members if the fortunes of their superannuation balances and the fortunes of the funds controlling those balances were delinked from the notion of political philosophies and political agendas.

It is on that basis, that there is much to be said for legislative and regulatory changes giving superannuation fund members more say in not only how their funds are run, but who is actually running them.

The current structure of the superannuation industry is the result of its evolutionary history. What was appropriate 20 years ago is not necessarily appropriate in 2011 and beyond.

Now, with more than $1.3 trillion in assets and funds under administration, it is time the industry and those running it were subjected to higher levels of accountability to those whose financial interests they are seeking to represent.