Super boards need to lift governance

Superannuation board governance continues to significantly lag better practice, according to the Australian Prudential Regulation Authority (APRA). 

Speaking at an Australian Institute of Superannuation Trustees (AIST) forum, APRA deputy chair, Helen Rowell, said boards needed to lift their governance practices and “break the nexus with the past where needed”. 

While this was not reflective of the industry at large, Rowell said the challenges were not unique to only smaller funds or underperformers. 

Rowell said boards needed to focus on the three areas of: 

• Board skills, composition succession planning and director tenure; 
• Strategic planning and contingency planning; and 
• Merger scenarios and go forward boards. 

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On the first area, she said boards needed to regularly evaluate whether its composition was optimal from a capacity lens to fulfil its obligations. 

“Too often we are seeing boards invoke ‘special circumstances’ provisions to extend director tenure beyond maximum term for reasons that appear to reflect poor succession planning and management rather than genuine special circumstances,” she said. 

“No individual is irreplaceable. Boards need to have a strong skills matrix in place and robust succession planning. APRA will continue to push all boards to ensure that use of special circumstances becomes a rare exception rather than the norm.” 

On strategic and contingency planning, Rowell said some boards had immature strategic and business planning process and appeared not to realise that doing nothing was going backwards and taking their members with them. 

“If these boards are failing to ask themselves the question ‘Would my members be better served in another fund?’ we certainly will be, and will also be requiring action to move toward the exit lane,” she said. 

“These funds will likely fail the annual outcomes assessment, however trustees that are genuinely focused on improving outcomes for their members would be acting well before that happens.” 

On mergers, Rowell stressed that it was not about maintaining jobs for current directors “or deals such as ‘you take the chair’ and ‘I’ll take the deputy’. These decisions need to be based on the skills and experience needed to sustainably deliver good member outcomes for the merged entity”. 

“With the ongoing fund consolidation occurring across the industry, we will continue to challenge and demand better practice on all dimensions of the deal – the business case, the board composition and governance arrangements and the benefits that need to be realised for members,” she said. 

“Self-interest has no place in the board room, and this will continue to be a focus of APRA’s work to lift governance practices across the industry.”