Annalisa Barrett, senior research associate of the Corporate Library, New York, said that increasingly settlements with companies over compensation included agreements to improve specific aspects of their future governance. There had been 12 major cases between 2002 and 2005 which involved improvements in governance. The improvements included board practices and composition, inclusion of independent directors on committees, processes for shareholder nominated directors, compensation practices for better alignment of interests with shareholders, increased stock ownership by directors, improved internal controls over insider trading, and separation of chair and chief executive roles.

Australian funds have been getting more active over the governance of large companies for several years, with a growing belief that, over the long term, they are better off confronting what they see as problems rather than doing the ‘Wall Street walk’ and selling out. One of the outcomes of the first Global Dialogue in Chicago and New York in 2006 was a prompting of several large funds to sign up to the United Nations Principles for Responsible Investing (UNPRI), which encourages such engagement. HESTA, for instance, signed onto UNPRI early last year and has been voting its shares in corporate actions for about 10 years. The fund is also a subscriber to the governance advisory service Regnan, which is owned by a group of funds plus managers BT and Vanguard.

Rob Fowler, executive manager of investments and governance for HESTA, said that a new focus on corporate governance was to engage stock brokers to get them to include ESG (environment, social and governance) analysis in their research on stocks. “Companies tend to have more contact with broking analysts than they do funds managers,” Fowler said.

HESTA is one of three Australian super funds which has joined the Enhanced Analytics Initiative, a European based group formed to encourage stock brokers to also assess companies on ‘extra-financial issues’, such as climate change, corporate governance, employment standards and executive remuneration. The other Australian funds are UniSuper and VicSuper. The greater co-operation between funds may, at first glance, seem inconsistent with the heightened competition between them for members under choice of fund. But it was the big commercial institutions which coined the phrase ‘co-opetition’ in the 1990s to describe how an organisation could be both a client and competitor simultaneously.

In this case, the not-for-profit sector is looking to flex its muscles more by adopting the same open-minded attitude. At the same time, the sector is casting its investment net much wider outside the listed markets and taking account of what are seen as softer concerns such as ESG and SRI factors. There will always be room for argument about how far a fund should go in this regard. One discussion group at Global Dialogue suggested that AIST should ask APRA to clarify its understanding of the Sole Purpose Test for funds, hopefully to provide comfort that they could invest in a sustainable fashion.