The recent global financial turmoil has led to a profound questioning of what constitutes good governance. Across the world, the directors of many corporate boards have been accused of not paying attention, not understanding what they were investing in, and not looking after other people’s money as if it were their own. But how do the superannuation funds themselves stack up on the governance front? The first phase of the government’s review into superannuation – chaired by Jeremy Cooper – is focusing on fund governance.
The role of trustee directors is being examined more closely than at any time in the 25 year history of modern superannuation. This examination is both timely and appropriate – not only because the global financial mess has highlighted the importance of effective governance – but because superannuation fund trustees in Australia are making decisions on what has now become the fourth largest pool of managed money in the world. The Cooper Review has promised it will ruffle some feathers in its examination of the superannuation industry. When it comes to governance, these “feathers” include board composition, conflict of interest and trustee education. The not-for-profit superannuation sector – which comprises the industry, public-sector and corporate funds where nearly two-thirds of Australian workers have their superannuation invested – is arguing vigorously that its unique model of governance – the trustee representative system – is the model that best serves member interests and, importantly, returns all profits to members.
Under this model, half the trustees must be elected or nominated by the fund members or relevant union and half must be appointed by the sponsoring employer, the aim being to ensure that the voices of workers – as well as employer representatives – are equally heard. A number of not-for-profit funds also have independent trustee directors to complement the board composition. By contrast, retail superannuation funds operate on a commercial basis to generate both a profit for their members AND the shareholders of their parent company. It is the parent company that typically appoints its own staff or directors as directors and executives of the fund and also pays their salary and/ or fees. The potential for conflict of interest is obvious and large, particularly – as is often the case – if the parent company is in the business of providing investment services to the superannuation sector.
