The Cooper Review recommended the development of a code of trustee governance “to assist with identifying best practice within the industry”. The recommendation further states that if the industry cannot work together to establish a code within two years, then APRA should be given responsibility for its development, which the Government has supported ‘in principle’ within the Stronger Super package. AIST has long-supported improving governance standards within the super industry. However, we recognise there are existing differences between funds, and that any such code should be voluntary – it should be a helpful tool to trustees as well as for the prudential regulator. That’s why it is important for the industry to take the lead in creating this code.
We have known for a long time that there’s a link between good governance practices and fund performance. Recently, Oskar Kowalewski’s 2010 paper, Corporate Governance and Pension Fund Performance, reviewed the Polish pension fund industry over 10 years from 1999 and found that “different governance factors are found to be important for pension fund return on invested assets and also for its economic performance”. An industry code of governance should enhance the regulatory regime. The industry is best placed to understand what ‘good governance’ is from the perspective of running super funds, and while we’re happy with the role APRA plays, it must be recognised that governance is not as cut and dried as, say, the propriety requirements of trustee directors. In conjunction with IFF, AIST released governance guidelines, A Fund Governance Framework for Not-For-Profit Superannuation Funds at CMSF in March. We specifically targeted issues identified in recommendation 2.18 of the Cooper Review as requiring guidance.
However, we went further, highlighting issues not raised during the review. We believe that such guidelines could never become a ‘blueprint’ for running a super fund though, as what is an appropriate approach in one fund is not necessarily best practice for another. By its very nature, a code of governance builds on existing rules and regulations that determine the minimum benchmarks for fund compliance. Our guidelines are crafted so as to encourage trustee boards to consider how they might be able to improve transparency and disclosure within their fund and review decision-making structures and processes. The guidelines provide reasons for the standards that are encouraged, allowing trustee boards to consider the appropriateness of the rationale they apply to their current operations, and look at motivating factors in decision-making processes rather than applying a tick-box approach, which often happens in compliance matters. In our framework, we suggested a few solutions to industry problems that are well documented.