“There’s elegance to the idea: that a focused group of fiduciaries can discharge a shared moral purpose – to provide effective vehicles through which citizens can save to live with dignity in their old age.” But the question of who actually owns a super fund remained vexed, he said. Some would say a fund was a series of contractual relationships where the fund member was simply the residual claimant – the beneficiary of what remained after all other stakeholders have taken their share. “If this is true, then all we should care about from a policy perspective is accurate and consistent disclosure of fees – free from soft dollars and fudgery,” he said. “Fund members are simply consumers shopping between funds for the best value. Better disclosure of audited accounts would help in this regard.” Yet funds claimed they were established on mutual principles and owned by members, for members. But the outcome that some members received a residual ownership interest showed that, clearly, the right to manage assets had enormous value. Paatsch outlined the ways in which members are captive, unable to sell or trade their ownership interest as it is held in perpetuity within the trustee structure. Moreover, members cannot appoint or remove the trustees that control the fund. “The reality is that the trustee structure is captive to its sponsoring organisations, employers and unions. “Trustee appointments are controlled by those bodies, a by-product of superannuation’s occupational heritage.” Until recently, this system worked, mainly because the industry has attracted “some brilliant people”, he said.
The job of corporate governance specialists in superannuation should not be to solely monitor and, where necessary, intervene in the management of listed companies to improve shareholder returns. They should also seek to make the people in charge of funds accountable for their work. Dean Paatsch, founding CEO of the Australian Institute of Superannuation Trustees (AIST) and former CEO at RiskMetrics in Australia, warned that a collective solipsism is blinding the superannuation industry. This was a belief that the “superannuation world” is the only world that exists, he said. Speaking at the 2011 AIST Fund Governance Conference last month, he pondered whether this was the outcome of a lack of focus on governance standards within the funds themselves. “We’ve fudged the biggest questions of all,” he said. These were: who owns the funds, and what ownership rights accrue to the people who own them? Super funds are fond of referring to themselves as the new mutuals, he said, and if this is the case, these ‘new mutuals’ must take the time to define how they discharge their responsibilities to the underlying owners of the funds. Neglecting this responsibility ran the risk of going the way of the old mutuals, which were now “captured by the managerialism and bureaucracy that once defined what they were not”. “The moral cover of the trustee system and its fiduciary mask hide the fact that members of most funds have no right to choose or remove the trustees who represent them, let alone discover what management is paid,” he said. In addition, the industry’s obsession with the fees paid to investment managers hid the management costs routinely being pushed onto investors, as soft dollars or payments into operating businesses of unlisted assets. Despite these shortcomings, Paatsch continued to advocate the equal-representation trustee system championed by industry funds.