But the structural dependency on external bodies to hold trustees to account will be subject to scrutiny if those organisations lose their way. In asking: who will watch the watchers? Paatsch alluded to Paul Keating’s infamous description, in February 2007, of John Howard as an “old, desiccated coconut” who had “stayed too long” as the head of the Liberal party, almost Araldited to his seat. “What will happen,” Paatsch asked, “if the super industry develops its own lovely bunch of coconuts? Who will call time on broken-down trustees – whose central purpose is the next fund manager lunch – if their sponsoring organisations won’t?” Trustee performance was a critical area of fund governance: “Boards take collective responsibility for success, but we don’t know which individuals are responsible for it. Boards operate within selective Westminster principles. Directors hide behind cabinet confidentiality without the obligation of ministerial responsibility.” Paatsch called for a clear line of sight between the chair, trustees and sponsoring organisations of funds to help prevent trusteeships being awarded as trophy positions for well-connected individuals. He said funds do not need to apologise for their occupational heritage as most have extraordinary track records of value-delivery, which spoke for itself. But they must be more transparent and vigilant about the accountability mechanisms that will help them preserve their licence to operate. For example, revealing the remuneration of fund executives might help consumers decide if their super fund’s protests about executive pay at investeed companies “is a shade of black that is more pot than kettle”.
He commended the AIST’s new Fund Governance Code as an “excellent starting point to begin the conversation about transparency and accountability with members”. The challenge would be in the execution and creation of a highperformance culture, rather than simply a compliance one. In his presentation, Paatsch moved from fund structures and accountability mechanisms to what he saw as a primary failing in contemporary fund governance – the obligation to tell the truth to fund members about the riskiness of investments made on their behalf. “The provision of financial services is based on trust, and if an organisation can’t get its riskstrategy right and communicate it transparently to its customers, then its own brand and licence to operate may one day find itself in jeopardy.” In the post- financial crisis world, funds must be more open about the risks in their portfolios, he said. The market and prudential regulators were becoming more interested in the lack of meaningful disclosures that has been made about investment risk. Also, the Cooper Review was adamant about the need for a ‘risk dashboard’ to inform investors about each unit of risk they are taking in the pursuit of returns. “It’s an essential step in breaking up the ‘me too-ism’ in portfolio design between funds that is endemic in Australia and may lead to increased systemic risk in our financial system as a whole.” Investors deserved truthful labels among various investment options, Paatsch said. “They need a common language to work out the difference between cash, enhanced cash and Zimbabwean cash.”
