Australia’s largest retail superannuation funds will be forced to employ mainly independent directors and disclose how much they are paid as part of a mandatory governance policy released by the Financial Services Council (FSC).

Super funds run by AMP Financial Services, MLC, Colonial First State and BT Financial Group will be forced to employ an independent chair and board and reveal how much each director is paid, the FSC policy, called Raising the Bar, states. Funds must also not employ directors sitting on other fund boards and start disclosing proxy voting and sustainability practices to consumers.

The policy follows governance recommendations for industry funds made by the Australian Institute for Superannuation Trustees (AIST) last year and precedes the release of new standards aiming to align super fund governance with that of banking and insurance companies from the Australian Prudential Regulation Authority (APRA) in May.

“We will see change. For all our members affected there will be work they will need to do to be compliant,” Martin Codina, FSC director of policy, says. “The policy is mindful of where the prudential standards are going to go, but in most areas goes beyond those standards.”

From 1 July 2013, the FSC will require funds to employ an independent chair, similar to APRA-regulated banks, general insurance and life insurance businesses and all listed companies operating under the ASX Corporate Governance Council Principles and Recommendations. Fund boards must also consist mainly of independent directors.

The so-called “equal representation” governance structure used by many industry funds, in which sponsoring unions and employer groups appoint directors in matching numbers, has been rejected by the FSC. “We’re saying equal representation is not consistent with other prudential standards or the standards of companies that super funds invest in,” Codina says.

It also views the Super System Review recommendation to legislate that one third of fund directors be independent is inadequate. “The FSC supported this recommendation and we now seek to build on it,” the policy says. However, many industry fund trustees are non-executive directors and seen as independent by ASX corporate guidelines, says Fiona Reynolds, chief executive officer of the AIST.

Multiple fund directorships, held by some industry fund trustees, are also outlawed by the FSC policy. Directors sitting on more than one fund board create conflicts of interest that can’t be “effectively managed” and “should be avoided,” it states. “Holding multiple and competing superannuation fund board positions places directors in an untenable position where they are unable to discharge their fiduciary responsibilities to both groups of members.

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