The only certainty in the discussion on superannuation board standards is that all sides agree there are some poor performing trustee directors out there.
If the Coalition can deal with this in a way that does not cause excessive cost or disruption it will look very smart, but it won’t be easy.
As conservatives the Coalition’s instinct should be for evolution and not revolution. Superannuation is internationally admired, a source of strength for financial services and on the whole it is creating favourable outcomes for the workforce.
The assistant treasurer Arthur Sinodinos has said that he favours a majority of independents on boards, but both those for and against change say there is no hard evidence that independent directors are more successful at running superannuation funds. Evidence for decisions, it should be remembered, is what a good trustee board thrives on.
This change would risk replacing those who passionately care and who have great experience, with those who do not. Mastery of another area of financial services is not always transferrable to superannuation. Arthur Sinodinos with his background in banking is a classic example. His remarks expressing bafflement at why the majority of Australians sit in default funds are bizarre and worrying.
The Coalition should capitalise on their key advantage; unlike Labor they do not have to worry about offending the unions by tampering with the current equal representation model on boards. All sides of the debate agree on the following points, but the Coalition is best placed to deliver on them.
- Some funds lack the economies of scale to become best practice. They should have directors on their boards who have the will to change this.
- There are still no shortage of anecdotes that some trustees treat the role as a gravy train. There should be greater rules and accountability on what trustees can accept and what purpose international trips serve.
- Director standards need to rise to reflect the greater legal accountability introduced in July.
- Superannuation funds are generally not seen as best practice when it comes to the use of information technology for administration and this skill set should be represented on boards.
Redressing these issues will take individual evaluation of funds. The arbiter of this could be APRA, it could be an empowered chair of the board, it could be an independent director appointed to have this oversight. By common consent all trustee directors should be taking the educational courses offered by AIST.
The failure to meet evaluation should lead to trustees being shunted off boards, perhaps through the imposition of term limits or through redundancy. Perhaps the role of APRA could be to determine the skills a board lacks and then to instruct them to go out and appoint someone to fill that hole.
The Treasury discussion paper Better governance and regulation poses a question to which there is no right or wrong answer. What constitutes an independent? Whatever definition it settles on, it should factor in the balance of skills on a board, with a view to judging whether it has a good mix of age, gender and geographical representation (if it is a fund with a national membership). These are concepts of fairness we can all agree to.
The Coalition can win on superannuation, but it needs to tip-toe through reform, rather than kick the door down.