Superannuation funds are lining up possible candidates and calculating costs in the widely held expectation that the Federal Government will make it mandatory to fill one third of boards with independent directors.
Andrew Fairley, Chairman of Equip, expects a change within six months and said the new ‘one third’ independent director structure would be a viable solution, with his board prepared to appoint two additional independent directors.
“There’ll be a change – profit-for-member funds aren’t the flavour of the month for this Government. But as a board we’re of the view, ‘one third’ is a perfectly acceptable position for us to move to… We’re looking at what skills we need for the board to be the best in Australia and are looking to fill that gap. That’s the way we want to approach the appointment of independent directors, rather than looking at where they come from,” said Fairley.
Speculation of an imminent change comes six months after ex-Federal Assistant Treasurer, Arthur Sinodinos, released a paper calling on super funds to align their governance with ASX listed companies, such as banks.
But for some in the industry, including Andrew Boal, managing director of Towers Watson Australia and Fiona Trafford-Walker, head of advice for Frontier Advisors a move could present problems, including a talent shortfall and associated costs.
“There’s now 120 MySuper funds. If they all need three independent directors, where do we find the 360 people with sufficient skills and knowledge? We don’t want to jump into compulsory appointments and in doing so dilute the skills and knowledge of boards” said Boal.
Trafford-Walker added: “The concern a lot of the funds have is, where do all these people come from, when they also need to understand super fund structures, which aren’t the same as listed companies, and need to fit in with a fund’s culture and vision?”
Boal confirmed Towers Watson has already begun benchmarking industry salaries for several super fund clients, across a variety of roles including directorships, and provided advice around transparent remuneration reporting back to members.
“We expect demand for this information to grow. Looking at other industries, that’s how it started.”
Trafford-Walker confirmed a number of other funds have identified potential independent directors to approach, with the mandatory changes to board membership now widely anticipated.
“There are certainly a number of people out there with their eyes on who they’ll appoint if they need to,” she said.
Fairly refuted the idea there would be a talent shortfall and retention costs would blow out, and instead called on the broader industry to embrace the change as an opportunity to skill-up boards, irrespective of directors’ ideological backgrounds.
“The government will take us to a path where independence is mandatory and we hope it’s a third a third, a third, and not 50 percent,” he said.