The Australian Institute of Superannuation Trustees has proposed a new governance code that it says will help lift the quality of directors appointed as trustees of not-for-profit super funds, while entrenching the sector’s “equal representation” board model.
AIST’s governance code is in direct contrast to the Turnbull Government’s plans to force all super funds to appoint a minimum of one-third independent directors, including an independent chair.
The peak body for profit-to-member funds (including industry, corporate, and government funds) has said the sector’s traditional practice of letting funds’ employer and union stakeholders each appoint an equal number of trustees must be preserved.
AIST chief executive Tom Garcia said the equal representation governance model had been a driving force in the historical outperformance of profit-to-member funds over their retail rivals since compulsory super was introduced 25 years ago.
“These better returns for members are the primary focus of a representative board in the profit-to-member governance sector and funds with equal representation of employers and employees have consistently outperformed their commercial peers,” the preamble to the code states.
“This code requires AIST registered funds to maintain an equal representation governance structure, to facilitate a continued focus on a members-first culture.”
The proposed code stipulates that should a fund choose to appoint non-representative directors to its board, at no time should their number exceed one-third of the total number of directors.
“This ensures that the interests of members and employers continue to be at the forefront of the fund’s strategic decision-making, and all the cohorts remain in balance,” the document states.
The draft code, which makes 22 recommendations, was modelled and built around the ASX Corporate Governance Principles. The slated start date is July 1, 2017.
Demands equal voting rights, more
It has been circulated to the more than 50 funds that form AIST’s membership for feedback and consultation and was released publicly on Thursday, February 16, 2017, as Bernie Fraser unveiled the interim report of a review into governance in the not-for-profit super sector. AIST and Industry Super Australia commissioned the review in a bid to stave off the government’s independent directors bill.
The AIST code purports to improve the quality of profit-to-member super fund boards’ nomination and selection process, professional training and development, director voting rights, risk management, board renewal, chair appointment, disclosure, transparency and remuneration.
Under the code, all directors must have equal voting rights. One of its recommendations is to make it explicitly incumbent upon funds to ensure that all nominees “have the appropriate skills and qualifications” before they are appointed as a trustee director.
Another recommendation is that all boards must disclose a “skills matrix” that shows the diversity of skills the board has and is looking to achieve.
The code also states funds must have an induction program for new trustee directors and “provide appropriate ongoing professional development and training opportunities to develop skills and knowledge in an ever-changing environment”.
A plan for diversity
Improving the diversity of super fund boards is a focus of the code as well. It would require funds to have a written diversity policy that sets out clear and measurable objectives. The policy would have to provide diversity objectives concerning gender balance as a minimum, with other forms of diversity (such as religion, geography and retirement status) considered by the fund as appropriate. Diversity objectives would have to be disclosed and success against the stated objectives reported on.
The code states that the chair of a profit-to-member superannuation fund board “must be the best person for the job, and must be appointed by the board”. It also stipulates that the chair must not be the same person as the fund’s chief executive, and that the chief executive must not be a member of the board.
With regards to remuneration policies, the code states that: “Remuneration structures must reflect the primacy of maximising members’ retirement outcomes and the encouragement and rewarding of ethical practices and behaviour.”
Garcia presented the code as a more holistic approach to improving governance than the government’s planned one-third independents rule.
“You can’t sound-bite good governance – it doesn’t come down to one factor,” he said. “Despite the overwhelming legal and regulatory requirements that already apply to super funds, AIST believes more can be done to safeguard members’ compulsory retirement saving. We are asking our member funds to sign up to a code that recognises the key role that the equal representation system plays in delivering superior results for members.”