Royal Commission

News, analysis and insight into the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

Equip Super insists on ‘rigorous’ trustee selection process

Equip Super has a rigorous process for trustee selection that centres around a skills assessment. It’s something the fund stuck with even when it caused a potential merger to fail because Energy Super’s trustees did not want to engage in it, Equip chair Andrew Fairley said.

“The Equip Super board has no regard for where you’ve come from – whether employer, employee, union representative or an independent – each prospective trustee has to go through the same rigorous process to become a board member,” Fairley said. “The reason the Energy Super merger didn’t proceed was because the trustees of Energy Super were not prepared to go down that process.”

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry heard on Friday that merger talks between the two funds were scuppered after a disagreement over board composition.

Fairley said that, despite this, the $15.5 billion Equip Super wanted to pursue more mergers and has a strategy to be a $35 billion fund by 2025.

The fund has saved members $12 million in the first year following its merger with Rio Tinto Staff Super Fund in July last year, and its management expense ratio has gone from 92 to 88 basis points.

Fairley told Investment Magazine that the only criteria the Energy Super board thought was appropriate for trustee selection was a measure of “fit and proper”, which is a self-selection process.

“I am concerned there are a number of trustees and executives who are reticent to discuss mergers because there will be no role for them in the new regime. This is why we have a long tail in this industry,” Fairley said. “This is one reason we went to [the Australian Prudential Regulation Authority] APRA three years ago for an extended public offer licence, so we could be trustees of more than one fund. I have had a number of discussions with funds where it is evident to me that unless they can place trustees or executives, they won’t have the conversation.”

Fairley said the core skills required on a trustee board involved strategy, investment, actuarial concerns, audit, risk and finance, human resources and management, legal and governance, and disruption.

In 2014, the Equip Super board, which is made up of three member directors, three employer directors, and three independent directors, conducted a skills assessment using a matrix developed in consultation with Heidrick & Struggles.

This assessed what skills were needed to manage the then-$7 billion Equip Super – what skills it had and what was missing.

The fund now has an electoral process and skills filter for its board appointments. Included is a test for “fit and proper” and an independent assessment of investment skill, risk and compliance, and generalist knowledge, depending on the position.

“We have now moved to a point where we are most likely to get the right people,” said Fairley, who was appointed independent chair nine years ago.

The fund also uses an external consultant, which at the moment is PwC, to assess the board’s skills make-up independently.

Equip Super’s aim with the Energy Super merger was the formation of a national energy fund, the same way HESTA is a national health professionals fund.

“If we had the Queensland and Victoria energy funds merged together, we could go to NSW and discuss a merger,” Fairley said. “There could be great benefit through a national energy fund.”

That didn’t even get to the first stage, he said.

“[A merger] might have meant some of those trustees wouldn’t have been appointed,” he said.

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Royal Commission

into Misconduct in the Banking, Superannuation and Financial Services Industry

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established on 14 December 2017 by the Governor-General of the Commonwealth of Australia, His Excellency General the Honourable Sir Peter Cosgrove AK MC (Retd).

The Governor-General issued Letters Patent which formally appoint the Royal Commissioner and outline the Terms of Reference for this inquiry.

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