In another reflection of the increasing role of big super funds in corporate Australia, some are now grappling with the issue of nominating directors to the boards of Australia’s major companies.
The $330 billion AustralianSuper has already done this – quietly being involved in the appointment of Melbourne-based company director Gabrielle Bell to the board of BCI Minerals in January 2023.
But the question of whether industry funds should put forward their own nominees for directors is now being more openly discussed.
While it has a stake of 17.5 per cent in ASX-listed Origin Energy, AustralianSuper is cautious about pushing for a seat on the Origin board, insisting that it will assess the issue of directorships of that company or other listed companies it has investments in on a case by case basis.
Its chief executive, Paul Schroder, said the fund has no current plans to ask for a directorship on the Origin board, but reserves the right to do so should it feel this could help its long-term member returns.
The $81 billion health and community services fund, HESTA, has taken a more activist approach, confirming that it is suggesting potential candidates for the board of gas company Woodside, despite the fact that it only has less than one per cent of the company.
On March 12, it issued a carefully worded statement saying that it had been “constructively engaged” with Woodside over the past few months, on the issue of “board capability.”
“As part of this engagement, we shared with Woodside for their consideration, independent and highly credentialed potential director candidates, whose new energy and business transformation skills we believe would add to the board’s current capabilities,” it said.
“We’ve encouraged the Woodside board to undertake its own due diligence of these and any other potential director candidates with similar skills and experience, through its existing internal processes.”
Active vs activist
It notes that “Australian and global institutional investors regularly call on boards to address gaps in capability and diversity. This includes assessing the suitability of nominated candidates and suggesting others”.
With only a small shareholding in the company, HESTA’s stance has received much attention, although it has no market power to force its suggestions on the board.
But it will ensure that Woodside’s annual meeting in April is a lively one if HESTA and others believe the company is not moving fast enough in its decarbonisation journey.
The fund’s stance on Woodside follows its active role in determining the future of gas company AGL in 2022 when it opposed the board’s plans to demerge and publicly backed major shareholder Michael Cannon-Brookes in his campaign to pressure the board.
The chief executive of the $150 billion Aware Super, Deanne Stewart, said her fund has no current plans to follow suit, saying it would rather discuss issues through private conversations.
Stewart made the distinction that she sees her fund as being an “active” investor rather than an “activist” investor.
But she admitted that she would “never say never” when it comes to the issue- not ruling it out for some future date.
Construction industry super fund, Cbus, said it is not seeking positions on listed company boards.
The fund’s chief investment officer, Brett Chatfield, tells Investment Magazine that the fund had “a supportive, arms-length, relationship” with the companies it invested in.
“Where boards are not composed of individuals we believe are driving long-term value for shareholders, we reflect this in our engagement processes and voting decisions,” he says.
Although institutional investors in Australia in the past have traditionally sought board seats on companies they have invested in, the increasing potential for industry funds to be putting directors on board – or suggesting nominees – is already raising questions from business leaders such as National Australia Bank chairman, Phil Chronican.
Speaking at a conference hosted by the Australian Council of Superannuation Fund Investors (ACSI), Chronican argued that if super funds had directorships on listed company boards it could make it “quite difficult” to maintain their independence.
With AustralianSuper now owning 4.25 per cent of NAB, Chronican may have a special interest in sending a message to the fund.
Walking a thin line
But industry funds would argue that the issues involved in major investors appointing directors or advocating for directors are no different for industry funds than they would be for any other major institutional investors, which regularly push for board seats.
NSW Liberal Senator Andrew Bragg, who was recently appointed Shadow Assistant Minister for Home Ownership, has already suggested that industry funds should be restricted to having only ten per cent of listed companies.
As the assets of industry funds, which now manage some $1.2 billion, and with mergers seeing the emergence of giants such as AustralianSuper and the $260 billion Australian Retirement Trust, the sector is set to play a much more active role in the board rooms of Australian companies.
Industry funds already regularly make their views known these days on votes for directors and other resolutions at company annual meetings.
In HESTA’s case, it is about putting moral and public pressure on the Woodside board to move faster in its energy transition plans.
In the case of AustralianSuper, it is a question of how much it plans to use its growing financial muscle, which sees it having to deploy an extra $20 billion each year.
AustralianSuper’s 17.5 per cent stake in Origin was large enough to help fend off a $13 billion takeover offer from Canadian giant Brookfield and its US partner last year.
The process and subsequent events have seen the fund have constructive engagements with the company’s chair, Scott Perkins, and chief executive, Frank Calabria.
Keenly aware of the controversy over its move to block the takeover offer – a move not supported by the Australian Retirement Trust – AustralianSuper is treading cautiously on the issue.
When it comes to Origin, the fund has made no secret of its willingness and financial capacity to help the company with funding for its transition to a more renewable energy environment.
Schroder also made it clear that he sees AustralianSuper being a co-operative and constructive investor, working behind the scenes with the board and top management, and not being an “activist” shareholder making critical comments from the outside.
Schroder said recently that his fund planned to invest another $100 billion in Australia between now and 2030 mentioning its interest in helping Origin with financing if it needed.
But as Schroder recognised, making the shift from being investors – even significant ones as in the case of Origin – to becoming involved more directly in the management of a company through the appointment of directors, is another step again which funds need to be careful of taking given the management resources and time which could be involved.
Industry funds are already becoming involved in the appointment of directors to their unlisted assets, such as Sydney Airport or Ausgrid, which is giving them access to a growing cohort of potential directors of listed companies.
Gabrielle Bell’s directorships include being on the board of Aware Super from 2017 to 2022, Aware Real Estate Management directorships and her current role as chair of Yarra Valley Water.
While it seems perfectly acceptable for funds to have directors on unlisted assets, the move into the listed space creates more complications given ASX rules – including any perceptions that investors may be acting in concert with each other.
Different funds will have different views on their approach to the listed world, but the issue is one that is set to become more public as the funds’ stake in ASX companies continues to grow.
