The $94 billion profit-to-member super fund Cbus may be forced into a breach of the basic equal board representation rules of the Superannuation Industry (Supervision) Act if three employee-representative board vacancies can’t be filled within 90 days.
Three former directors of United Super, the fund’s trustee, with links to the Construction, Forestry and Maritime Employees Union (CFMEU) last week left the board as part of the high-profile and controversial administration of the union, which was forced by the Albanese government following a series of damning allegations.
Cbus, like many of its profit-to-member counterparts, is required to have equal employer/employee representation and the CFMEU is entitled to appoint three directors.
However, Investment Magazine understands appointing new directors to United Super is not a high priority for the CFMEU administrator, which has other pressing issues to resolve first. And a High Court challenge to the forced administration of the union launched on Tuesday may drag the process out even longer.
The court action launched by former union leaders reportedly claims the forced administration of the CFMEU is unconstitutional and undemocratic because it violates union members’ rights to due process, and that the union has been “stolen” from members.
The SIS Act provides that a fund “is taken to have complied with the basic equal representation rules at all times during the period of [a board] vacancy” if, among other things, the vacancy is filled within 90 days.
Prudential regulator APRA declined to comment on timeframes for filling director vacancies. However, it is understood APRA will seek to enforce compliance with the rules by trustees, including section 89 of the SIS Act which contains the basic equal representation rules. Cbus declined to comment.
The departures of Rita Mallia, Jason O’Mara and Dave Noonan from the Cbus board last week provided a circuit-breaker in the increasingly contentious links between the fund and the CFMEU, which finds itself at the centre of allegations of corruption and criminal activity by union officers.
Outnumbered
But the departures left Abha Devasia, Earl Setches and Kade Wakefield as the three remaining member directors and outnumbered by six employer directors, along with independent director John Edwards and independent chair Wayne Swan.
In August APRA imposed additional licence conditions on United Super and on BUSSQ – trustee of the Building Unions Superannuation Scheme and the BUSS (Queensland) Pooled Superannuation Trust – requiring each of them to undertake independent reviews of board governance and expenditure arrangements.
APRA said the CFMEU was a shareholder in United Super, and the CFMEU-Q – a separate legal entity to the CFMEU – was a shareholder in BUSSQ, raising concerns “about the potential impact on trustees” of the respective funds.
However, APRA suspended the additional conditions on BUSSQ after the fund sought a judicial review of the regulator’s decision.
In a statement in mid-August, Cbus chief executive Kristian Fok said the fund would fully co-operate with the independent review, which would “build on work that Cbus has previously commenced”.
With Mark Irving, KC, appointed administrator of the CFMEU, almost 300 paid and volunteer union officers have been removed from their positions.
Once the requisite CFMEU positions are filled, appointing new Cbus directors will follow an established process. Under the United Super articles of association the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU), the Australian Workers Union (AWA) and the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU) each hold one A-class share in United Super and are entitled to appoint one director each.
The CFMEU holds three A-class shares and can appoint three directors. A nominee of the ACTU holds one A-class share and one non-voting share. The Master Builders Australia Limited (MBA) holds seven “B” Class shares and is entitled to appoint up to six directors.
Existing skills and experience
In nominating an appointee to the board an appointer must consider “the existing skills and experience of the board and of the appointee”, and must ensure that the appointee “demonstrates one or more skill or experience set out in the Board skills matrix”.
An appointee must also consent to be appointed, must pass “all relevant police checks and searches regarding the appointee’s suitability to act as a director” and must satisfy the board that they are “not disqualified from acting as a director pursuant to the requirements of the Relevant Requirements and the Corporations Law”.
New CFMEU appointees and subsequent appointments to the Cbus board might address criticisms of the fund’s link to a corrupt union, but it will not remove the general criticism that profit-for-member funds remain too close to unions and by extension to the Labor Party.
However, other major super funds – for example, Hostplus and HESTA – enjoy close links with unions and also have high-functioning boards. They have not received the same criticism for those links as Cbus has for its CFMEU links.
Hostplus has three employer-representative directors, each nominated by the Australian Hotels Association (AHA). It has three employee representative directors nominated by United Workers Union (UWU). Three independent directors are jointly selected by the AHA and UWU, and one of those directors is appointed chair.
HESTA has six directors nominated by unions, and six by employers. It has two independent directors, one of whom is appointed chair of the main board, and the other chair of the investment committee.
