Wayne Swan, chair of embattled profit-to-member fund Cbus, has staunchly defended the construction industry fund’s trustee governance and board composition.
In a much-anticipated parliamentary showdown with Swan on Friday, Senate Economic References Committee chair Andrew Bragg questioned the former Labor treasurer and current federal party president’s position as an independent member of the Cbus board.
“Mr Swan, I think … is a perfect example of a political operative,” Senator Bragg said, referencing a review by business leader and former competition regulator Graeme Samuel which called for more independent directors of Cbus. “So, then you’ve got to question the absolute independence of the chair.” Back in 2014, Investment Magazine reported that the governance of Cbus was under scrutiny, with Samuel appointed to conduct an independent review.
But Swan rebutted Bragg’s claim, arguing “I don’t agree that you would recommend that you would ban someone or forbid someone to be an independent director because they were a member of a political party”.
“I think one of the great things about the equal representation model is that we have people from employers, we have people from unions, and we have people from all political parties,” Swan said.
“I would have thought my appointment to the board as an independent director is very much in line with that luck, with that thinking, and also, given my experience, I’m uniquely qualified to be an independent director of a fund such as this.”
Swan revealed he was, in fact, approached about becoming chair by the employer representatives on the board, rather than trade unions structurally tied to the Labor Party, after Bragg asked how he got the powerful position as chair.
Bragg asked Swan to clarify as to whether the Samuel review recommended a third of the board to be independent.
“I don’t believe it was hard in its recommendation of a third of the board being independent and I think we’ve come up with a very good compromise,” Swan said.
Cbus has been in hot water recently, most notably facing legal action against ASIC for failure to pay back insurance claims, as well as separate legal proceedings relating to its financial and interpersonal ties to the militant Construction, Forestry, Maritime, Mining and Energy Union (CFMEU).
These issues have reverberated into the advice community with researcher Morningstar flagging concerns over the fund’s governance and adviser product recommendation software provider ProductRex showing an uplift in advised outflows of the fund.
Insurance claims apology
When asked by Labor Senator Jess Walsh about the issue of not paying insurance claims, Swan issued an apology.
“I want to apologise to all of those who’ve been affected in our fund,” Swan said.
“We, as a board, when we first became aware of the magnitude of this problem, set out to rectify this problem.”
He confirmed that 80 per cent of the insurance claims had been dealt with up to this date and the remaining would be handled at the earliest opportunity.
“We are not the only fund that has a challenge with a third-party provider and has delays in the processing of insurance claims. So, this is also an issue elsewhere in the industry, but in saying that we accept complete accountability for the outcomes.”
When pushed by Bragg on the matter, Swan repeated his earlier comment that Cbus takes full responsibility for its failure to handle insurance claims.
“Our fund has put enormous energy into rectifying this as far as we possibly can. We will continue to do that,” Swan said.
Swan confirmed Cbus is taking measures to ensure all the claims are handled and that this problem won’t happen again.
“We are also engaged in a very substantial uplift in our fund across the whole area of risk management, if you like, and part of the restructuring of the executive in our fund, has been a new chief risk officer [John Edwards].”
‘Partnerships, not payouts’
Bragg accused Cbus of changing its trust deed in order to charge members “to build up a reserve to pay regulatory fines” – a claim Swan strongly denied.
Bragg posed several questions to Swan about the relationship between Cbus and the CFMEU, which was placed in forced administration earlier this year following media reports of corruption and criminal wrongdoing.
“Will [Cbus] continue to pay money to the CFMEU now it’s been put into administration by the Parliament?” Bragg asked.
Swan responded that “all our partnership agreements at the moment with the CFMEU are suspended subject to the independent inquiries that are going on at the moment, but they continue with other organisations because they’re very good value.”
When Bragg argued that Cbus had been giving money to the CFMEU, Swan shut down the notion, saying “we haven’t given money to anybody”.
“We had a commercial arrangement with unions, including the CFMEU, and we have commercial arrangements with employers. We’re not handing the money over. And it’s wrong of you to mischaracterise partnership agreements, which are commercial as being a grant to a particular organization.”
Swan emphasised the value of commercial partnerships for Cbus and said the agreements “enhance the membership of the fund and enhance our member returns”.
Labor Senator (and former Transport Workers Union boss) Tony Sheldon asked Swan whether he agreed that there was no reason to view an arrangement where a super fund makes payments to a trade union as improper.
In response, Swan said “the partnership agreements are very important part of the success of industry funds across the board, not just to Cbus, but to many other funds.”
“They link us to the workforce that are our members, and they assist us, not only to retain our members, but also to recruit new members.”
In August, APRA ordered Cbus to conduct an independent governance review about responsible persons and fund expenditure management via additional licence conditions imposed on the fund. The prudential regulator confirmed on Friday that it has received the final report, conducted by Deloitte, and reminded Cbus of its responsibility to publish it.
