Superannuation fund trustee boards can’t be mates’ clubs, but nor can they be places where strongly opposing philosophies on the role and purpose of super can happily co-exist, and boards should look past skills matrices to ensure only high-calibre appointments, according to one of Australia’s leading company directors and good governance advocate, David Gonski AC.
Speaking at the Investment Magazine Chair Forum in late January, Gonski’s comments have been given even greater currency following the release in early March of a discussion paper by the Australian Prudential Regulation Authority containing a range of proposals designed to raise governance standards among the entities it regulates, including super funds.
APRA is seeking industry comment on directors’ skills and capabilities; fitness and propriety of director appointments; and the frequency and effectiveness of board performance reviews, among other issues.
Its proposals would require trustee boards to identify and document the skills and capabilities necessary for the board overall, and for each individual director; evaluate existing skills and capabilities of boards and individual directors; and take active steps to address gaps through professional development, succession planning and appointments.
APRA’s paper says directors’ skills and capabilities “should be clearly defined and documented in a skills matrix”. But in conversation with Conexus Financial founder and managing director Colin Tate AM, Gonski told the forum that in isolation a skills matrix has some obvious shortcomings.
“The skills matrix, which everybody says is the solution to everything, is a good thing to look at, but it doesn’t solve everything,” Gonski said.
“As a proponent – and I continue to be – of women on boards, if you ask women whether they have a skill in a particular area, they almost always say they don’t; and I, as with other men, almost always believe I have skills in all areas,” he said.
“We’ve got to be a little careful of skills matrices, and indeed, how you actually question people that they actually have the skills or don’t have the skills that are looked at there.”
APRA’s paper proposes that funds – large and small – meet higher minimum requirements to ensure fitness and propriety of their responsible persons; and to engage proactively with APRA on potential appointments.
Always-on
Gonski suggested the boards can likely head off most of a regulator’s concerns by being proactive and treating the appointment of new directors and the issue of board renewal as an always-on proposition.
“I have always felt that one should, firstly, always be a step ahead of the game – always keep a list, whether it’s in the back of your mind, or preferably on a piece of paper, or a computer listing. An active nominations committee is very useful in allowing one to be ahead,” he said.
“When you have a vacancy, the pressure is on, and it’s very hard to find – under that pressure – the right person, unless you’ve already started on it.
“The benefit of keeping lists is that you can keep looking at that list without the pressures and be saying, we said that person was right, but maybe they’re not; and then maybe you should look at why they’re not, because you’re changing, and your requirements are changing.”
The role of the chair of the trustee board in overseeing this process and in ensuring the smooth functioning of the board cannot be overstated. A key aspect of a well-functioning board is to avoid the temptation to appoint mates to it.
“I think the chair has a big input on appointments, but not to appoint their mates – and by the way, having mates on one’s board is a very difficult thing,” Gonski said.
“Often the press talk about chairs wanting to put mates on boards. It is not a good idea, because you almost always lose the mate. If you’re doing your job right, you’re not necessarily going to favour just what they say. Alternatively, you may be insulted when they don’t think your thinking is brilliant all the time.”
Independence
Gonski said the definition of independence in relation to directors generally is ill-conceived, and some individuals who might not fit the legal definition could otherwise be extremely valuable contributors. However, he believes truly independent directors are a critical element in good governance.
“I believe strongly that independence has to be well-defined, bringing people in who are not involved in the particular sector that the super fund represents [and] who are separate from the bulk of the representation that’s there, is a good thing,” Gonski said.
“And by the way, those ‘independents’ provide a double-check for those round the board table generally.
“But in choosing them, you don’t obviously choose someone who hates unions when there are a lot of union representatives there. You don’t choose somebody who is against superannuation, or, for that matter, as in my case as chair of an airport, you don’t choose someone who is against air travel.
“On the other hand, there’s a long way in between. People who can think and are experienced in their field of endeavour; people who are caring; and people who will constructively question, I’m in favour of involving them.”
Gonski said boards should be constantly vigilant about the skills or representation they’re missing, so that when the time comes, the best person for the position is appointed.
“I would strongly think that what you look for is what you’re missing.” he said.
“Keep being absolutely objective in terms of what the board does and can do, and also what the candidate does and can do, and then basically also say, ‘Will this person fit in?’. Not as a comrade, you’re not looking for friends; but as a person who can work towards the end game of the enterprise, or the beginning of the next chapter. One should be looking for board members who work collegiately, but questioningly.”
A better experience
At the end of the day, a board with independent thinkers, a variety of opinions and views and a diverse set of characteristics and skills not only works better for the members of a fund or the shareholders of a company, Gonski said it’s also a better experience for the chair.
“I’ve learnt that the more questioning and better directors that I have on the board, the better experience it is for me, the more enjoyable it is, and to be honest, the less terrifying,” he said.
“I much prefer the non-combative, questioning person who you respect and who will nevertheless really give you quite a tussle to get your view through.”
