Fraser Review compounds board independence impasse
Wednesday, 9 March 2016 9:58am

If no government is brave enough to mandate one-third independent directors on superannuation boards then funds should at least be accountable to members for their hires via an industry-wide governance code.

This view is a key theme from responses to the independent Bernie Fraser-led governance review, called for by Industry Super Australia and the Australian Institute of Superannuation Trustees, and reflects little commitment by respondents on a governance legislative bind.

As with any independent industry review there will be criticisms and one striking submission has come from Women on Boards chair Ruth Medd, who has challenged the review's existence.

Medd said the terms of reference of this review are broadly a review of governance arrangements in respect of not-for-profit superannuation funds based on two claims: their focus on the overriding primacy of members' interests; and they can point to sustained outperformance in the returns they deliver to their members compared with other groups of funds.

"Neither of these claims will stand up into the future," Medd says.

She adds matters of improved governance have been in the sights of the Australian Prudential Regulation Authority (APRA) for a number of years and "this review focused on the not for profit sector will likely contribute at the margin only."

Women on Boards believe more independent directors should give women a fairer chance of being appointed and would in turn benefit female fund members.

The group shows that in 2015, retail super funds had the highest percentage of female trustees, at 33.3%. Industry funds (22.6%) fell below the top 200 super funds average of 26%.

Industry Super Australia deputy chief executive Robbie Campo said both ISA and the AIST have had a long standing commitment to greater gender diversity on boards and is important in a board's composition, but is not necessarily tied to independence.

The Club Super and QIEC Super submission paints a collective view that independent directors on boards "is not in itself considered to be a governance strength or weakness, but rather a reflection of the circumstances of each particular fund."

As at 30 June 2015, APRA data shows about 7% or 74 of the 1130 directorships on boards of APRA-regulated super trustees were independent. This has remained steady for two years. The average board size was seven directors and average director remuneration was $40,884 per annum.

Superannuation industry consultant Willis Towers Watson supports implementing the governance code idea. The company's managing director Andrew Boal says the case has not yet been made for the compulsory appointment of independent directors.

"But it should be encouraged as best practice especially where it can add value to the overall composition and decision making of the board. In instances where a board believes that it does not need any independent directors, we would suggest they document their reasoning for future reference."

Queensland-based Club Super, QIEC Super, and IFAA Administrators and Advisers, also jointly support a governance code, and would rather it be "a set of guiding principles, rather than a binding set of requirements."

Former Sunsuper chief financial officer and current independent director and chair of the audit and risk committee at Nambawan Super Limited (Papua New Guinea), Bruce Wilson, says in the medium term the best outcome is "probably to adopt the draft legislative approach of having at least one-third of directors as independent but maintaining the two-thirds majority for board decisions."

National Seniors chief executive Michael O'Neill says it is the group's view that the one-third independent approach is a sensible way forward.

O'Neill further explains that National Seniors believe greater independence should not be an overriding objective and it "does not have a preference for any particular governance model. Instead, the impetus must be on ensuring board members are fit and proper and that boards have an appropriate mix of skills and experience."

The United Nations-backed Principles for Responsible Investment told the review it supports industry wide codes that embody the principles of good governance but admits "there is no one-size-fits-all approach to investment governance."

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