Beware creep of cancel culture into super fund governance: Lawyer

The prudential regulator is calling for the consideration of perceived conflicts of interest and reputational risks when appointing directors, and while it's easy to think of cases where this would be appropriate, Gilbert + Tobin partner Luke Barrett told Financial Standard care must be taken in how it's done.

"A perceived conflict of interest isn't necessarily a real one. If it were an actual conflict, there's already an obligation to manage it. So, when a regulator talks about factoring in perceived conflicts, care needs to be taken that we're not opening the door to far-fetched, fanciful considerations..." Barrett said.

"It would be a concern if a shifting focus to perceived conflicts of interest and reputational risks - arising from changes in an individual's personal circumstances - became code for virtue signally, 'woke,' or knee-jerk reactions to current events playing out in the news.

"When APRA says a change in personal circumstances should trigger a reassessment of someone's fitness and propriety, what kind of circumstance are we talking about?"

Barrett raised concerns about whether placing greater emphasis on reputational risks and perceived conflicts of interest could result in individuals being disqualified from board positions based on "unproven or unsubstantiated allegations." At the same time, he acknowledged there are cases where such considerations would be "entirely appropriate."

He questioned whether, when appointing superannuation directors - which is a function of the basic equal representation rule and corporations legislation that entitles shareholders in companies to appoint directors - controversy surrounding an appointing organisation necessarily taints every individual it puts forward, suggesting this is something already starting to play out.

"The changes aren't an improvement if this opens the door to cancel culture creeping into prudential regulation. Just because someone worked for an organisation on the receiving end of bad publicity shouldn't necessarily eliminate them from the board when they might have outstanding experience and deliver considerable benefits to members," Barrett said.

Barrett also noted that while APRA said it will magnanimously stop short of outright vetoing appointments, failing to take its feedback on board could see a fund placed under heightened surveillance.

"Not all the proposals will be cheered on. Funds will have to wrestle with the idea of APRA giving themselves a ticket to recruitment processes when directors and executives are being appointed. They will have to make appointment decisions in the best financial interests of their fund with the sword of Damocles hanging over their heads," Barrett said.

Nevertheless, Barrett sees some merit in the proposals, which he believes will be welcomed by directors in superannuation, insurance, and banks. For him, the best initiative is the move to allow boards to delegate more operational matters to board committees.

"When I talk to directors, it's a common complaint in the superannuation community that board packs can be 700 to 800 pages long, and a substantial proportion of those papers relate to approving policies and other operational matters," he said.

"APRA rightly calls out that a board's role is to govern and should be focused on strategic and corporate cultural questions, setting that tone from the top. So, I think that will be welcome."

The Australian Superannuation Fund Association (ASFA) also backed APRA's proposals, with its chief executive Mary Delahunty saying the sector is well aware of its responsibilities in adhering to the highest governance standards, standing ready to work with the regulator.

"Australia's superannuation sector manages close to $4.2 trillion of super contributions to help members achieve a dignified and enjoyable retirement. That's a huge responsibility and one trustees take very seriously, so we have always been keenly focused on ensuring funds are well governed and best prepared to navigate uncertain times..." Delahunty said.

"...we look forward to working with APRA in this important endeavour."