SMC backs principles-based approach to corporate governance

Super Members Council (SMC) has championed the flexibility of a principles-based approach to corporate governance as essential for effective oversight, risk management, and accountability, warning against a 'tick-the-box' approach in its submission to the prudential regulator's Governance Review.

"SMC supports changes in the prudential standards that aren't overly prescriptive and continue to empower entities to find the most efficient and effective ways to meet regulatory responsibilities as they relentlessly focus on delivering for their members," it said.

SMC also supported APRA's proposal for significant financial institutions (SFIs) to conduct independent third-party performance assessments every three years, covering boards, committees, and individual directors.

"While there may be increased compliance costs for some entities, the positive impact to improved governance could result in long-term reduced operational costs," SMC said.

"To offset this, SMC recommends the annual assessments be progress reviews evaluating the implementation and impact of recommendations made in triennial reviews.

"This will give entities the opportunity to track progress of those larger issues identified in the triennial reviews and reduce administrative burden annually."

SMC also welcomed the regulator's proposal to clarify the roles of the board, chair, and senior management, which it said will support boards to focus more effectively on strategy, risk, and oversight, and reduce time spent on operational matters."

SMC is also supporting the proposal to document director skills and capabilities and introduce a director-tenure limit of 12 years at any individual fund. It also said that criminal history and compliance checks are important steps in assessing fitness and propriety.

However, SMC urged the regulator to ensure board composition reflects a broad range of skills and expertise, cautioning that an overemphasis on specialised technical skills for individual directors could create an overreliance on select individuals.

It also called for the regulator to refrain from extending its remit to interviewing prospective director candidates and opposed the inclusion of highly subjective terms such as reputational risk, perceived conflicts, and personal affiliations, in the prudential standard on fitness and propriety assessments.

SMC chief executive Misha Schubert said good governance is fundamental to advancing the interests of the millions of Australians with savings managed by profit-to-member super funds.

"New research shows profit-to-member super funds with equal representation boards have consistently and significantly out-performed retail funds with nonequal representation boards. They also retain more members, indicating stronger member trust and satisfaction," she said.

SMC noted that the top 10 performing super funds over the decade to 30 June 2024 were all profit-to-member funds with representative governance models.

It said over the past four years, super funds with equal representation boards generated $26 billion in extra value for members above a benchmark portfolio. In contrast, funds with non-equal representation boards lost $300 million relative to the same benchmark.

"The strength of profit-to-member super funds is that their equal representative governance model delivers a diversity of skills, experience and perspectives into board decision making, and puts members at the very centre of their purpose," Schubert said.

"Governance reforms should enhance this model, not undermine it."