It’s easy to dismiss the announcement today by assistant treasurer Josh Frydenberg that the Abbott government is going to mandate more independent voices around the superannuation board tables of Australia as another ideological battle with the union movement.
But only if Jeremy Cooper hadn’t recommended something similar in his 2010 review of the superannuation system; or if it wasn’t one of the recommendations that David Murray suggested in his recent Financial System Inquiry.
What the government is planning to do is seek to introduce an independent chair and then have a number of independent directors around the table (one-third). This is only for APRA-regulated super funds not SMSF’s.
Naturally given the performance of industry funds over the years, they feel no change is necessary.
Indeed, Industry Super, the umbrella body for the industry-based superannuation funds tweeted that the changes were both “unnecessary” and “unjustified”.
Robbie Campo, deputy chief executive of Industry Super Australia said that the current model, where employees and members split the numbers around the board table, had “not only delivered the best performing funds, they have avoided the widespread consumer losses and scandals which have engulfed the major banks and wealth managers over recent years.”
That’s off topic.
It’s largely the sales forces at the financial planning divisions of the banks and the actions of those planners, not the performance of the funds, which is at issue in the private sector at the moment.
Which means Campo’s entreaty that “tackling the governance problems in other parts of the finance sector should be the priority,” is spot on.
To be seen as even-handed the Abbott government should take note of this and perhaps a financial planning inquiry isn’t such a bad idea after all.
They should do that because these are important reforms.
Unions NSW said “the McKell Institute report: The Success of Representative Governance on Superannuation Boards draws on 25 years of data and concludes there is no evidence that mandating independent directors on not-for-profit superannuation funds would improve fund performance.”
But Frydenberg said on his website that David Murray’s Inquiry had said “there is no evidence to suggest that the performance of these funds is driven by their equal representation model.”
Two reports, facing off, comparing apples and oranges.
The key here is that McKell says there is no evidence it will improve performance – not that it will hurt performance. While the Murray comment says it’s not the model driving the performance – not that the model is flawed.
That said the inclusion of independent directors with different backgrounds, expertise and perspectives shouldn’t hurt performance.
But, it should improve governance. Which is the key point in the global trend toward improved finance and financial institution management and governance structures since the failings exposed by the GFC.
Frydenberg also quotes APRA member Helen Rowell channelling the OECD Principles of Corporate Governance, pages 64–65.
The OECD said:
Including independent directors on boards is consistent with international best practice on corporate governance. Independent directors improve decision making by bringing an objective perspective to issues the board considers. They also hold other directors accountable for their conduct, particularly in relation to conflicts of interest.
APRA’s Rowell added that “in APRA’s view, the diversity of views and the experience that independent directors bring supports more robust decision making.”
That said these reforms should be welcomed by members of industry funds because they shouldn’t hurt performance and should improve overall governance.
Now for that Financial Planning Inquiry.