The debate over changes to the eligibility criteria for appointing superannuation trustees has intensified, with industry and retail superannuation funds at loggerheads on a proposal to ban members from joining the boards of their super funds.
First Super chief executive Bill Watson believes that member representation on superannuation boards has been a driver of the historical outperformance of industry funds over retail funds.
He said that industry fund trustees had a strong record of acting in members’ interests and that he had never seen evidence of conflict between employers and unions.
“I’ve just never seen that,” he said.
“In terms of the boards that I have been involved with I haven’t seen any conflict between union and employer representatives.
“Both employer and union representatives work together very effectively to get the best outcomes for members.”
Government may ban member representation
The debate over the eligibility requirements for trustees resurfaced this week amid speculation that the Abbott government may legislate a ban on members, unions and employers having representation on superannuation boards.
While some industry funds have already appointed independent directors to their boards, most are opposed to government proposals to narrow eligibility requirements for trustees.
The Financial Services Council is pushing for reforms that would require all super funds to appoint only independent trustees to their boards.
In recent years, the Australian Prudential Regulation Authority has been advancing the merits of independent directors in the superannuation industry, but has not signalled that it wants a blanket ban on stakeholder representation.
The jury is still out on whether a ban on representative trustees would enhance corporate governance and returns to members.
Research published in July by the academic think tank, the McKell Foundation, found that representative trustee boards had generated better returns for fund members than the trustee structures adopted by retail funds.
“Representation is actually the model that most closely satisifies the objectives of meeting the best interests of members and maximising retirement incomes for Australians,” the report stated.
“The evidence for this claim is strong – the not-for-profit representative trustee model has outperformed its for-profit-appointed trustee competitors on virtually every important criteria of superannuation performance over a long period.”
The authors of the report, which included Professor Ray Markey from Macquarie University, also found that the representative boards promoted higher levels of diversity amongst trustees and minimised conflicts of interest.
Professor Sally Wheeler, one of the world’s leading experts on superannuation governance, told a University of New South Wales workshop last year that regulators needed to be careful about trying to engineer better board governance through independent directors.
“Good decision-making, the ultimate criterion on which governance needs to be judged, is not simply a matter of injecting a cadre of independent directors onto trustee boards across the country,” she states in a report.
“Policies that assume that structural independence is a panacea capable of addressing failures in group decision-making are simply a recipe for disappointment.”