The planned $14 billion merger of industry superannuation funds Energy Super and Equip Super collapsed in late 2016 because Equip refused to have union representatives on the combined board of the two funds, the financial services royal commission has heard.
The two funds, which both serve electricity and related sectors, began to talk about merging early in 2016. Energy Super deputy chair Scott Wilson told the commission that the merger had the potential to boost capacity of both funds and that Energy Super had been looking for a merger partner for some time.
Energy Super had an older demographic. “Our average member is probably around 45 with a very high level of funds under management, so a balance of about $150,000-odd.”
Merging with a fund with a younger demographic would provide long-erm growth for the fund, it was felt.
A report by KPMG found that a potential merger could have delivered members of both funds a total of about $21 million, or 15 basis points of return increases annually. Potential areas of gains included 13 per cent in investment management, 35 per cent reduction of directors fees, 20 per cent in administrative salaries and 40 per cent in marketing and communications.
Mr Wilson told the commission the benefits were significant – but not big in terms of the overall funds. “There was $20 million in savings in a $14 billion fund,” he said.
While the KPMG report had been positive, the deal began to founder over the potential makeup of its proposed board. Energy wanted a board of 10, with 50 per cent of members from both groups.
Equip wanted four employee representatives, four employer representatives and an independent chair. It also emphasised that directors needed to be chosen on the basis of skills, although they could come through agreed channels.
As discussions progressed internal jealousies and suspicions emerged, with an internal Energy Super email detailing that Mr Wilson and chairman Mark Williamson were working to pull the deal together. However two Energy directors, including Dave Smith, an Australian Services Union nominated director, were trying to undermine the deal.
Eventually Mr Wilson said the deal foundered on Equip’s demand that union nominated directors could not be put up by Energy. He claimed that a conversation between Mr Williamson and Equip chair Andrew Fairly had revealed “a potential killer or deal breaker would be any union nominated positions on the merged board. ”
“That was the opening exchange between chairs in what was supposed to be a merger opportunity.”
Equip went further, saying “we’ve worked for years to get rid of them [union nominated directors] and we’re not going to reopen the practice,” Mr Wilson told the commission.
Mr Smith said it would have been in the best interests of members for the merger to go ahead if Energy could have had the directors it wanted to ensure the deal was completed in a way that protected member’ interests.
“We look after members’ money from accumulation into retirement. If we can’t be guaranteed that an anti-union employer based fund is going to allow union representation on their board going forward what’s going to happen to our members…who is going to service them?”
Equip Super came out of the old State Electricity Commission of Victoria while Energy Super covers the Queensland power industry. Mr Wilson was nominated to the Energy board by the electrical Trades Union.
*The New Daily is owned by Industry Super Holdings