Governance: Director quality and experience is the key

Super Review’s annual roundtable held at the Conference of Major Superannuation Funds has confirmed a willingness by funds to increase the numbers of independent directors but on the basis of quality, than politics. This is part one of the roundtable.

Mike Taylor (MT) (chair) – managing editor, Super Review
David Haynes (DH) – policy director, Australian Institute of Superannuation Trustees
Andrew Proebstl (AP) – chief executive, legalsuper
Brian Zanker (BZ) – head of business development, Mercer
Robin Petrou (RP) – chief executive, Energy Super
David Bardsley (DB) – director, superannuation, KPMG
Jocelyn Furlan (JF) – consultant, former Superannuation Complaints Tribunal chair

MT: So governance and there’s been a fairly solid divide of the industry about that. I mean on the one side you’ve got the retail funds and the FSC [Financial Services Council] saying one version of events which is coinciding with the government and we’ve got the AIST/ISA [Australian Institute of Superannuation Trustees/ Industry Super Australia] approach to it. So David, kicking off with you, where are we headed with governance given that the minister keeps saying they’re going to do something but they haven’t yet?

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DH: Well, there’s a political dimension to this, Mike, and while there is an enormous amount of work to be done in the industry in terms of improving efficiency and bringing about other positive changes, the government instead seems hell bent on making changes which are consistent with a more narrowly ideological agenda. And that’s not just in relation to governance but I think we’ll see it next week with the release of the Productivity Commission’s paper in relation to selection of default funds and where they take that. Whereas other measures which should be taking centre stage are getting left behind.

MT: Robin?

RP: Well I think politics is absolutely right. We’re in the middle of politics. But I think we’ve got to come back to the very basics and it’s more about the directors that you have around the table and the quality and skills and knowledge that they can bring to the table. We seem to be caught up in the idea that skills and knowledge can only come through independents but I don’t think that’s true.

I think we also need to recognise that skills and knowledge can come from multiple ways and not just university degrees but it’s also about keeping in touch with members. And that’s been a very important part of the industry superfund movement and the governance rules. It’s really about making sure that we’re actually providing for a membership and that membership has traditionally been by industry and I still think that’s a very powerful way to manage super retirement outcomes through individuals.

DH: And when you say keeping in touch, it’s not just about keeping in touch, it’s actually about representation and it’s about accountability. And I am amazed at how little those two words actually get air time. This is about ensuring that you are properly working in the best interest of members. How do you know who your members are? How do you know what they want? How do you know that they’re authentically being spoken – their interests are being articulated in the boardroom?

RP: That’s right. Thank you David.

MT: Jocelyn?

JF: I agree with everything that’s been said and I think that in real life there aren’t issues at the board table, certainly from my experience as a trustee there hasn’t been an issue at the board table where there hasn’t been a single director sitting there wanting to act in the best interests of the members and with the representation, knowing the membership. And there’s not a divide between member representatives and employer representatives that I can see.

So again, I don’t see the need for change given that I don’t think it’s broken the way it is. And I think that the goodwill of the superannuation system, of the profit for member funds, have given in the way that they’ve approached being trustees of superannuation funds for the benefit of the members has actually worked extremely well which is why there haven’t been scandals and issues that you see in other sectors. And it is an ideological thing clearly of the government but I don’t see in real life the need for change.

MT: Brian?

BZ: Probably from my perspective I’d say – I pick up on Robin’s point that it’s the quality of the person around the table rather than purely the independents base. But I think superannuation is a pretty simple concept.         We’re all acting in the interest of trying to get the best outcome for a member that we possibly can. Sometimes I think that gets lost.

And one of the things that I’d probably say is if we, as an industry, could all get together and perhaps lose the industry fund/retail fund slant, because we’re all trying to do exactly the same thing. There isn’t much of a difference and it should be about net outcome for members, so who’s actually – where is the money better off? Now I don’t represent the retail fund, I don’t consider us a retail fund. We probably should have a couple of the banks or whatever around the table but from my perspective I think we’re all in it to do exactly the same thing.

MT: Andrew?

AP: I guess on this topic of governance as an industry we’ve been discussing this issue and debating this issue for so long. And it’s such a drain on the time of directors and the executives that run funds and I’m concerned about the extent to which ultimately it ends up being a net drag, distracting us from the core purpose we have.

So I think therefore it’s time to move on and sort of bed things down in some way that everyone collectively to varying degrees feels comfortable with. I think the thing is that there seems to be sort of over time sort of growing comfortableness with the concept of boards having the flexibility to, at their wish, include independent directors if they believe that’s appropriate in their particular circumstances and I think that’s a good thing.

I think anything that gives a board more power, more capability to acquire skills and expertise, picking up Robin’s point, I think that’s a good step in the right direction because sometimes for various reasons there may be hurdles or barriers for directors, particularly skill-sets being acquired via the nominations of stakeholders and this sort of thing for various reasons. And I think having that capability to have a couple of independent directors in the mix, that the board itself actually determines who they are, I think that’s a good improvement on where we are currently.

MT: And the other David?

DB: Thanks Mike, it’s always good to go last. I do think that the equal representation model has worked extremely well to date. I think that the complexity of our sector and the profit for members sector in particular is going to necessitate the capability of the directors needing to move.

I think that the observation that Andrew, you made around the flexibility to appoint independent directors or ultimate directors that have additional skills and capabilities that complement what’s already in the board mix makes perfect sense to me. I do think that the sector and the decisions that are being made at the board level are far more complex today than they were even five years ago. I think about the magnitude of investment decision that’s occurring and the complexity that goes into appointing and managing significant investment mandates as an example, managing the new and evolving insurance arrangements is very different today than it was five years ago.

So the skills and capability needed to manage those decision making outcomes needs to be different. I think you can still complement the member interest through independents. Independents will still be independent, directors will still be mandated to protect the interest of members as opposed to traditional stakeholders, shareholders etcetera in the profit for members sector.
 

Part two

Part three

Part four