Drawing the political lines on superannuation

A strong perception exists that forthcoming changes to financial services regulations will unduly benefit the industry funds, writes Mike Taylor, but the political pendulum is capable of swinging the opposite way.

How many people hold positions on multiple superannuation fund trustee boards in Australia today? And, of those people, how many could be described as political or union operatives?

While, for the vast majority of members of Australian superannuation funds, these may seem obscure and possibly irrelevant questions, they are nonetheless issues that should be focusing the minds of superannuation fund executives — particularly those who keep a close eye on the ebb and flow of Australian politics.

On the conservative side of Australian Federal politics, two of the most often-mentioned issues over the past three years have been trustees serving on multiple superannuation boards, and the ability for superannuation fund trustees to act on mergers without any direct reference to fund members or particular oversight by a regulator.

Anyone working in the superannuation industry will know that those references point directly to a concern within the Federal Opposition parties about the power and influence of industry superannuation funds.

Further, the reference to multiple trustee board memberships directly refers to the power believed held by around a half-dozen industry fund luminaries.

What has prompted the particular attention of the Federal Opposition is that most of those half-dozen industry fund luminaries can be viewed as being linked to either the Australian Labor Party (ALP) or the Australian trade union movement, or both.

What the critics of people holding multiple memberships of superannuation fund trustee boards often overlook is that, not so long ago, the Australian Prudential Regulation Authority acted to lift the bar on what was required to become a superannuation fund trustee director.

However, notwithstanding any tougher requirements imposed by the regulator, the make-up of superannuation fund trustee boards is never the subject of a member ballot, with industry funds boards being made up of employer and employee-appointed representatives.

Of course, no one ever comments or objects to business luminaries with political affiliations holding directorships on the boards of multiple publicly listed companies, but the rules pertaining to the duties of company directors and those pertaining to superannuation fund trustees are somewhat different.

Unlike superannuation fund members, shareholders in publicly listed companies hold voting rights.

It is an accident of history and the evolution of the superannuation funds in Australia that, notwithstanding the billions of dollars being managed by trustee boards, the transparency of their conduct falls short of that expected of the boards of publicly listed companies.

Notwithstanding these issues, a person’s political affiliations and background should have no particular bearing on their capacity to deliver good and objective service as a member of any well-run trustee board of a superannuation fund adhering to the broadly accepted principles of corporate governance.

The problem, of course, is the legislated, compulsory nature of the superannuation guarantee; the beneficial taxation status superannuation funds have been granted; and the bloc that many of the industry funds have formed, which is perceived by many as having direct linkages to both the ALP and the trade union movement.

It is in these circumstances that the Federal Opposition has signalled that, were it to gain power in Canberra, it would be looking to alter the rules applying to superannuation fund trustees boards, including giving fund members a greater say by way of the ballot box.

The Opposition spokesman on Financial Services, Senator Mathias Cormann, made his views plain when he late last month suggested the scuttling of a merger between Vision Super and Equipsuper may have been the product of union-backed trustees acting to defend their position.

He made reference to perceived conflicts of interest on the part of trustee board members, “especially where some trustees serve on multiple superannuation boards or where the trustees have not directly been appointed by the members in the first place”.

Cormann’s words should be regarded as a shot across the bows of the superannuation industry, and a signal that a Coalition Government would act to change the current regulatory environment relating to the make-up of trustee boards.

At least a part of the motivation for such changes is the belief that it would act to strip away the perceived power of a number of individuals seen as influential in the industry superannuation funds movement.

For better or worse, the financial services industry changes being pursued by the Gillard Labor Government are being perceived as helping the industry superannuation funds.

It follows that if the political pendulum swings the other way, the industry funds will find themselves being viewed in a very different light.

The industry funds movement will have every right to defend its position, but it may find it very difficult to argue against giving individual superannuation fund members a greater say in appointing those they want to run their trustee boards.