Holding super fund trustees to account

Should the directors of superannuation funds be held to a different set of standards to those who are members of the board of a publicly listed company? A Super Review roundtable decided to find out.

Mike Taylor, managing editor, Super Review: Fund governance has come up a couple of times. Mr Jones, the deputy chair of APRA spoke yesterday in the regulator session regarding treating directors of super funds as somewhat different to the directors of a publicly listed company. 

So my question is, should the directors of super funds be held to a different set of criteria to those who are members of the board of a publicly listed company? Is there something that really makes it that different? 

Danielle Press, chief executive, Equipsuper: Well, to start with it’s different law because it’s trust law and trust law means your fiduciary in that has different obligations. My feeling is that trustees should be held to at least the same standard as a company board, if not higher. 

VIEW ALL

View all

Russell Mason, partner, Deloitte: I think higher. If I’m a shareholder I think I’m expecting it.  

Danielle Press, Equipsuper: I did say at least. 

Russell Mason, Deloitte: Yes. I think if I’m a shareholder, I’m expecting certain things from the directors of a company.

I’m expecting them to take perhaps a different set of risks, a different set of actions than the directors of a trustee of a super fund, where often as we all know they are unengaged and naÔve members.

They haven’t got perhaps the knowledge; there needs to be a lot more trust; they’re relying more heavily on the action of the directors. 

So I’m quite supportive of Ross Jones in saying yes, the bar should be lifted for directors of super funds. I think in the main when we look at the super funds around that all of us are involved with - that they act very prudently.

I think they’re acting to that level in most cases. I think we’re lucky, we’ve got a good trustee director system here and most directors that I see act very much in the best interest of members. 

Tom Garcia, chief executive, Australian Institute of Superannuation Trustees (AIST): That’s the key thing, isn’t it, is the idea that they’ve got to act in the best interest of members. They are there looking after other people’s money in trust and it’s now becoming a huge amount of money. 

So that whole idea that there should be higher obligations – I don’t think many trustees would think that that’s a big imposition because they’re probably already there.

It’s now just more so in writing, with the prudential standards coming into action on the 1st of July. Most of them would I think, as Russ said, pass quite easily.  

Brett Himbury, chief executive, Industry Funds Management: We’re in a fortunate position as a fund manager in that we are talking to trustee boards on a regular basis and we’re also assessing company boards as an investor. 

I have a high degree of confidence in the competency, generally speaking, that you see in the trustee boards and their unrelenting focus on the member.

You’ve got to see it to see how real it is across these trustee boards. They’re fiduciary, but just their moral compass and their focus on you know the member. 

Frankly it’s probably not going to win a whole lot of friends in the corporate board community, but I would like to see a higher level of certainly outcomes in the Australian listed markets, and ultimately that comes down to the boards of the companies.

I think there’s been some pretty average outcomes for many shareholders across a lot of companies over a long period of time – and ultimately that’s got to sheet back to the boards. 

Alex Hutchison, chief executive, Energy Industries Super: You can look at my share portfolio.  

Brett Himbury, Industry Funds Management: But I hope you understand what I’m saying. We’re in a privileged position and we get to see both groups, if you like.

I’ve got a whole lot of confidence in the veracity and competence of the trustee groups.

We’re relatively confident in the Australian board system, but I think there are pockets that have not been good for a long period of time, whereas I don’t know that we can say that in the superannuation board system.  

Mike Taylor, Super Review: Alex? 

Alex Hutchison, Energy Industries Super: I think it’s correct to say that there’s obviously a different set of legislation which places an increased obligation on trustee boards and I think it works very, very well so I absolutely agree with that. 

There are fiduciary duties within the corporate sector as well. What’s kind of interesting from an APRA point of view is if you look at all the new prudential standards, in a lot of ways, dare I say it, they’re a mirror image of the standards they have for Australian deposit-taking institutions (ADIs). 

So if you kind of look at it from that point of view, what you’re seeing is a harmonisation between ADI standards and superannuation standards.

Essentially those same standards – at the standard level – now apply across the board.

But I would argue from a legal point of view that if you look at the case law on director’s duties etcetera, essentially other than the legislation which obviously takes precedence under the SIS Act, there’s no real additional obligation. 

So it’s a bit of a round-about way, and I don’t know that the two areas necessarily neatly measure at this point in time.

But I’m happy that trustees have an increased obligation, only because of the SIS obligations, not because of any of the court interpretations if you look at the case law.

It’s still essentially the same. But then you almost can end up with dual positions: that if I’m a director of an ADI, I could have a different obligation than if I’m on a trustee board – if I’m in a financial conglomerate, for example. I think that’s an interesting question to explore.  

Mike Taylor, Super Review: Peter? 

Peter Smith, head of distribution, group insurance, Metlife: I think from my experience they’re just unrelenting on looking at members, and I certainly don’t think there are any issues regarding trustee boards in Australia. I think they’re very professional. I don’t think there are any issues.  

Danielle Press, Equipsuper: I think there are still skill gap levels in trustee boards. These are now financial institutions managing money in assets that I’m not sure that the trustee boards necessarily have experience in. 

I think that the industry is changing and developing at a great rate. I absolutely hear you on the “members first”, members obligations, I think it is amazing and it’s fantastic.  

When you start looking at new complex financial structures and derivatives and those sorts of things which I think can add value to members and can protect members in the downside, I don’t think the trustee boards in Australia understand those on average.

There are some boards that do, there are some people that do; but I don’t think there is enough investment skill on those boards to really be able to say that from a fiduciary perspective they’re actually managing the money in the way that they’re meant to.