In the endless flood of government inquires and reviews – rarely translating to any tangible policy reform – there is good hope in the recent move by the Assistant Treasurer Josh Frydenberg to improve the governance of superannuation funds.
According to the new proposal, at least a third of super board members will have to be independent, as opposed to the usual ‘equal-representation’ model in most industry funds, where the board of directors is equally shared by the representatives of trade unions and employers. Additionally, the board chair will also have to be independent, and all directors will be under tougher scrutiny to disclose potential conflicted interests.
The call for changes has been in the political agenda for long. Both Cooper’s Super System Review and Murray’s Financial System Inquiry have commended for independent directors.
Yet, powerful lobbies are already leading fierce opposition to any legislation move. Unions – echoed by the Opposition Leader – argue industry super funds have delivered greater returns and are well administered, dismissing the need for changes.
However, a deeper look into the reality of governance in super funds points to the opposite, with recent allegations of cosy financial links between some industry funds and unions suggesting a bit more transparency is welcome.
Further, it is also claimed that part of the industry super’s superior return is mainly due to the artificial privilege of default accounts – which is also set to go – since it guarantees a steady flow of funds and therefore reducing liquidity risk costs.
In this sense, an independent board of directors is a great move forward, creating more transparency and alignment with best-practice corporate governance. Yet more needs to be done.
An independent board of directors is not itself a panacea for mismanagement. There must be a proper set of incentives and safeguards for board members to effectively monitor the super industry. Nonetheless, as it stands, the board independency proposal is still a step in the right direction.
Home > Commentary > Opinion > Super Independent Board: A step in the right direction
Super Independent Board: A step in the right direction
According to the new proposal, at least a third of super board members will have to be independent, as opposed to the usual ‘equal-representation’ model in most industry funds, where the board of directors is equally shared by the representatives of trade unions and employers. Additionally, the board chair will also have to be independent, and all directors will be under tougher scrutiny to disclose potential conflicted interests.
The call for changes has been in the political agenda for long. Both Cooper’s Super System Review and Murray’s Financial System Inquiry have commended for independent directors.
Yet, powerful lobbies are already leading fierce opposition to any legislation move. Unions – echoed by the Opposition Leader – argue industry super funds have delivered greater returns and are well administered, dismissing the need for changes.
However, a deeper look into the reality of governance in super funds points to the opposite, with recent allegations of cosy financial links between some industry funds and unions suggesting a bit more transparency is welcome.
Further, it is also claimed that part of the industry super’s superior return is mainly due to the artificial privilege of default accounts – which is also set to go – since it guarantees a steady flow of funds and therefore reducing liquidity risk costs.
In this sense, an independent board of directors is a great move forward, creating more transparency and alignment with best-practice corporate governance. Yet more needs to be done.
An independent board of directors is not itself a panacea for mismanagement. There must be a proper set of incentives and safeguards for board members to effectively monitor the super industry. Nonetheless, as it stands, the board independency proposal is still a step in the right direction.
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