by Trevor Dixon*
With the final steps towards the mandating of independent trustees for super funds being spelt out, they should now be making the most of the opportunity to benefit from a more diverse pool of trustees. Lessons learnt in the effective governance of corporations, including trustees trying to avoid the middle-aged-white-male syndrome, should be applied as super funds embrace this change.
The proposed changes enable the funds to build upon the recent backoffice improvements through implementation of SuperStream and to take advantage of the innovative environment now upon the Australian fintech and general payments sectors.
Following a period of public review and comment, the Government last week announced that it intended to provide more detail on the definition of ‘independent’ in the law, rather than in APRA’s prudential standards, in order to provide greater certainty around the legal obligations of trustee boards.
A three-year transition person will be allowed (subject to the funds demonstrating an intent to change via a formal transition plan) from the date of Royal Assent. During that period an APRA compliant transition plan will govern the trustee arrangements rather than either the current equal representation rules or the new independence requirements.
APRA has also confirmed that the “one-third” rule will apply to committees – and not the equal representation originally proposed and clarified that the independent chair can be included in the one-third count, generally.
APRA has released a Discussion Paper, two updated Prudential Standards and two updated Prudential Practice Guides for comment. Comments are due by October 23. The Government and APRA expect to have the new governance arrangements finalised by the end of calendar 2015
Super Funds should take advantage of the chance to restructure boards to add value. While a lot of the “noise” around the push for independent trustees has come from a comparison to the governance arrangements in companies – particularly listed ones – super funds should not simply look to the structure of existing corporate boards for their touch-points.
In implementing their plans to transition to the new arrangements, trustee boards need to learn from the experience of corporate boards, but to apply the new flexibility in the context of the particular needs of a superannuation trustee board.
For example, it has been well documented that diversity on a corporate board leads to better decision making and can lead to avoiding traps such as group think at a board table. Having a broad range of views fosters creativity and opens up a decision making body to a greater range of perspectives. Given the market environment facing super funds, adding greater diversity to the trustee boards making forum can assist in preparing them for the future challenges.
While previous commentators have focused on the need for boards to consider the pool of talent available in the “traditional” superannuation fields of financial markets, asset allocation and risk management, it is my view that superannuation funds should take this imposed opportunity to take a broader view of the likely pool of talent for eligible trustees.
For example, the financial community is abuzz with claims of “disruptors” coming into the space. In reality, these disruptors are simply acting to realise the consumer dreams.   I see them as value adding rather than otherwise. Super funds could do much worse than to look to that cohort for likely candidate trustees.
Having such a focus could help position them to better take advantage of the investments they have made in complying with initiatives such as SuperStream and ready them to take advantage of the impending New Payments Platform.
By focusing on the benefits of the increased diversity available rather than the interpretation of “independent”, forward thinking super funds can position themselves well for the future.
In developing their transition plans, super funds would also be well served to carefully consider the “headline” diversity issues such as gender (while super funds are ahead of corporate boards, the gender imbalance is still there), age, ethnicity etc. In that regard the lessons of corporate boards in tackling those issues could be a valuable tool.
However, one of my favourite illustrations of the benefits of diversity comes from another field – the rescue of Captain Phillips in 2009. While the 2009 kidnapping and rescue of Maersk Alabama Captain Richard Phillips was widely reported and made into a feature film starring Tom Hanks, what is little known is the role of the commander of the multinational task force that saved him Michelle Howard, an African-American woman. (Michelle Howard has gone on to be a Rear Admiral in the US navy.)
Howard coordinated the complex tactical plan to rescue Captain Phillips, who was taken hostage after Somali pirates boarded his container ship. She was only three days into her transition from a desk job in Washington to the helm of the USS Boxer. As she recounts the events, a key part to the timely rescue of Captain Phillips was her upsetting the normal “command order” and instituting a diverse decision making group (made up of seamen and medicos rather than ranking officers) that quickly alighted on the successful rescue plan and tactics.
Super funds should seize the chance to capitalise on the opportunities that diversity on a board will bring.
*Trevor Dixon is a Sydney-based consultant in investments and superannuation. He recently served as general counsel and company secretary of the BPAY Group and is a Fellow of both the Governance Institute of Australia and the (international) Institute of Company Secretaries and Administrators. Email: tdixon@bigpond.net.au