(Pictured: Pam McAlister)
Since Arthur Sinodinos stood down as assistant treasurer early this year, speculation around compulsory structural changes to super fund boards, which he had proposed, has also died down. But most people in the industry believe the trend for more independents is inevitable. Mercer has surveyed some big funds about their readiness.
The Mercer report on superannuation governance, published last week, surveyed 33 senior executives of big funds. It found that 57 per cent of funds did not currently have independent directors and 11 of those 19 who don’t also said they believed they would not be making any changes. Eight thought it was probable or possible that they would appoint independent directors within the next two years, but five of that eight said they would do so only if it became a legal requirement, the report said.
Pam McAlister, Mercer partner and senior governance consultant, said: “It’s hard to argue super funds should be held to a different standard of governance to those applicable to Australian listed companies and Insurers. They all have requirements for a majority of independent directors on the board, but we believe the super industry should remain focused on ensuring the right mix of skills and experience, not just on independence, however that concept may be defined.”
She said, with the growth of funds and their increasing sophistication, it was a different world for trustee boards. They needed expertise in investment, governance, risk management, remuneration, insurance and marketing, along with the interpersonal skills to enable a diverse group of people to work seamlessly together.
Of the 14 funds that did have independent directors: eight had an independent chair of a committee – most commonly an audit related committee, but only four had both an independent chair of the board and a committee. Three had neither an independent board nor committee chair.
Funds were asked about the confidence of their trustee boards in decision making, with the results wavering depending on the topic. On the big issues such as setting fund strategy, risk management, strategic asset allocation or selecting a new CEO, confidence was high. However, confidence dropped dramatically for decisions around selecting or replacing investment managers, medium-term dynamic investment decisions and effective member communications and marketing strategies.
The report said 66 per cent of funds surveyed had no formal succession plans for trustee directors. Where formal plans did exist for some roles they all covered member nominated directors – 71 per cent covering employer representative directors, but only 43 per cent covering independent directors.
“The apparent lack of succession planning within some funds is worrying. The pool of talent for independent trustees in Australia is limited and well-run funds should have clear succession plans to protect the future security and stability of the fund,” McAlister said.
“For years, super funds have been voting on remuneration reports for public companies in which they have held an investment; now the light is being directed towards the funds themselves and the resultant glare has the potential to be blinding if not correctly handled through clearly articulated remuneration policy,” she said.
View the full report.