Superannuation governance is once again in the media spotlight.


Against the background of the royal commission into unions and corruption, questions have been raised about the merits of the representative trustee system – the system of appointing equal numbers of directors to not-for-profit superannuation funds from employer and employee organisations.

Recent media coverage has focused on revelations of a privacy breach in one fund, which is a serious matter. This has been recognised by the fund concerned, which has asked former ACCC chairman Graeme Samuel to examine its governance.

But to claim – as some have – that this particular incident is indicative of a widespread failure of the representative trustee system is ridiculous. As Dr Scott Donald, a leading researcher into superannuation governance from UNSW, has noted, there is a strikingly low incidence of regulatory infringement by superannuation trustees, compared to company directors or public officials.

The Australian Institute of Superannuation Trustees has long argued that one of the key benefits of 'representative' directors is that they are independent from the fund's management and are therefore free (and obliged by law) to act solely in members' best interests.

Diversity is also a benefit.  Where else but in an industry fund boardroom would you find a senior engineering manager, a director of a top 50 ASX company, a union official and a lawyer sitting around a table engaged in a healthy and vigorous debate about the pros and cons of investing in a multi-million dollar infrastructure project?

This diversity comes about because of the way trustee directors are appointed by the fund's employer and employee sponsoring organisations. These sponsoring organisations either nominate or elect an equal number of directors to the board. In addition, some funds appoint non-representative (independent) directors. Importantly, no one group of directors can dominate key decisions made as, by law, any decisions put to a vote must win a two thirds majority.

The representative trustee system reflects both the occupational heritage of Australia's compulsory super system and the view that a mutual ownership structure is critical to delivering the best retirement outcomes for Australian workers. This view is underscored by the consistent and undisputed long-term out-performance of funds with representative trustee directors.

Commenting about the behaviour of corporate boardrooms in the aftermath of the global financial crisis, the European Commission noted that many corporate boards lacked diversity of thought, resulting in too few directors being prepared to speak up and challenge the so-called experts.

There are plenty of examples in corporate Australia where directors are cut from the same cloth.  

By contrast, the large pool of more than 600 not-for-profit trustee directors is wide and deep. According to AIST data on our 64 member funds, nearly 100 employee, union and employer groups are involved in nominating or electing directors. In addition to the many different unions that nominate directors, employer-nominated directors come from a variety of sponsoring bodies like the Australia Industry Group, the Master Builders' Association and State Chambers of commerce, as well as State and Federal Governments in the case of public sector funds. Many of these directors work in 'day' jobs where they advocate for members. The term 'member representation' is not only part of their vernacular, it's in their DNA. As many a brow-beaten fund manager will attest, these people know how to negotiate and drive a hard bargain – all in the best interests of their members. 

Many of the superannuation reforms we take for granted – including key consumer protection measures and the compulsory superannuation system itself – were created out of vigorous debate within the union movement and the broader NFP sector. In appointing any director, super funds must satisfy fit and proper guidelines that are strictly enforced by the regulator. AIST's data shows that the formal educational qualifications and experience of representative directors are consistent with corporate sector boards. 

Far from being a quirky, out-dated governance system peculiar to Australian super funds, the representative trustee system is common to many overseas pension funds. Organisation for Economic Co-operation and Development data shows at least half appoint directors using the representative trustee system.

There can be no argument that the boardrooms of super funds must operate to the highest standards. In a compulsory super system such as ours, the Australian public should expect nothing less.

But without any robust evidence of a systemic governance problem in not-for-profit superannuation, the push to water down the representative trustee system would appear to be driven either by ideology or commercial self-interest, rather than any genuine concern about members' retirement savings.

The Australian Institute of Superannuation Trustees (AIST) is the peak representative body of the $650 billion not-for-profit superannuation sector which includes industry funds, public-sector and corporate funds. 


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