David Coleman (Banks, Liberal Party) Share this | Hansard source

I am very pleased to have the opportunity to speak on this important legislation, the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, which brings in place some very common-sense measures in the governance of superannuation funds. I think it is useful, before getting into the detail of the proposed legislation, to really reflect on what superannuation funds are all about and what is their goal. It seems to me that it is very clear of what the goal of a superannuation fund is—that is, to maximise the returns of investors. It is not overly complex as a goal. It does not matter really whether I am a fireman, a public servant, a lawyer or whatever job that I have; obviously what people who are members of superannuation funds want is for those funds to perform. So it seems to me that it is obvious that the structure of the governance of funds should be focused on maximising their performance.

In the corporate world, when boards are put together, it is customary for people with independent expertise to be appointed to those boards to bring forward their skills, their experience and indeed often their industry experience. A media company might have a number of independent directors and it would be quite typical for those independent directors to have a strong understanding of the media sector and, indeed, that is the case with many independent directors on listed boards.

But we have this curious situation at present—and I suspect this is something that is not widely understood in the Australian population—where industry super funds and corporate super funds, rather than drawing on the broadest possible range of skills in setting up their trustees, who effectively act as board members, have a different rule. The rule is not about bringing in independent expertise to assist in the management of the fund; the rule is basically about ensuring that the trustees represent particular constituencies that might have some interest in the fund. Generally that will be 50 per cent representatives of the employees and 50 per cent representatives of the employers. You may well ask: how can the fact that someone is representative of a particular group be related to their capacity to actually know what is important in managing a superannuation fund?

These are not small funds. We have about $2 trillion in assets under management in the Australian superannuation industry, many funds with tens of billions and more in them. Taking it back to first principles, what would you do? You would say: okay, how do we find people from the broader community with the best possible experience to assist in the management of these funds? The sort of people you would think would be logical would be people that perhaps have managed investment funds themselves or have worked in the funds management industry or who have other areas of related expertise. But that is in fact not how the system works today.

The way the system works today is someone comes along and says: I will represent the workers or I will represent the employer. Frankly, whether it is the employees or the employer, the inadequacy of that structure is very clear because the fact that somebody can represent employees, whether that is as a union representative or in some other role, has absolutely nothing to do with their capacity to manage a superannuation fund. These are completely unrelated skills. Anyone can put their hand up and say: I understand what employees in this sector are interested in and what their issues are and that is great. But how does that skill actually enable you to maximise the returns of a superannuation fund? It seems to me it is a completely separate skill set. The same applies to corporations as well because you might have representatives who are speaking for that corporation but the fact that someone speaks for a particular corporation does not mean that they have got the appropriate skills to actually manage a fund. Again, we are talking very substantial amounts of money here. It seems to me, as a point of principle, it is self-evident that drawing from the widest possible range of expertise is the way to go.

So what this legislation does is to say: rather than having this half-half system—which, as I said before, bears no relationship to the capacity of people to lead a large investment fund—let us at least ensure that just one-third of the directors—trustees, effectively acting as directors—are independent. That is important because the act of appointing independent trustees means that the narrow interests of the corporation or the industry, or, indeed, the employees, are not so paramount as they are today where in fact the only people who are appointed are people who represent one of those two narrow sectional interests. So what this will require funds to do is to say: 'All right; if we've got, say, nine trustees on our board, at least three of them will need to be independent.' It is very, very hard to understand how, on any objective basis, one could oppose that proposition. It is far from a radical proposal to say that one-third of the trustees should be independent. If they are independent then, presumably, the other trustees will be seeking to find independent trustees who have relevant expertise. That can only be a good thing.

It is also good that the legislation will require that the chair of the board is independent. This is pretty much standard practice in corporate Australia of course. You do not want your chair to be too closely associated with the constituent parts of the entity. And it is absolutely right that the chair should be independent.

Funds will still be able to appoint other directors in the other two-thirds. They might choose to represent employees or employers or whoever, but one-third will be required to be independent. Again, it is very, very difficult to understand why those opposite would seek to oppose such a sensible measure.

The support for this concept of independence is widespread across the community. The Financial Systems Inquiry recommended such a change. A quote that I particularly like from the Murray review is:

… it is more important for directors to be independent, skilled and accountable than representative.

In a sense, as I said before, somebody might represent employees in, say, the construction industry, but how is one's capacity to represent employees in the construction industry in any way related to one's capacity to manage tens of billions of dollars in superannuation assets? They are completely unrelated. Having to find one-third of the members as independents will require these boards to look further afield.

Of course, as the Murray review said, as more fund members exercise choice, directors appointed by employer and employee groups are less likely to represent the broader membership of the funds, and of course a lot of these big industry funds might have started out representing a particular industry but now have hundreds of thousands of members from all over Australia. So why should the composition of their boards be so limited?

It was good to see Paul Howes, the prominent former head of the Australian Workers Union speak out in support of these changes. He said:

It has been disappointing to see a knee-jerk reaction against the call for a more independent governance model …

…   …   …

… the evolution of the super industry is important and I can't see anything negative in having more independents on boards.

That is really the essence of it. What could possibly be negative about requiring more independent representatives to be on boards?

As we look at the range of support for these measures, it is extremely widespread. National Seniors is a group that represents many Australians, and they see this measure as a step towards international best practice which will instil greater confidence in Australia's big institutions. The chair of Qantas Superannuation, Anne Ward, has spoken out in favour of these reforms, as have many other people.

So it is a real question as to why anyone, really, would oppose the concept of increasing the independence of the governance of superannuation funds. It is a self-evident proposition that it should be widely supported in this House.

There is another important provision in this bill. Whilst only one-third of directors are required to be independent, the legislation does in fact require boards of funds to report to APRA if a majority of trustees are not independent and to explain why. So it is not required to have a majority of independent directors, but it is required to explain the rationale for not so having. Again, it would have to be a pretty compelling rationale, when you think about it, because what the advocate of that position would have to say is: 'Despite the fact that here in Australia there are thousands of people with immense experience in managing large amounts of money in superannuation funds, infrastructure funds and all sorts of sophisticated investment vehicles, what we have chosen to do is actually not to use them for a majority of our trustees and we have instead decided to appoint some employee representatives,' say, who typically would be union representatives. So it would be, I think, very interesting to see how those funds would justify doing that, because there is no relationship between someone's capacity to advocate for employees as a union representative and their capacity to manage tens or hundreds of billions of dollars. I think that point is self-evident. You do not say: 'Someone is a strong employee advocate through a trade union so, therefore, let's make them the CEO of the company.' You do not say: 'They're great at advocating in industrial disputes so, therefore, let's appoint them to the board of the Commonwealth Bank.' As a general principle, you will apply skills where they are most useful.

We have a very odd situation in this sector that I suspect is unique in the composition of boards in pretty much any aspect of the Australian economy. Rather than looking at the underlying skills of the individuals involved, we look at their capacity to represent a particular constituency. Of course, company boards are not structured in that way. People are appointed for their capacity to act in the best interests of the company and there is a strong emphasis on independent directors. There is a lot of skill out there. We are fortunate in Australia to have such a strong financial services sector. Our superannuation system is one of the largest in the world. As a nation I think it is fair to say that we punch above our weight in financial services. Indeed, the financial services sector, as we look at the changes in digital disruption, presents immense opportunities for Australia.

This is not an area in which we lack expertise as a nation; this is an area where, along with agriculture, resources and one or two other sectors, we have a disproportionately strong position. We have lots of expertise to draw upon. This legislation says, 'Fund, we're going to require you to draw upon that expertise for at least one third of your trustees and we're also going to require you to have a chair who doesn't represent the narrow sectional interests of one particular group but represents all members who are part of this fund and has the primary overarching goal of maximising the returns of the fund.' It is very simple, straightforward legislation. It is, frankly, overdue and I commend it to the House.

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