NFP Super Fund Governance Review Must Put Members ‘First’

Giving members of Not for Profit superannuation funds the right to vote trustee directors in or out and hold them accountable will mean better governance outcomes for the funds, according to a Governance Institute of Australia submission to the Fraser Review of governance arrangements.

“There’s been a great deal of controversy around how many independent directors should be on the board of a NFP super fund and what constitutes ‘independence’, but that debate could be resolved if members were simply granted the right to elect directors of their choice,” Governance Institute Chief Executive, Steven Burrell, said.

“There can then be no dispute about ‘independence’ because the members themselves have chosen the directors they believe will represent their best interests.

“Good fund governance starts with the basic principle that members must have a voice. Yet at the moment, members of most funds have no say in who represents their interests. That is currently decided by third parties.”

In December 2015, Industry Super Australia and Australian Institute of Superannuation Trustees asked the former governor of the Reserve Bank of Australia, Bernie Fraser, to lead a Review of governance arrangements in Not for Profit superannuation funds, and to propose a best practice Governance Code for such funds. Submissions closed this week.

Burrell said members of other NFP organisations have long had the ability to vote in directors of their choice and to hold them accountable with their voting power.

“There’s no reason why NFP super fund members should not have the same rights in view of the growing size and importance of the retirement savings industry,” he said.

“With Australian superannuation now comprising the fourth largest pool of savings in the world and rising, members have a significant financial interest in their funds and every reason to be engaged in their investment.

“If, as the announcement of the Fraser Review rightly points out, a key distinguishing feature of NFP funds is ‘the overriding primacy of members’ interests’, there can be no basis for continuing to deny fund members the right to vote directly for directors they believe will act in their best interests.

“Board composition and independence comprise only one element of the governance ‘big picture’.  A comprehensive governance framework encompasses the entire system by which the fund is controlled and its governing body held to account and promotes integrity, transparency, accountability and proper stewardship.

“Given this, we think the Fraser Review should consider not only adopting a wide-ranging fund governance code similar to the ASX Corporate Governance Council’s principles and recommendations applying to listed entities, but also ensure that there is a disclosure obligation to members about how their super funds track against the code’s recommendations.

“Like the Council’s principles and recommendations, the recommendations in the code would not be mandatory but an ‘if not, why not’ disclosure requirement would promote transparency to members.

“This would allow members to judge for themselves whether they agree with the approach to governance taken by the trustee directors. And, if members had the right to elect candidates for the trustee board, then those disclosures would be the key to members’ decision making.”