Donald Hellyer is the CEO of OpenDirector and fintech development company BigFuture.
After 30 years, the superannuation fund industry has become enormous and now has a material impact on the Australian economy. Superannuation fund assets now exceed $3.4 trillion, some 35% larger than the whole capitalisation of the Australian stock market.
When Paul Keating and the Labor government implemented the superannuation guarantee in 1992, it also started the growth of industry funds. Originally these funds were to provide retirement for workers of a specific industry, but they are now “public offer” funds, meaning anyone can join them. Industry funds now have more than $1 trillion under management.
But superannuation fund governance, especially in industry funds, has not kept up with the rapid growth of funds under management. The most glaring example is how superannuation fund directors are selected and remunerated. Members rarely are given a choice to vote for directors, and in almost every case, superannuation funds do not disclose director remuneration in their annual report.
Industry funds appear not to have modernised their director (trustee) selection process, having institutionalised the number of union representatives on the board. Analysis by OpenDirector — Australia’s most comprehensive search and analytical online application covering the nation’s senior directors and executives — reveals that unions receive more than $5 million in board fees annually.
Cbus Super, the construction industry’s fund, paid $458,000 to unions as board fees. It also has 16 board members, which seems excessive given that even Australia’s largest public companies have only 12 to 13 directors. Is the high number of directors a result of having representatives from the many unions associated with the construction industry?
One positive is the apparent progress towards gender balance, with 41% of the 91 directors appointed by unions being female.
Superannuation board directors are not overpaid. The fees are modest. The fragmented nature of members also means a lobby group like a union can play an essential role in controlling management remuneration.
The criticism is that superannuation funds need to modernise their disclosure and transparency. The Australian Prudential Regulation Authority (APRA) is pushing for more disclosures, but superannuation funds should want to do this for the sake of members.
Full disclosure may create challenging questions for the superannuation fund. Still, the size and influence of the superannuation funds require that management and board be transparent as to what they are paid, for what services they are paid, and if there are any actual or potential conflicts of interest in payments. It wouldn’t hurt to have members vote for directors.
