Retail funds in pledge to lift standards on governance

RETAIL superannuation funds have pledged to improve transparency and governance to the standard required of listed companies, in a move it hopes will boost investor confidence in the $1.3 trillion super system.

By InvestSMART · 7 Mar 2012

By InvestSMART ·
7 Mar 2012

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Proposed policies flagged by the Financial Services Council, which represents retail or "for-profit" super funds, will require boards of funds to appoint an independent chairman and have a majority of independent directors - defined as someone not employed by the company running the fund.

The standards would also require funds to disclose, in a way easily accessible to members, the remuneration paid to directors and management, and would bar directors from holding multiple super fund board positions.

Funds would also be required to adopt and publish policies on environmental, social and governance risk, and to cast and disclose their proxy votes at annual meetings.

The move follows criticism of what the 2010 Super System Review - led by former Australian Securities and Investments Commission deputy chairman Jeremy Cooper - called a lack of "systemic transparency", with standards of disclosure lagging those of listed companies despite fund members being compelled by law to invest in super.

The FSC standards are still to be finalised but will come into force in July 2013, when the Australian Prudential Regulation Authority will roll out its own rules for super funds in a move linked to the federal government's Stronger Super reforms.

But the FSC chief executive, John Brogden, said the new rules would go "over and above" APRA's yet-to-be-finalised standards.

APRA has flagged a likely requirement for funds to publish remuneration policies and the pay of directors and executives, but has shied away from imposing a minimum number of independent directors on boards and an independent chairman.

Mr Brogden said lifting standards of governance in super was "long overdue".

"This is quite a radical step forward," he said. "Having said that, these standards are exactly what a superannuation fund would expect of a company in which they invest."

Mr Cooper, now chairman of retirement incomes at FSC member Challenger, said the FSC's move was a "really positive step" and resembled measures recommended by the Super System Review.

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Frequently Asked Questions about this Article…

What governance and transparency changes have retail superannuation funds pledged to make?

Retail super funds, through the Financial Services Council (FSC), have proposed standards that would require an independent chairman, a majority of independent directors, public disclosure of director and management pay in member-accessible form, limits on directors holding multiple super fund board roles, published ESG (environmental, social and governance) policies, and the casting and disclosure of proxy votes at annual meetings.

Who is proposing these new super fund governance standards and how do they relate to APRA rules?

The Financial Services Council (FSC) — which represents retail or 'for‑profit' super funds — has flagged the proposed standards. They are meant to complement rules from the Australian Prudential Regulation Authority (APRA), with the FSC saying its measures go 'over and above' APRA's yet-to-be-finalised standards tied to the federal government's Stronger Super reforms.

What does 'independent director' or 'independent chairman' mean for super fund boards?

In the FSC proposal an 'independent' director is someone not employed by the company that runs the fund. An independent chairman would be a similar outside appointment, intended to ensure board decisions are less influenced by the fund’s operating company.

How will these proposed governance changes affect everyday super fund members?

Members should see greater transparency and accountability — easier access to information on board and executive pay, clearer policies on ESG risks, and publicly disclosed proxy voting — all intended to boost investor confidence by bringing fund governance closer to the standards expected of listed companies.

Will super funds have to disclose director and executive remuneration under the new proposals?

Yes. The FSC standards would require funds to disclose remuneration paid to directors and management in a way that’s easily accessible to members. APRA has also signalled it will likely require funds to publish remuneration policies and pay, although its final position was still pending.

What are the proposals on proxy voting and ESG policies for super funds?

The FSC wants funds to adopt and publish policies on environmental, social and governance risk, and to cast and disclose how they use proxy votes at annual meetings — giving members visibility into how their fund votes on company issues and risks.

When are the FSC and APRA governance standards expected to take effect?

The FSC standards were still to be finalised, but both the FSC proposals and APRA's rules were planned to come into force in July 2013 as part of the rollout of APRA’s requirements linked to the Stronger Super reforms.

Why are stronger governance and transparency rules being pushed for retail super funds?

The move responds to criticism — including the 2010 Super System Review led by Jeremy Cooper — that superannuation lacked 'systemic transparency' and lagged listed companies in disclosure, even though members are required by law to invest in super. FSC chief John Brogden described lifting governance standards as 'long overdue' and a 'radical step forward.'