Super body queries directors' safeguards

THE head of the body representing industry super funds has blasted as "inadequate" the for-profit sector's proposed independence safeguards.

By InvestSMART · 8 Oct 2012

By InvestSMART ·
8 Oct 2012

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THE head of the body representing industry super funds has blasted as "inadequate" the for-profit sector's proposed independence safeguards.

Industry Super Network chief executive David Whiteley last week wrote to John Brogden, the head of retail fund umbrella group the Financial Services Council, setting out his concerns about the independence of super fund directors.

Under a standard proposed by the FSC, directors of super fund trustees will count as independent if they are also an independent director of the sponsoring financial institution's board.

By contrast, industry funds are non-profit and controlled by a board of trustees made up of representatives of employers and unions.

The ISN submission to the FSC is the latest in a long-running battle between industry and retail funds for dominance of Australia's $1.3 trillion superannuation nest egg.

Mr Whiteley told Mr Brogden he did not "believe the draft standard will have credibility in the broader community".

"The definition of independent director is novel but fails to address the obvious conflicts of interest and duty a director of the parent company and/or subsidiary would have if appointed to the board of the trustee," he said.

In its submission, the ISN said the duties a director of a bank or other financial institution owes to that company will conflict with their duties to super funds members.

Mr Whiteley called on Mr Brogden to participate in a broader process that would set a standard binding both sides of the industry.

An FSC spokeswoman could not be reached yesterday, but BusinessDay understands the organisation feels its proposed standard complies with Australian Prudential Regulation Authority and the stock exchange's independence standards.

The proposed standard would make it impossible for a bank executive to sit on the board of a super fund run by the bank.

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Frequently Asked Questions about this Article…

What are the Financial Services Council’s proposed independence safeguards for super fund directors?

The FSC’s draft standard would allow a director to be counted as independent on a super fund trustee board if they also serve as an independent director on the sponsoring financial institution’s board. The proposal also would bar bank executives from sitting on the board of a super fund run by that bank.

Why has the Industry Super Network (ISN) criticised the FSC’s proposed independence rules?

ISN chief executive David Whiteley called the draft standard “inadequate,” saying it is unlikely to have credibility with the public and fails to address obvious conflicts of interest and duty when a parent-company director is appointed to a trustee board.

How could serving on both a bank’s board and a super fund trustee board create conflicts of interest?

ISN argues a director’s duties to a bank or financial institution can conflict with their duties to super fund members, because obligations to the parent company or its shareholders may clash with acting solely in the best interests of fund members.

What’s the difference between industry super funds and retail (for‑profit) super funds mentioned in the article?

Industry funds are non‑profit and governed by trustee boards made up of employer and union representatives, while retail funds are run by for‑profit financial institutions that may sponsor the trustee structure.

Could these proposed independence standards affect everyday superannuation members?

Potentially. ISN says the draft standard could undermine public confidence because it may not prevent conflicts of interest for directors, which is a concern given Australia’s roughly $1.3 trillion superannuation pool.

Which organisations are involved in this disagreement over director independence?

Key players in the dispute are the Industry Super Network (ISN), led by David Whiteley, and the Financial Services Council (FSC), with oversight and reference to standards from regulators such as the Australian Prudential Regulation Authority (APRA) and the stock exchange.

Does the FSC say its proposed standard complies with regulator independence rules?

According to BusinessDay, the FSC believes its proposed standard complies with APRA and the stock exchange’s independence standards, although an FSC spokeswoman was not available for comment in the report.

What next steps have been proposed to resolve the debate over director independence?

David Whiteley urged the FSC’s John Brogden to join a broader, binding process to set a single independence standard for both industry and retail funds, reflecting the long‑running contest between the two sectors for control of Australia’s superannuation assets.