If it ain't broken...

The equal representation rule has been the cornerstone of industry funds since the inception of compulsory superannuation in Australia. Essentially it means that one half of the directors of industry funds are selected from employer sponsors and the other half is appointed by employee representatives, usually the relevant trade union.

This model has served industry fund members well as the not for profit funds do not pay dividends to principal shareholders, do not pay commissions to financial planners and return all profits to members after the necessary expenses of running the funds are paid. In the long term industry funds have outperformed retail funds.

It what some may consider to be an ideologically driven campaign initiated by the Abbott Government and carried through by the current Coalition Government, a bill to break the nexus of the equal representation rule was introduced in the Senate last year. Essentially, the Bill required at least one third of all directors to be independent, the chair to be independent and was silent on how the remaining directors would be selected, meaning that equal representation was no longer required.

The matter came to a head in the Senate last December with Industry Super Australia (ISA) lobbying strongly in favour of the current governance model for super funds and the Financial Services Council, representing the funds owned by big banks and all other retail funds, arguing for the change.

The ACTU was strongly supportive of maintaining the current model and ISA’s position. The argument put forward to the independent senators was basically that the financial performance of the best industry funds over the years has been superior to that of the retail funds. In general the fees have been lower. Also, thanks to the solid corporate governance of industry funds, they have not been plagued with the scandals that the large banks have, especially in relation to their financial planning divisions. Why fix what isn’t broken? Where is the proof that independent directors will enhance fund performance? The current model allows for expert external and independent advice to be provided to industry funds and many funds now have strong in-house expertise in areas such as investments. So why the change?

At crunch time Senators Lambie, Lazarus, Madigan and Xenophon sided with the Greens and Labor to defeat the bill. A compromise put forward to monitor the corporate governance of industry funds was to establish a comprehensive review of the not for profit sector governance and to establish a universal code of conduct. This review will take place under the auspices of the Australian Institute of Super Trustees and Industry Super Australia and will be headed by Bernie Fraser, former Reserve Bank of Australia governor and Treasury secretary. The equal representation rule remains enshrined in law!

The ACTU issued the following statement: “We are pleased that good sense has prevailed and that the coalition of cross bench, ALP and Green senators has moved to defeat the government’s ideologically driven strike on the not for profit super industry”.

The lobby group for the big banks, the Financial Services Council, issued the following statement after the Senate blocked the bill: “Every Australian deserves the best possible outcome in their superannuation”. No doubt industry funds agree with that proposition and will do their best to ensure that outcome is achieved.

The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Produce Disclosure Statement for any product you may be thinking of acquiring and consider seeking personal advice. Past performance is not a reliable indicator of future performance. Any opinions are those of the author and do not necessarily reflect the view of NGS Super.)