Governance Best Practices

Board lessons from superannuation fund sector fallout

Australia’s $ 2.8 trillion retirement system has long been considered one of the world’s best . Yet a recent Productivity Commission review and Royal Commission have announced that they are becoming swamp the boards of superannuation funds.

Those who have rejuvenated ASIC and APRA, as well as legislators, begin to fund funds to genuinely improve the retirement lifestyles of everyday Australians. Almost 100 super funds could cease to exist within five years with around 30 under-performers now in the regulator’s short-term sights .

The sector now faces a new regulation that wants to affect their boards and executives. They present strong lessons for all directors, no matter what their organization operates in.

Boards must consider more than shareholders

Super fund trustees (SIS) Act 1993. The SIS Act which requires them to exercise their powers in the best interests of the beneficiaries the provision of retirement benefits and death benefits.

However, the Royal Commission case studies found many cases where trustees failed to do so, often because of conflict between the interests of the beneficiaries and the interests of the trustee. The profit motive was a primary driver.

“Commissioner Kenneth Hayne wrote in the final Royal Commission report.

But it does not make the role of a trustee is complex, and that it trusts in an outcome that turns out to be unbeneficial. Assertions of complexity must not be confused or confused.

(Substantiv, Plural) (Substantiv, Plural) (Substantiv, Plural) (Substantiv, Plural) Shareholders.

But if they are directors, their duties in the best interests of the corporation, and for a proper purpose, it means more than shareholder profit.

Long term financial advantage, “Hayne wrote.” The longer the period of reference, the more he / she is, the more people are involved in the corporation.

The future of the SIS Act.

The interests of the organization come first

Scale is critical for super funds to keep costs low. The Productivity Commission found many under-performers among 93 small super funds holding less than $ 1 billion in assets. It would cost $ 1.8 billion a year if the 50 highest-cost funds merged with 10 of the lowest-cost funds.

However, the Royal Commission found that they were often scuttled by disagreements about the new fund’s board composition and the interests of those nominating organizations, rather than members.

The boards of many super funds are nominated by one or more organizations – a merger naturally changes each fund’s level of control.

Who wants to be a skilled and efficient board, “according to Hayne.

Acting in the best interests of the organization may mean that they are not.

They are fulfilling their duties. The Productivity Commission has recommended funds for disclose detailed merger discussions to APRA and that ASIC is empowered to investigate stalled mergers. APRA would have the power to facilitate or compel merger as part of an elevated member outcomes test.

Governance, risk management and responsibility issues

Australia’s superannuation industry is the fourth largest in the world and has been well-rated in international surveys such as the Melbourne Mercer Global Pension Index . Yet APRA recently acknowledged that too many funds are falling short in basic areas.

APRA Deputy Chairman Helen Rowell wrote: “In a number of areas it lacks the maturity in its governance and risk management practices that should be used by modern financial institutions .

The Prudential Regulator is focused on making sure underperforming funds are adequate action. A new prudential standard ( SPS 515 Strategic Planning and Member Outcomes) seeks to forge funds to formally assess all dimensions of their strategy underpinned by a culture “that values ​​constructive self-reflection, honesty and objectivity”.

APRA’s advice on super funds about lifting board capabilities and culture matters to other organizations. Boards should be able to demonstrate:

  • How the governance and mindset of directors fulfilling their duties.
  • Independence and objectivity to decision making.
  • A board renewal process that also limits excessive tenure and manages undue turnover.
  • How they assess their own performance, capability and outcomes, and the process and timing to address recommendations for improvement.
  • How they avoid or manage actual or perceived conflicts of interest.
  • They are robust, forward-looking and outcomes-focused business and strategic planning and risk assessments.
  • They are fully embedding a fiduciary mindset across all decision-making, including executive remuneration and expenditure.

Australia’s retirement system has Australians, but now stands at a key juncture. Trustees face significant new regulations and risks as the landscape is reshaped. Before they erupt.

Diligent Boards can help their directors, executives and executives. To find out more about how Diligent Boards and Governance Cloud can help your organization, contact us at or request a demonstration .

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