Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Mercer presents even-handed stance on fund governance
Pam McAlister
Mercer has produced a detailed report on super fund governance, including board structures, in the context of worldwide practices. It supports improved competencies and independence levels among trustees, but has stopped short of recommending mandated changes.
The report – written by Mercer partner Pam McAlister and principal Liana Brover, both consultants in Mercer’s ‘governance practice’ in Australia – says that if a proportion of ‘independent’ directors is mandated it should not be at the expense of member-representative directors. It points out that, given the increasing complexity and sophistication of super funds, seeking adequate levels of competency and expertise may require board to look to more independent directors.
Mercer recommends a principles-based definition of ‘independent’ such as: “A non-executive director who is free from any business or other association that could materially interfere with the exercise of independent judgement, including those arising out of the director or a close relative of the director having:
>Â a personal shareholding in the trustee company or its related bodies corporate, or
>Â involvement in an employee, employer or member organisation, or
>Â significant involvement in the management of the fund or as a service provider, auditor, actuary or advisor to the fund, whether currently or in the past three years, but
>Â who may be a member of the fund.”
The current prohibition on trustees being members of their fund is universally criticized within the industry.
Mercer points out that it is difficult to argue against the notion that super funds should adopt the same governance recommendations that they propose for their investee companies. In this regard, the Australian Council of Superannuation Investors, which includes many big not-for-profit funds as its members, recommends investee companies have a majority of independent directors and an independent chairperson.
The report says it should be recognised that structural independence requirements alone will not achieve effective decision making at board level. Other important factors include: the overall experience and competence of directors; diversity; effective and timely information flow; and, board culture and dynamics, including an effective chairperson.
