The Vatican, not for profits and independent trustees

(Pictured: Frank Pegan)

by Patrick Liddy

In late 1999, one of the Vatican’s custodians, gave a presentation to the to the Vatican investment fund secretary. She was flanked be several lawyers and at the time was concentrating on the ornate but functional legal document in front of her. Latin takes a lot of effort.

The folk from the custodian wanted her to focus on the matter at hand.

They lamented: “Y2K could well mean major disruptions; a whole country’s technology systems could crash. We have spent hundreds of millions on preparation.

“You really need to concentrate on what we are saying.” This finally got her attention, to which she responded: “Oh, I forgot this is your first millennium isn’t it?” What custodian, one of the world’s largest global custodians, learnt with this one little put-down was that no matter what the Catholic Church may lack in antiquity it more than makes up with continuity and common sense. The fund secretary remained unfazed.

What’s ‘independence’?

Now, the not-for-profit super industry is wholly behind getting the best outcome on ‘independence’. Their not-for-profit culture makes them more collaborative with their members than the for-profits are with their clients. Put simply, most of the not for profit super funds are set up for getting the best they can for their members.  For-profits are set up for getting the best they can for shareholders. The difference between to two is fundamental. To exclude directors from the board of not-for-profit as they have an interest in the fund, especially given that directors on publicly listed companies can hold shares in the company they are on the board of, is a double standard. 

Catholic Super in Victoria may not have the same time horizon as the Vatican, but the trustees and management are equally forthright and have a great deal of common sense. The fund’s views on independent directors at super funds, a hot topic in the industry, are interesting. They were presented in separate submissions to Treasury in response to a fund governance discussion paper and a submission to ASFA in response to its discussion paper on the same topic.

Crucially, Catholic Super argues that an ordinary member of a fund should be seen as independent if he or she is elected (not appointed) to the trustee boards. Catholic Super is one of a handful of funds which conducts elections among members and employers for its board.

Catholic Super CEO, Frank Pegan thinks the criteria for super trustee ‘independence’ should be the same as for ASX listed companies. “Why are we pursuing a different set of standards for superannuation? The Corporations and Company Directors criteria should be consistently applied.”

Not surprisingly, he is not on his own and many of the sentiments voiced by Catholic Super have strong traction within the not-for-profit fund movement. But how is the regulator responding? Slowly, if at all.

The one thing that the regulator would like to pursue is that ‘independent’ directors on industry super funds should be more akin to listed company boards. The strange part of this is that with publicly listed companies the ‘independence’ of such directors has not had a close correlation with performance or integrity of that company.

One of the issues that is most galling is the one that the regulator insists that a board member cannot be an investor in the fund that he or she is a director of. Now this would be pertinent if that director had a major portion of the fund assets and could skew outcomes. But, in truth, the superannuation assets held by directors are not ‘material’. And ‘Independent’ directors having some ‘skin’ in the game would surely be a positive; after all it is their money.