The Australian Prudential Regulation Authority (APRA) has raised a flag over the make-up of superannuation funds’ boards and in particular, whether their members are actually represented.
The deputy chairman at APRA, Helen Rowell said in a speech made 25 October: “Many aspects of board governance arrangements have remained largely unchanged since they were first put in place following the implementation of the superannuation guarantee in the 1980s.
“And yet, over the intervening period the industry has undergone significant change and trustee business operations have evolved to become much more complex. That has implications for the concept of member representation.”
Ms Rowell said the growing number of both self-employed Australians, and Australians employed under many smaller employers rather than one larger employer, was an example of the country’s changing labour force.
The “gig economy”, wherein people work multiple smaller or “gig” jobs has been linked to smaller super returns by the Association of Superannuation Funds of Australia (ASFA).
Continuing, Ms Rowell also highlighted the general decline in union membership and the growing portion of Australians entering retirement as elements that should be represented on super funds’ boards.
However, some funds are already taking note, Ms Rowell conceded. She said: “We are seeing some boards thinking more about how their governance arrangements need to change to better represent their members.
“They are diving deeper into their demographic data, engaging with members to understand their needs and using this information to assess the extent to which the board genuinely represents its members.”
The question of boards’ gender make-up and the location of their members is also being considered when choosing directors.
Nevertheless, Ms Rowell observed that the percentage of women on boards has only increased by 4 per cent since 2014, to an average 30 per cent in 2016.
So, what does a ‘good’ board look like?
Ms Rowell said APRA would like to see a number of elements adopted across the super industry in order to promote “better practice governance”.
In terms of composition, she called on boards to have “a clearly articulated view of the optimal board composition (in terms of size, skill mix, and relevant diversity considerations) that is needed in the context of the trustee’s current and expected future membership profile and scope of business operations – and of course ideally including some independent directors”.
In order to select the directors, the board needs to ascertain what the role of the board is “with a view to ensuring that candidates bring the skills and capabilities needed to [oversee the] execution of the trustee’s strategy”.
Additionally, a “good” board has “sound renewal and succession planning processes” which consider tenure limits, and reappointment strategies that strike the “appropriate balance between ensuring continuity and bringing diversity and fresh perspectives”.
Finally, Ms Rowell said boards should have “robust and objective board assessment” processes. These processes should consider the “performance of the board as a whole as well as individual directors and lead to concrete recommendations and actions that are implemented”.