Nothing to fear from more independent directors

Boost independence on the boards of superannuation funds

Proposed laws to boost independence on the boards of superannuation funds are "absolutely a step in the right direction" to improve governance practice in this critical industry, the Australian Institute of Company Directors (AICD) told a Senate hearing last week.

"The AICD maintains our support for the Government's legislation to require greater independence on superannuation fund boards," said John Brogden, Managing Director and CEO of the AICD.

While the AICD backs the draft legislation, Brogden said the definition of independence in the Bill was "overly prescriptive" and wants the definition to be consistent with other APRA-regulated entities.

"Governance models should be the same across all APRA-regulated entities, including industry superannuation funds."

The Superannuation Legislation Amendment (Trustee Governance) Bill 2015 has the support of a number of industry superannuation funds, consumer advocates, and from the Australian Prudential Regulation Authority (APRA).

CHOICE, National Seniors Australia, the Association of Superannuation Funds of Australia, the Australian Chamber of Commerce and Industry, the Business Council of Australia, Chartered Accountants and Council of Small Business Australia also support the proposed legislation.

While mandating that one-third of the board be independent, the draft legislation also includes a requirement that if a board do not have a majority of independent directors, it must disclose "if not, why not". It also provides for a three-year transition period for funds to meet the new requirements. This allows flexibility for funds that are unable to the meet independence criteria immediately.

"The investment returns of a superannuation fund are not a litmus test for effective governance. Good governance provides for the long-term stability, sustainability and profitability of an entity" said Brogden.

Increasing the number of independent directors on superannuation fund boards should give investors the confidence that their assets are not just safely managed today but will generate a steady, reliable income stream when they retire. 

The final report from the Senate Economics Legislation Committee hearing is expected to be released on 9 November 2015.