The Australian: Just Who is Minding the Minders of Super?

Superannuation Minister Bill Shorten was dismissive of recent comments by Tony Abbott about corporate governance in the superannuation sector: "He only shows an interest in super when he uses it to chase union bogeymen."

 Given his past as national secretary of the Australian Workers Union and a unionappointed director of an industry superannuation fund, Shorten may view the present arrangements fondly. But more objective observers believe there are serious issues here. For example, the Cooper review into superannuation looked at the way directors of industry funds are appointed typically, half by a union and half by an industry association.

 The review noted that "best practice in corporate governance for listed companies includes the presence of independent directors on the board" and called for "a minimum number of 'nonassociated' trustee-directors (such that they can genuinely influence the decisions of those boards)" on the boards of all superannuation funds.

 It is important to remember that funds in the superannuation sector enjoy a remarkable statutory privilege: to receive a guaranteed flow of contributions each month from workers. Today, it is 9 per cent of salary, but Shorten has recently legislated to increase this rate to 12 per cent.

 It is hardly unreasonable that entities granted this privilege should meet high standards of disclosure and corporate governance, particularly when many of them are very large businesses with hundreds of thousands, or even millions, of stakeholders.

 The largest, Australian Super, has funds under management of $43 billion. A recent survey by BRWmagazine ranked it as the 19th largest business in Australia, larger than most listed companies. So it is curious that the procedures used by industry superannuation funds to appoint directors are out of touch with modern corporate governance.

 To take one example: TWU Super, with $2.6 billion under management and 130,000 members, has four directors not elected by members of the fund but appointed by the Transport Workers Union. The union bosses, if they chose, could use this power to appoint experienced and highly qualified investment professionals. But the four directors appointed are the TWU's federal secretary Tony Sheldon and three state secretaries: Wayne Forno, Wayne Mader and Jim McGiveron.

 Which brings up another question raised in the Cooper review whether such people face a conflict of interest? Last year the TWU vigorously attacked changes proposed by the management of Qantas to the operation of that company, changes that management said would improve the company's financial performance. How do the directors of TWU Super, who are also union officials, think about equity investments in Qantas or other companies in the transport sector?

 Members of TWU Super have a right to expect that the sole consideration exercising the minds of directors is how to maximise the financial returns generated by the fund. If the way directors are appointed to industry super funds is one issue, another is disclosure of directors' remuneration. Very few industry super funds disclose the fees paid to directors in their annual reports.

 Even two funds that do better than most, CBUS and H EST A, disclose remuneration only by band. Nor is there comprehensive disclosure of whether unionappointed directors keep their fees personally. Some information is available. For example, we know from its returns filed with Fair Work Australia that the National Union of Workers included as income in 2010 directors' fees of almost $285,000 and that five NUW officials are directors of an industry fund (LUCRE).

 But the disclosure on this point, as on others, is nowhere near as comprehensive as members of superannuation funds have a right to expect. Why has Labor shown little enthusiasm for increased disclosure in this area? Is it because of the close relationship between Labor and the industry funds sector?

 Two cabinet ministers, Greg Combet and Shorten, along with senator Doug Cameron, are former directors of Australian Super or its predecessor organisations, as is Cath Bowtell Labor's candidate for Melbourne in 2010. (She is now chief executive of another industry super fund, AGEST.) The present arrangements may suit the interests of the union movement and union officials. But there is a real question is whether they best serve the interests of the millions of Australians whose retirement savings are entrusted to superannuation funds.

 Paul Fletcher is a Liberal MP and member of the parliament's corporations and financial services committee.

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