Although it’s Cbus’s board that is under the microscope over its governance shortfalls, the lessons from the Deloitte investigation are clear for all industry super funds.
The model whereby directors are picked for their union affiliation over any experience in overseeing billions of retirement savings must evolve, just as the funds below them have evolved to become more global and sophisticated, with millions of members.
The Deloitte report was ordered by regulator APRA to consider whether directors met the fit and proper test, as well as spending links between the $91bn Cbus and one of its sponsoring unions – the now disgraced CFMEU.
The report gave each of the Cbus directors, including those nominated by the CFMEU and the employer associations, a pass, but it questioned whether their background and experience were the best fit for the Cbus board.
While Deloitte was not specific, it recommended Cbus raise the bar for board appointments and have more sophisticated skills assessments on joining the board. This includes placing “more emphasis on practical experience”.
Significantly, it urged Cbus to also put in place a formal mechanism for the board to be able to reject nominated directors, although this would be used only in exceptional circumstances.
Wayne Swan, the former Labor treasurer, firmly defended the governance model during a Senate hearing last week, arguing that it has served the industry funds well, and having union and employer representation on the board put the fund closer to its members.
The equal representative model used by super funds ranging from $341bn giant Australian Super to Hesta, or UniSuper has the middle split between union-nominated appointments and directors nominated by employer groups.This probably helps keep the peace between unions and employers, but the appointments have failed to reflect the maturity of the individual funds. The $115bn Hostplus has three independents, and three union and three employer.
Directors are being put into powerful board oversight roles with little or minimal experience in risk oversight.
“The question persists whether the model ensures the right mix of skills and experience to oversee fund operations and act in members’ best financial interests,” Deloitte said.
The model leads to a limitation of skill, with directors appointed to meet representation requirements instead of getting the best person for the role to serve the interests of members.
As Deloitte notes, member affiliation – be that union or employer – creates a potential conflict of interest which could become an actual conflict depending on what’s being discussed in the boardroom.
Deloitte also raised doubts over whether some of the financial decisions made by the board, particularly partnership agreements, were in the best interests of Cbus members. There was no documentary evidence to show hundreds of thousands of dollars in spending on the CFMEU over the past year were for “sound and prudent” reasons. This alone should have super fund members demanding higher levels of accountability.
In a statement, Cbus said it had accepted in principle all 26 recommendations in the Deloitte report and had begun work on implementing them.
“Cbus acknowledges the seriousness and importance of the work required to strengthen the fund’s systems design, frameworks, policies, processes, governance and reporting as identified in the independent review to become a better, stronger fund for our members,” Cbus said.
Industry super has always held a unique place in a finance landscape, but it needs to recognise it’s no longer an outsider. Today, with hundreds of billions of dollars under management, it is a very big part of the financial system.
The Cbus issues have only just scratched the surface around industry super and governance. It’s up to the smarter funds to take the next evolutionary step.
johnstone@theaustralian.com.au
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