Industry funds tested under the harsh glare of Parliamentary spotlight
Industry funds have been dealt a blow in their effort to hold out against proposed changes to board governance.
The alleged role of AustraliaSuper in the controversy puts a spotlight on the potential failings of industry fund governance and that matters because, until now, industry funds have campaigned heavily not on the merits of their management arrangements but rather on the failings of their rivals — the so-called retail funds offered by banks and insurers.
Industry Super Funds, the representative group for 5 million salary earners, has bankrolled a heavy hitting television and media campaign titled “Banks aren’t Super”. In essence the argument is put forward that industry funds should not be run the same as their rivals because commercial fund boards can accommodate scandals such as those seen at Commonwealth Bank over the last two years.
The ISF’s influential director of public affairs, Matthew Linden (who gets to speak for all 16 industry funds), says: “Forcing our boards to emulate those of the big banks — which, in the past two years have had to pay their customers around $480 million in compensation — is not in members’ interests.”
But it’s a seriously flawed argument — there are 2,000 stocks on the stock exchange — they all run to the same governance rules — the good stocks, the bad stocks and the badly behaved stocks
Telling investors everything is fine because the industry funds have not got into trouble such as that faced by their rivals is not an argument FOR the governance structure of industry super boards which are half in-house executives and half employee representatives.
Likewise, another key strand of the industry funds argument is that they would not be as successful as they have been, in terms of industry performance, if their governance structures were standardised. Again this is unconvincing — a super fund’s investment performance will depend on its investment committee, portfolio allocations and the risk settings they follow. Whether the board of the fund itself is made up industry-fund-style boards or bank-style boards is not going to make a significant difference to the investment outcome.
Defending the governance structures, Linden told The Australian this week: “Industry and other not-for-profit funds are not subject to finance sector groupthink … this reduces costs and improves risk adjusted returns”.
The government — clearly backed by the industry regulator APRA — wants industry funds to fall into line with the wider industry having an independent chairman and one third independent directors.
Non-profit industry funds have built up a strong record against rival funds over the last decade, they have also been innovative where rivals have lapsed. In arguing their case they have spotlighted the failings of their rivals — now the spotlight is on their own potential failings and it’s at the very highest levels.
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Financial Services Minister Kelly O’Dwyer, who has been trying to force union-backed industry funds to accept a new industry-standard board structure, scored a direct hit in parliament today, linking industry fund governance with the row over Bill Shorten’s money dealing when he was both AWU secretary and a director of the nation’s biggest industry fund AustralianSuper.