ACTU assistant secretary Scott Connolly claims industry super funds are “the most effective and well governed part” of the system. “Best practice governance is demonstrated daily,” Connolly wrote.
In truth, governance of industry super funds has much in common with the Saudi royal family or the Chinese Communist Party – thousands of well-paid princelings immune from accountability to those subject to their reign. No matter how incompetent or even corrupt the trustee of an industry super fund, or its directors, may be, there is simply no mechanism for the ultimate test of accountability – being removed by members. In a system where workers are forced to contribute 10 per cent or more of their earnings to super, it is grossly inappropriate that members are forced to be passive.
To illustrate how big super governs itself, look at AustralianSuper, the biggest of them all and the one with the best claim to good governance. The trustee of AustralianSuper, Australian Super Pty Ltd, is owned 50-50 by the ACTU and Australian Industry Group and the trustee board consists of an equal number of appointees from the ACTU and Ai Group. There are two independent directors, though that phrase has an odd meaning in super land. Independent directors are appointed by the ACTU and Ai Group, they serve at the pleasure of the ACTU and Ai Group, and AustralianSuper members have no rights to appoint or revoke their appointment.
The trust deed of AustralianSuper does not allow for meetings of members of the funds, gives members no power to change the trustee or its directors, and certainly makes no attempt to give members of the funds the kind of governance rights industry funds demand of ASX-listed companies. Voting on remuneration reports, independent directors chosen by members and the like? Dream on.
The trustee and its directors, are thus the entrenched and self-appointed playthings of the ACTU and Ai Group. Great work if you can get it and well paid too. Directors’ fees paid to the bloated board of AustralianSuper are of course a nice little earner for unions. And not only do the ACTU and Ai Group decline to put more than nominal capital into the trustee, they have recently amended the trust deed to provide that the members of the funds, not the ACTU or Ai Group, bear any fines or penalties caused by the negligence or other failures of the trustee or its directors.
No other significant players in the financial system enjoy this level of immunity, and impunity. The trustee and its directors can effectively flip the bird at fund members. Nothing the trustee or its directors could do would enable members of the funds to sack them.
Directors of ASX-listed companies can only dream of this sort of protection. It’s true that directors of one subspecies of ASX-listed entities, namely directors of the responsible entity of a listed trust, cannot be directly sacked by investors but the Corporations Law gives investors the most effective accountability mechanism possible: the power to sack the responsible entity itself.
This sort of impunity for industry funds has had predictable results. Last year the Australian Prudential Regulation Authority found that the Energy Industries Superannuation Scheme ran Australia’s second worst default superannuation product. Amid scrutiny about whether EISS’s sponsorship arrangements included inappropriate relationships with entities linked to former directors, APRA demanded EISS merge with another fund, review its expenditures and cease sponsorships that were not in its members’ best interests. EISS now also has failed APRA’s 2022 performance test and must close to new members. As if this were not enough, EISS is the latest fund seeking approval to charge members fees to cover potential fines for misconduct.
The hubris and sense of immunity created by these sorts of governance arrangements led the funds to lobby their friendly new minister, Stephen Jones, to jump in frantically to kill the transparency rules enacted by the Coalition that would have forced itemised disclosure of sponsorships, gifts and political donations and payments to related and affiliated entities. It was comic to see Jones acting swiftly to shut down even these basic disclosures.
Labor’s tiny tweak last week to mandate that political donations by funds be disclosed is a rude joke given that industry funds are notorious for sending money to unions in various guises, with unions then donating to the ALP.
If industry funds are certain that their governance is virtuous, they should be proud to air their dealings in full. And if the Greens and crossbenchers are genuinely devoted to transparency, they will disallow Jones’s shameful shutdown of itemised accounts of how funds spend members’ money.
After all, it is permanent entrenchment of ownership and control of fund trustees that can lead (and in the case of some funds demonstrably has led) to a cavalier approach to members’ money. The mammoth flows of workers’ money into compulsory funds surely tempts controllers to think it is no big deal to divert small amounts to unions. Except that these amounts are still members’ money. Itemised disclosure ought to be basic housekeeping.
A more complete answer to the lack of industry fund accountability is to give members the right to vote for directors and to change controllers if they wish. It’s their money, after all. It is no answer for industry funds to say members can vote with their feet. Industry funds don’t regard the Wall Street Walk as a satisfactory or complete remedy when their investments in listed companies are managed poorly but routinely demand the removal of directors when it suits them.
Given the ballooning size and power of industry funds, the old view of workers putting some money into little craft funds no longer makes sense. If you are going to force workers to put at least 10 per cent of their wages into a financial services entity, why wouldn’t you give them the power to sack those controlling the entity if they perform badly?
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Propagandists and social scientists have long known that if you repeat a falsehood loudly and long enough, people will come to believe it. Since the choice of attendees at the jobs summit suggests that big super has well and truly replaced the big banks as Australia’s most influential financial services player, it is worth casting a critical eye over big super’s propaganda about itself. In particular, big super’s claim it is the model of good governance.