Consistent with the government’s election promises on superannuation, the Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, has released for public consultation a discussion paper canvassing the issues of superannuation fund governance and transparency and the naming of default superannuation funds in modern awards.

Feedback is sought ahead of possible legislation and regulation on issues associated with the:

• definition of ‘independence’;
• proportion of independent directors;
• process for appointing directors;
• management of conflict of interest;
• ongoing effectiveness of superannuation trustee boards; and
• implementation issues.

Specific questions raised in the paper include:

1. What is the most appropriate definition of independence for directors in the context of superannuation boards?
2. What is an appropriate proportion of independent directors for superannuation boards?
3. Both the ASX Principles for listed companies and APRA’s requirements for banking and insurance entities either suggest or require an independent chair. Should superannuation trustee boards have independent chairs?
4. Given the way that directors are currently appointed varies across funds, does it matter how independent directors are appointed?
5. Should the process adopted for appointing independent directors be aligned for all board appointments?
6. Are there any other measures that would strengthen the conflict of interest regime?
7. In relation to board renewal, should there be maximum appointment terms for directors? If so, what length of term is appropriate?
8. Should directors on boards be subject to regular appraisals of their performance?
9. Would legislation, an APRA prudential standard, industry self-regulation or a combination be most suitable for implementing changes to governance? What would the regulatory cost and compliance impacts of each option be?
10. What is the appropriate timeframe to implement the Government’s governance policy under each option?
11. Given that there will be existing directors appointed under a variety of terms and conditions, what type of transitional rules are required?

While the review is primarily aimed at industry superannuation funds, all superannuation boards about to undergo their board evaluation process would do well to consider key governance questions.

The outcomes of the review will likely add to the pressures currently being experienced by large superannuation funds in relation to trustee director remuneration. That is, there is a higher workload than ever before, skills are in short supply, and fees are too low to attract independent directors with the skills required. These issues were recently addressed by the REST superannuation fund (see HERE).

Submissions are required by 12 February 2013. The government consultation paper can be found HERE.

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