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Board skills and diversity should enhance fund performance

Superannuation  |  25/09/2017  |   3 min read

By Andrew Fairley AM
Chair, Equipsuper

Two years ago, the Equipsuper board confirmed that it would undertake a series of processes to transition its trustee board to its preferred model of allocating one third of its nine board positions to independent directors.

The fund trustee implemented this model on 1 July 2017, coinciding with the Equip fund’s merger with the Rio Tinto Staff Superannuation Fund to form a $14 billion national fund. With the Equip Chair already an independent director appointed by the elected member and employer directors under the previous structure, this transition resulted in two additional independent directors being appointed to the board.

This is the governance model that the Federal Government would like to mandate for the entire superannuation industry through legislation and which is currently the subject of vigorous debate.

The point of debate within the industry is primarily around whether a move to equal allocations of board seats to member directors, employer directors and independents is likely to improve better financial outcomes for members through their retirement years.

Super funds carry the investment disclaimer that past performance is not a reliable indicator of future performance. We believe a similar principle can be applied to boards and governance frameworks. The argument that governance models that have served us well historically does not necessarily mean that perpetuating those models and methods will guarantee similar outcomes in the future.

It was in this context that the Equipsuper board undertook a review of its governance framework and its policies, procedures and capabilities.  It concluded that our former model, in which employer and member directors were elected, or alternative models in which stakeholder nominees were appointed to all positions on the board, would not assure us of securing the necessary capabilities, experience and perspectives to enable better fund governance and the best possible outcomes for members.

The superannuation sector is operating in an environment completed transformed from the early 1990s, when compulsory super was introduced. It was the era pre-dating the internet, mobile technologies and algorithm-driven investment trading.  Social expectations and norms have also transformed, impacting on the way in which the industry operates now and will succeed in the future. Portfolio careers, changing family relationships and a fundamental shift in the way people view retirement will influence management of fund cash flows, savings patterns, servicing models and investments.

This means that, while the traditional skills and experience at super fund board level in investments, risk management, legal and compliance remain critical, there is growing demand for expertise in areas such as technology, human resources, client relations, stakeholder communications and corporate citizenship. The added challenges and considerations of the role of data science and the deployment of augmented reality and artificial intelligence as core drivers of customer growth and retention are set to broaden the skills matrix required within the boardroom even more.

These challenges are not unique to superannuation fund boards. They are faced by boards establishing governance frameworks and optimizing performance for all types of business from private enterprises to ASX200 companies.

As we reviewed our model, we are also aware that effective governance is not confined simply to filling the squares in the board skills matrix. The personal attributes of directors are influential on organisational culture and alignment with core business values and objectives. For us, the latter is particularly important, given Equip’s standing as a preferred supplier of corporate superannuation services for many of Australia’s leading companies. These companies place a high priority on selecting and partnering with providers aligned with best-practice governance and risk management practice.

We believe it is in the best interests of fund members that the performance of directors at the individual and collective levels is regularly reviewed through the prism of meeting members’ best interests. Fund governance models must provide boards with the flexibility to ensure that they have the best people and talent available to continually meet this best interest test.

Our experience has been that the trustee board comprised of one third independent directors, has not compromised the representation or share of voice on the board for members and employers. It remains a governance model that ensures continuity of focus on the interests of both stakeholder groups as contributors to the financial wellbeing of fund members. In fact, the new model has enriched our insight, discussion and capacity for fully informed and improved decision making.

The interests of members are too important to be compromised by limiting access to the pool of potential board members to a narrow cohort of nominating bodies, or the relative unpredictably of appointment by direct election.

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