When chairs and chief executives gather for their Centre for Investment Education (CIE) Chairs Forum and CEO Summit early next year, succession planning will be a key issue.
And this time we will be able to draw on some personal experiences to add to the discussions, having successfully sold the CIE business (of which more later).
It’s not hard to understand why boards are placing enormous emphasis on succession planning.
If you look at the industry, most of the superannuation funds (other than self-managed), and especially the industry funds, were established between 1985 and 1995. I would suspect most trustees have been there since the beginning; inevitably, some will retire soon.
Even those not retiring retire often have their positions reviewed. It’s desirable from a governance viewpoint to examine their knowledge and experience from outside the comfort zone of their own boards.
Some trustees have been able to do this by being on more than one board. But this raises questions, as Jeremy Cooper highlighted in his superannuation system review, about people having multiple directorships, especially if they effectively compete against each other.
In many instances, superannuation funds’ employer representatives come from employer groups and they tend to put the same people up for multiple boards.
It’s the same on the employee side; the same trustees are often sourced from employee representative organisations, such as the Australian Council of Trade Unions.
It’s this limited talent pool that makes succession planning very difficult. It often means the only way to get more expertise on a board is to increase the number of directors.
Even if someone leaves, typically they are replaced by someone from an employer or employee body and, as often as not, they know little or nothing about superannuation, investment, financials and legal issues.
It could be argued the original trustees knew little about superannuation, but they entered an industry in its infancy when it was far less complicated and the amounts members had invested were much smaller.
And today they have accumulated enormous experience; they’re what you would call street smart. (On the CEO side, arguably it’s not as important. People can be hired from financial services, where at least there is an understanding of superannuation and its related areas.)
Times have changed. Super funds are now large, multi-faceted financial institutions in their own right. Many are like the AMPs and National Mutuals of yesteryear. There’s much more to consider than just watching over members’ accumulated benefits (for example, providing adequate and new forms of post-retirement income).
So as superannuation becomes more complex, boards are going to need more expertise and the only way I see that happening is to increase the size of the boards or require boards to have a number of independent trustees, who are experts in specific areas of need. Even then you have issues because there is a limited talent pool of available people, especially those who are not conflicted in some way.
It might even mean the 50:50 rule, where funds have equal employer-employee trustees on their boards, has to be called into question.
There’s also the issue of remuneration. In the early years there was an enormous amount of goodwill from employer and employee trustees. How many company directors would work the hours these people work – and don’t forget the responsibility and the personal liability – for around $35,000 a year? I would venture to say not many.
We know this is an issue that super boards have been discussing and it will be raised at our forum. The questions being asked include: How do you do it? How quickly can we move? What are the constraints we face? Where will we find talented people who are also committed? What will we need to pay them? What legislative changes do we need? The list is almost endless.
In the end, chairs in particular are looking to get expertise on their boards. A few have it, but they need more directors with specific knowledge in certain areas. It’s easy to find people with goodwill – but goodwill is not going to achieve results.
At a personal level, CIE has just implemented its own succession plan. Earlier this month CIE sold its business to two wealth professionals, Jamie Nemtsas and Erling Sorensen.
From the beginning, Melda Donnelly was insistent that all the goodwill in the business was not to be lost in any sale. Aside from anything else, it was an issue of pride; you want something you have built to continue to succeed.
Any potential owners have to be on your wavelength and not somebody, such as a fund manager, who would have faced conflicts. So it was always going to be more than a question of price.
CIE’s strength has been its focus on independence, thought leadership and cutting-edge education; sacrifice any of those elements in a succession plan and you would sow the seeds of decline.
We believe Nemtsas and Sorensen are on the same wavelength. In addition, they bring new skill sets, with Sorensen coming from an institutional background, while Nemtsas was on the other side, looking at what the end user (the member), wanted. It’s a great outcome for ensuring Donnelly’s legacy lives on.
