In a speech delivered to the Australian Institute of Superannuation Trustees Governance Ideas Exchange Forum in Melbourne yesterday, APRA member Helen Rowell set out to dispel “some of the fallacies in the current governance debate”.
First, Ms Rowell addressed the argument that independent directors will “force fund structures and culture to change”.
Beyond the minimum requirements, the government’s proposed changes to the governance of superannuation funds still give trustees the flexibility to determine the composition of their boards, Ms Rowell said.
“Trustees that wish to do so [can] retain an equal representation model for the appointment of the non-independent directors should they feel that continues to be appropriate to their circumstances,” Ms Rowell said.
“APRA’s view is that adding independent directors and maintaining the connection with the membership are not mutually exclusive.”
Ms Rowell said APRA also is also aware of concerns that there “simply aren’t enough independent directors in the marketplace”.
“We struggle to see how this can be the case. We expect boards to look outside their traditional sources of directors,” she said.
The second ‘fallacy’ Ms Rowell rejected was the idea that mandating independent directors will lead to underperformance.
“There is no reason to suggest that adding independent directors should, automatically, change the trustee’s business philosophy, strategy or business plans,” she said.
“Nor must it necessarily alter their investment strategy. The trustee board as a whole has always been, and will continue to be, responsible for setting their investment philosophy and strategies for funds under its oversight.
“Appointing independent directors that understand and support the board’s underlying strategic objectives will ensure that you can continue to run your investment strategy and operations as you always have (provided, of course, they continue to be in the best interests of members),” Ms Rowell said.
Third, she rejected the notion that the governance reforms “only apply to industry funds”.
“These reforms will ensure sound minimum governance requirements apply across the entire superannuation industry,” she said.
“At present, there is nothing in the law that requires public offer funds to comply with any board composition requirements.
“In APRA’s view, all of the industry – including public offer funds – should be subject to minimum requirements for board composition,” Ms Rowell said.
Finally, Ms Rowell dismissed the idea that APRA’s new power to determine a person ‘independent’ is unwarranted.
“The proposed new APRA powers in the bill for APRA to make determinations about whether a person is able to exercise independent judgment in performing the role of director are an important element of the reforms,” she said.
“The powers in sections 88 and 90 are necessary to ensure that there is certainty where an individual might have a non-typical relationship with an RSE licensee such that it is unclear whether the individual is ‘independent’.
“It reflects the practical reality that it is not possible to clearly address in the legislation all situations that may arise in practice; it is essential that APRA is able to respond to unusual circumstances to provide the necessary certainty to industry,” Ms Rowell said.
