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Superannuation: The word on governance

11 January 2013 By ASFA (Association of Superannuation Funds of Australia)

The best boards were diverse and made up of generalists, said David Gonski in his Plenary session on Governance. The experienced board member and current Chairman of several boards including the Guardians of the Future Fund said, "It is my contention that large publicly listed companies and their governance models can suitably be applied to the Future Fund and indeed to larger superannuation funds".

"The best board is made up predominantly of generalists, who may have some specialisation in their background like IT or investment or marketing.

"I'm prepared to go on record to say the worst board is one where the other seven or nine members look just like me.

"We need gender diversity, age diversity, geographic diversity, diversity of length of tenure, diversity of skills. We need diverse views and depth of thinking," he said.

Gonski warned that appointing industry experts to boards could be counter-productive for two reasons: 1) they may not have a generalist's way of thinking outside their expertise; 2) other board members may come to rely on that technical expertise rather than engaging with the issue themselves.

Gonski also criticised representative boards: "The most dangerous trustee board is a 'House of Representatives'." He said board members needed to contribute to the fund for the benefit of fund members, not to represent the people who put them there.

"Appointments to the board should not be sullied by 'empire building' – rather, they should be driven by the needs of the organisation," he said. Variety, with a focus on how the organisation is being governed, was "vital to the effective operation of the board".

Another factor in ensuring a board's effectiveness, was appropriate turnover of board directors. But he strongly disagreed with the concept of annual elections for board members saying it resulted in too much "of a focus on short-term considerations".

"I strongly believe that directors should be assessed and re-elected every three to five years."

He recommended three terms of three years or two terms of five years as "reasonable tenure" but suggested regular appraisals of each director's performance be carried out rather than mandating maximum terms.

Independence on boards was also very important, but 'independence' needed to be defined. And a balance needed to be struck between independence and experience to have an effective board. Indeed his contention and observation was that it was sometimes the longest-serving board members who showed the most independence of thought.

The important point, he said, is that the role of directors is full time. "[It's] not a good part-time job in your later years when you want to spend more time on the golf course and get your handicap down."

As funds increase in size and significance, he argued, the role of the board would be increasingly important. "The success or otherwise of boards will be measured in terms of their capacity and ability to deliver good outcomes for fund members.

"Having appropriate governance settings (independence, succession planning, separation of Chair and CEO) is an extremely important ingredient to achieving this."

"The Chair is like the conductor of the orchestra... they should lead but not stray into executive management."

 

First published in ASFA 2012 National Conference and Super Expo Newsletter, Issue Two, 29 November 2012

 

Contact Details
Name: David Smith, ASU National Secretary
Telephone: 03 9342 1400
Email: info@asu.asn.au