Bills Digest no. 40, 2017–18
PDF version [717KB]
Paula Pyburne
Law and Bills Digest Section
12
October 2017
Contents
The Bills Digest at a glance
History of the Bill
Purpose of the Bill
Structure of the Bill
Background
Nature of governance
Governance of superannuation funds
Independent directors
Trustee governance arrangements
Policy development
Cooper Review
Government response to the Cooper
Review
Coalition policy
Financial system review
Relevant consultation
2015 draft legislation
Committee consideration
Senate Standing Committee on
Economics
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Support for the Bill
Opposition to the Bill
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues
Is mandating for independence
necessary?
Arguments for the measures
Arguments against the measures
Trustee arrangements for pension
funds overseas
Does an ‘independent’ board improve
performance?
Schedule 1—key provisions
Repeal of equal representation model
Independent directors or trustees and
an independent Chair
Meaning of ‘independent’
Stakeholder comment
Determinations of independence
Application and transitional
provisions
Schedule 2—key provisions.
Concluding comments.
Date introduced: 14
September 2017
House: The Senate
Portfolio: Treasury
Commencement: the
day after Royal Assent
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2017.
The Bills Digest at a glance
Purpose of the Bill
The purpose of the Bill is to implement a board governance
structure for certain superannuation funds that requires at least one third of
trustee directors to be independent and that the chair also be
independent.
Background
The inclusion of independent directors on the board of
listed companies emerged in corporate governance policy in the early 1990s in
Australia, with corporate principles developed by the Australian Stock Exchange
(ASX) including that boards comprise a majority of independent directors and
that the chair should be an independent director.
The 2009–10 Cooper Review of superannuation endorsed
mandating that one third of directors be ‘non associated’ directors and the 2014
Murray Report on the financial system supported mandating for a majority of
‘independent’ directors and an ‘independent’ chairperson on superannuation fund
boards.
Key elements
The Bill repeals the existing provisions of the Superannuation
Industry (Supervision) Act 1993 that establish the equal representation
model and replaces them with the following requirements:
- the
chair of the registrable superannuation entity (RSE) licensee’s
board of directors must be independent from the RSE licensee (for RSE licensees
that are a body corporate)
- at
least one third of the RSE licensee’s directors or trustees must be independent
from the RSE licensee
- the
RSE licensee must comply with any requirements of the prudential standards in
relation to the appointment or removal of directors who are independent from
the RSE.
The meaning of independent from an RSE licensee includes conditions under which a person is excluded. These encompass limits on
shareholding interests (subject to certain exclusions) and require minimum
periods to have elapsed since the person had a business relationship with the
RSE licensee or trustee that was material, or since the person was employed by
certain related entities.
The regulator—the Australian Prudential Regulation
Authority (APRA)—will be empowered to develop prudential standards and also
make determinations about whether or not a person is considered independent
from an RSE licensee.
Stakeholder concerns
The policy reasons for the measures proposed by the Bill
are contested—although there is general agreement about the importance of good
governance at a board level to entity performance.
There are differing views about whether requirements for
independent trustee members and an independent chair should be mandated or
expressed in general principles which individual boards can choose to implement.
Key arguments
The main arguments for the measures proposed by the Bill
broadly relate to the general acceptance of the principle that independent
board members and chairpersons bring improved decision making processes, a
greater diversity of skills, and experience which will contribute to both
strengthening the superannuation system overall as well as member interests.
The main arguments against the measures proposed by the
Bill include that the existing equal representation model has performed well;
the model is an important feature of the superannuation system and is prevalent
in many overseas pension funds; and that there is a lack of evidence to support
the changes as the imposition of a principles-based framework creates a lack of
flexibility for boards and will lead to additional costs without any equivalent
benefits.
History of
the Bill
The Superannuation Legislation Amendment (Trustee
Governance) Bill 2015 (the first Bill) was introduced into the House of
Representatives on 16 September 2015.[1] The Bill was passed by that chamber and was debated in the Senate on 25
November 2015 but did not progress. The first Bill lapsed when the Parliament
was prorogued on 17 April 2016.
The Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017 (the Bill) which was introduced into the Senate on 14
September 2017, is in near-equivalent terms to the first Bill—although some of
the proposed amendments in the first Bill are not included.
A Bills Digest was prepared in respect of the first Bill.[2] Much of the material in this Bills Digest has been sourced from that earlier
one.
Purpose of
the Bill
The purpose of the Superannuation Laws Amendment (Strengthening
Trustee Arrangements) Bill 2017 is to amend the Superannuation
Industry (Supervision) Act 1993 (SIS Act) and the Governance of
Australian Government Superannuation Schemes Act 2011 to require that
certain superannuation funds have at least one third of directors or trustees
that are independent from the licensee of the fund and that an independent director or trustee be chair of the trustee board.
The Bill provides for a three-year phase-in period for the
requirements from the day of Royal Assent—except for those provisions relating
to the Commonwealth Superannuation Corporation (CSC) which is the trustee of
various Commonwealth superannuation schemes, which will apply to new board
appointments after the commencement of the Superannuation Laws Amendment
(Strengthening Trustee Arrangements) Act.
Structure of the Bill
There are two Schedules to the Bill:
- Schedule
1 implements the changes to the SIS Act
- Schedule
2 broadly implements similar arrangements in relation to appointments to the
CSC.
Background
Nature of
governance
The term ‘governance’ when used in relation to an
organisation or business:
... encompasses the system by which an organisation is
controlled and operates, and the mechanisms by which it, and its people, are
held to account. Ethics, risk management, compliance and administration are all
elements of governance.[3]
The terms ‘governance’ and ‘corporate governance’ are used
interchangeably in relation to organisations although the term ‘corporate
governance’ can have specific relevance to companies (as opposed to other forms
of business and non-business organisations). The concept of governance at an
organisation level has its roots in the development of corporations with the
separation of ownership (shareholders) from control (management) and how to
manage the principal-agent ‘problem’ that potentially arises due to the
different interests of management and other stakeholders.[4]
Importantly, the concept of governance covers structural
elements such as those that regulate how the management function is arranged
(such as board functions and membership) and the duties and obligations of
relevant people that are part of the organisation. It also covers elements that
may not be able to be directly regulated, such as the ensuring that the
relevant people have appropriate skills and experience and a positive
organisational culture.[5]
Governance
of superannuation funds
Superannuation funds in Australia are established under a
‘trust model’, whereby the trustee (which for superannuation funds is usually a
company) has an obligation to act in the best interests of its members. The use
of this trust model for superannuation funds is embedded in the SIS Act,
with all APRA-regulated superannuation funds operating as trusts, usually with
a company as the trustee.[6] The individual directors of the trustee company (sometimes referred to as the
‘trustee board’ with the individuals referred to a ‘trustee directors’) are
required under the SIS Act to operate the fund in the best interests of
members—given that the sole purpose of the superannuation system is to provide
retirement benefits to members.[7] Added on to the trust model are the licensing arrangements in the SIS Act,
which include adherence to relevant prudential standards covering a range of
corporate governance issues such as conflicts of interest and risk management.[8]
Independent directors
Interest in the concept of an independent (also
referred to as a ‘non-executive’) board director emerged in the corporate
governance literature in the 1980s and 1990s as greater recognition was given
to the role played by board directors that were separate to management (who are
referred to as ‘executive directors’ or ‘inside directors’) in bringing
additional expertise to the decision making process as well as providing a
check on self-interest and abuse within corporate management.[9]
The application of a broader policy to mandate
requirements for the inclusion of independent directors on the boards of listed
companies was included in a key UK governance review in 1992 (known as the
Cadbury Review after its chair Sir Adrian Cadbury).[10] The Cadbury Review, commissioned at a time of increasing lack of investor
confidence in the honesty and accountability of listed companies and by sudden
financial collapses of some companies, supported minimum numbers of independent
directors, with the concept of independence based on independence of judgement
and independence of association:
Non-executive directors should bring an independent judgement
to bear on issues of strategy, performance, resources, including key
appointments, and standards of conduct. We recommend that the calibre and
number of non-executive directors on a board should be such that their views
will carry significant weight in the board’s decisions. To meet our
recommendations on the composition of sub-committees of the board, all boards
will require a minimum of three non-executive directors, one of whom may be the
chairman of the company provided he or she is not also its executive head.
Additionally, two of the three should be independent in the terms set out in
the next paragraph.
An essential quality which non-executive directors should
bring to the board’s deliberations is that of independence of judgement. We
recommend that the majority of non-executives on a board should be independent
of the company. This means that apart from their directors’ fees and
shareholdings, they should be independent of management and free from any business
or other relationship which could materially interfere with the exercise of
their independent judgement. It is for the board to decide in particular cases
whether this definition is met. Information about the relevant interests of
directors should be disclosed in the Directors’ Report.[11]
In Australia, an emphasis on corporate governance policy
arose in the early 1990s from a series of reports sponsored by the Business
Council of Australia known as the ‘Bosch reports’.[12] Conducted at a similar time to the Cadbury Review, the first Bosch report
(published in 1991) included amongst the suggested principles for better
corporate practices and conduct, that independent directors were important.
However, rather than recommending any particular number of non-executive
directors, the first Bosch report merely noted that it would be a useful
safeguard to appoint at least two directors who have no personal or
professional association with the company.[13] The second Bosch report, which took account of the Cadbury Review
recommendations, was delivered in 2003. By that time, the suggestion that
directors be independent was more prominent, with the preference that the
majority of directors should be independent.[14]
The ASX’s Corporate Governance Council published its Principles
of Good Corporate Governance and Best Practice Recommendations in 2003.[15] ASX-listed companies were to adopt the best practice recommendations and, if
not, to disclose ‘why not’.[16] One of the best practice principles espoused by the ASX Corporate Governance
Council was that ‘a majority of the board should be independent directors’.[17] A further best practice recommendation was that ‘the chairperson should be an
independent director’.[18] The most recent version of the ASX Principles of Good Governance and Best
Practice Recommendations, released in 2014 (third edition), has retained
this approach.[19] The ASX principles, while not directly applying to superannuation funds,
provide a useful framework against which to assess the specific requirements
for the independence of superannuation fund trustee directors.
Trustee governance arrangements
Under existing arrangements, the trustee of an
APRA-regulated superannuation fund is known as an RSE licensee as it operates under a Registrable Superannuation Entity licence issued by the APRA
under Part 2A of the SIS Act.[20] Part 9 of the SIS Act requires that the board of a corporate trustee for
a standard employer-sponsored fund of five or more members must consist of
equal numbers of employer representatives and member representatives—these are
referred to as the equal representation rules. The boards of such RSE
licensees may appoint an independent director if that is permitted under an
RSE's governing rules and is requested by the employer or member
representatives on the board.[21]
Superannuation fund trustees are subject to a broad range
of governance requirements including a range of operating standards established
in the SIS Act such as operating standards that form part of licensing
conditions, specified covenants that are to be part of the governing rules of
superannuation funds and prudential standards issued by APRA.[22]
Policy development
The proposals included in the Bill have their origins in
the recommendations of a review of the superannuation system conducted in
2009–2010.[23] While the recommendations relating to trustee board composition were largely
rejected by the Gillard Government,[24] the Coalition’s 2013 election policy was broadly similar to the provisions of
the Bill.[25]
Cooper
Review
The ‘Super System Review’, (known as the ‘Cooper Review’
after its chair Jeremy Cooper), led to a number of important changes under the
Gillard Government including the introduction of a low-cost default
superannuation product (‘MySuper’), efforts to improve the ‘back office’
efficiency of the superannuation system (‘Superstream’) and some changes to the
regulation of self-managed superannuation funds (SMSFs).[26]
In terms of superannuation fund governance, the final
report of the Cooper Review observed that trustee governance structures had not
kept up with developments in the industry and that there had been difficulties
for trustees and their trustee‐directors in understanding what is
expected of them.[27] The recommendations to improve governance arrangements included creating a
distinct new office of ‘trustee‐director’ with all statutory duties
(including those which would otherwise be imposed by the Corporations Act
2001) to be fully set out in the SIS Act[28] and for an industry council to develop (with APRA coordination and in
consultation with stakeholders) a ‘Code of Trustee Governance’ for trustees of
superannuation funds and their trustee‐directors to assist with
identifying best practice in the industry.[29] It is important to note that in formulating its recommendations, the Cooper
Review considered that the corporate governance arrangements that applied to
ASX-listed companies were a ‘reasonable starting point’ for the arrangements
that should apply to superannuation fund trustees ‘given the profound impact
the latter have on the retirement incomes of members’.[30]
In relation to the structure of the trustee board (the
matters which are the subject of this Bill), the Cooper Review recommended
that ‘non-associated’ trustee members be mandated as part of trustee boards:
- if
a trustee board does not have equal representation, the trustee must have a
majority of ‘non‐associated’ trustee‐directors[31] and
- for
those boards that have equal representation because their company constitutions
or other binding arrangements so require, the SIS Act should be amended
so that no less than one third of the total number of member representative
trustee‐directors must be ‘non‐associated’ and no less than one third
of employer representative trustee‐directors must be
non‐associated.[32]
The term ‘non-associated’ nominated by the Cooper Review
was derived from the concept of independent directors on company boards.
However, no clear definition of the term was provided, with the Cooper Review
providing an outline of what the term would cover:
For this purpose, the term ‘non‐associated’ would have
a different meaning from the term ‘independent’ in the SIS Act. For
example, the Panel believes that a member of the fund could be a
‘non‐associated’ trustee‐director. Non‐associated
trustee‐directors would still need to be free of connections to, or
associations with, employer sponsors, the appointor (other than by reason of
the appointment itself), entities related to the trustee, employer groups,
unions, service providers and should not be current or former executives of the
fund or a related entity. Of course, if a non‐associated
trustee‐director is paid for their duties as a trustee‐director,
the fee should be paid only from fund assets and not by any third party.[33]
Government response to the Cooper Review
The Gillard
Government response to the Cooper Review recommendations (labelled as
‘Stronger Super’) was released on 16 December 2010.[34] In relation to the recommendations about the appointment of non-associated
members to trustee boards, the Government did not support the proposals,
considering that the composition of a trustee board was a matter for the board
to determine.[35]
Coalition policy
At the time of the release of the Cooper Review’s trustee
governance recommendations and the subsequent Gillard Government response, the
Coalition expressed its view that the Cooper Review recommendations about
requiring independent directors to be appointed to boards should be
implemented. The then Shadow Minister for Financial Services and
Superannuation, Senator Cormann, noted in 2010:
The Minister shied away from outlining necessary reforms to
improve corporate governance of superannuation funds and to ensure competition
in the default fund market.
Where are the reforms for example to ensure mandatory disclosure
of conflicts of interest, to require independent directors on superannuation
fund boards, disclosure of director remuneration and directors of super funds
to sit on a single fund and not hold multi-directorships.[36]
In August 2012, during the debate on a Bill that included
provisions relating to trustee governance arrangements, Senator Cormann
outlined how the Coalition viewed the recommendations of the Cooper Review and
would amend the existing arrangements, should it be in government, to include
‘the appropriate provision of independent directors on superannuation fund
boards’.[37]
In government, should we be successful at the next election,
we will implement the sensible corporate governance reform recommendations made
by the Cooper review that would see mandatory disclosure of conflicts of
interest, the appropriate provision of independent directors on superannuation
fund boards and which would force directors who want to sit on multiple boards
and where there is clearly an apparent risk of conflict of interest to be
required to demonstrate to APRA that they do not have in fact any foreseeable
conflicts of interest. There is also the issue of conflicts of interest in
relation to related party transactions that do need further tidying up when it
comes to corporate governance standards.[38]
In the lead up to the 2013 election, the Coalition’s
policy, although not specifically setting out what changes it would make if
elected to government, questioned the equal representation model and stated
that ‘the Coalition will work with all relevant stakeholders to ensure
Australia’s superannuation system has appropriately high standards of corporate
governance’.[39]
Following its election in 2013, the Coalition government
circulated a consultation paper entitled, Better regulation
and governance, enhanced transparency and improved competition in
superannuation, and sought feedback on some of the specific areas that
are being proposed for change by the Bill, including:
What is the most appropriate definition of independence for
directors in the context of superannuation boards?
What is an appropriate proportion of independent directors
for superannuation boards?
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?[40]
Financial system review
In addition, the ‘Financial system review’ (known as the ‘Murray
Report’ after the chair of the review, former CEO of the Commonwealth Bank
David Murray AO)[41] delivered its final report to the
Government in December 2014. The Murray Report arguably went further than
the Cooper Review in that it recommended a majority of directors be independent
and also that the chair be independent.[42] In making this recommendation, the Murray Report observed:
[i]ncluding independent directors on boards is consistent
with international best practice on corporate governance. Independent directors
improve decision making by bringing an objective perspective to issues the
board considers. They also hold other directors accountable for their conduct,
particularly in relation to conflicts of interest.[43]
Relevant consultation
2015 draft
legislation
On 26 June 2015, then Assistant Treasurer, Josh
Frydenberg, proposed that all APRA-regulated superannuation funds, including
corporate, industry, public sector, and retail funds, have a minimum of one
third independent directors on their trustee board and an independent chair.[44] His announcement coincided with the release of draft legislation covering
matters included in the Bill.[45] Twenty-seven submissions were received during the consultation period.[46] Subsequently Treasury noted that there had been a number of ‘refinements’
included in the first Bill such as:
- clarifying
that the independent chair is not in addition to the one-third share of
independent directors
- more
detail and a revised definition of independent including
amendments to the term ‘substantial shareholding’ and
- inserting
a regulation making power that will specify circumstances that would result in
a person being either independent or not independent.[47]
Committee
consideration
Senate
Standing Committee on Economics
The Bill has been referred to the Senate Standing
Committee on Economics (Economics Committee) for inquiry and report by 23
October 2017.[48]
The first Bill was also referred for inquiry and report to
the Senate Standing Committee on Economics (first Economics Committee).[49] In that case, the majority of the first Economics Committee recommended that
the Bill be passed.[50] However, the Australian Labor Party (Labor) members of the first Economics
Committee dissented, recommending that the first Bill not proceed.[51] The rationale for this view was, in part, that it would ‘impose highly
prescriptive changes, coupled worryingly with an ambiguous definition of
independence’.[52]
Senate
Standing Committee for the Scrutiny of Bills
At the time of writing this Bills Digest the Senate
Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) had
not commented on the Bill.
Whilst the Scrutiny of Bills Committee included comments in
relation to the first Bill in its Alert Digest of 14 October 2015, the
comments related to provisions which are not included in this Bill.[53]
Policy
position of non-government parties/independents
Labor did not support the first Bill. In debate in the
House of Representatives, some of the reasons given for this position include:
- the
equal representation model for industry funds has performed well relative to
other parts of the industry[54]
- a
‘one-size fits all’ governance model is not appropriate for superannuation
funds which should be able to appoint independent directors if they think it is
in the best interest of the fund rather than this being imposed by a
prescriptive approach[55] and
- the
changes will impose significant costs on fund members.[56]
The Australian Greens (the Greens) did not support the first
Bill. In debate in the House of Representatives, Adam Bandt noted several
reasons for opposing the proposed changes including the absence of ‘glaring’
governance problems in superannuation funds.[57]
At the time of writing this Bills Digest no
contemporaneous comment had been made about the Bill. However, given that it is
near-identical terms to the first Bill it is likely the views expressed by both
Labor and the Greens about the first Bill will remain unchanged and so apply to
this Bill.
Position of
major interest groups
At the time of writing this Bills Digest, major interest
groups had not commented on this Bill. Major interest groups, including those
in the superannuation industry, peak union and business groups and others expressed
different views on the merits of the proposals included in the first Bill.
Support for
the Bill
Key interest groups that indicated their support for the first
Bill included the Financial Services Council (FSC),[58] the Association of Superannuation Funds of Australia (ASFA),[59] the Australian Chamber of Commerce and Industry (ACCI),[60] the Australian Institute of Company Directors (AICD)[61] and the consumer group Choice.[62] The broad view of these groups was that the measures included in the first Bill
would strengthen the superannuation system and protect consumers.
Opposition
to the Bill
Key interest groups that opposed the measures included in
the first Bill included the Australian Institute of Superannuation Trustees
(AIST),[63] Industry Super Australia (ISA),[64] the Corporate Superannuation Association[65] and the Australian Council of Trade Unions (ACTU).[66] In general, these groups questioned the need for the proposed arrangements
given the performance of the equal representation model.
The Australian Industry Group (AIG) and National Seniors
Australia supported the provisions in the first Bill that mandate one-third
independent directors but did not support the requirement that the chair be an
independent director.[67] The broad rationale for not supporting the requirement that the chair be
independent was that the board is best placed to decide who has the skills and
capacity to fulfil the role of chair.
The Governance Institute of Australia did not support the first
Bill. Instead, it recommended a non-prescriptive approach to governance be
taken.[68]
A number of industry groups made specific recommendations
on aspects of the first Bill in their submissions to the first Economics
Committee inquiry into the Bill and in submissions to previous consultation
processes on governance issues. Some of these are discussed in the key issues
and provisions section below.
Financial
implications
According to the Explanatory Memorandum to the Bill, its
financial impact on the Government will be nil.[69]
However, the compliance cost impact is estimated to be
$8.5 million in start-up costs and a further $12.3 million in ongoing costs
annually.[70]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[71]
Parliamentary
Joint Committee on Human Rights
At the time of writing this Bills Digest, the
Parliamentary Joint Committee on Human Rights (Human Rights Committee) had not
commented on the Bill.
The Human Rights Committee considered that the first Bill did
not raise human rights concerns.[72]
Key issues
Is mandating for independence necessary?
The threshold question to address in debate about the
provisions of the Bill is whether certain superannuation funds should have
specific governance requirements in relation to the composition of the trustee
board to require one-third independent trustee directors and an independent
chair. Arguments for and against the proposal canvas a number of issues
including the appropriateness of mandating a specific model, the financial
costs in adopting new governance arrangements for the funds involved and the
potential benefits to the sector and fund members of such changes.
Arguments for the measures
One of the main arguments for the measures proposed by the
Bill relates to the general acceptance of the principle that independent board
members and chairs bring ‘different skills and expertise and they can hold
other directors accountable for their conduct, particularly in relation to
conflicts of interest’.[73] To support this view, the Government points to the conclusions drawn by the
Cooper Review and the Murray Report that the approach is consistent with
international best practice on corporate governance.[74] These broad arguments are supported by a number of major interest groups
including the FSC, ACCI, the Council of Small Business Associations of
Australia and consumer group Choice.[75] The FSC notes:
The minimum standard of governance provided for in the Bill
will protect consumers from circumstances where the judgement of
non-independent directors may be influenced by the interests of a subset of the
membership, a shareholder or a sponsoring organisation.
Arguments that the reforms are not necessary because funds
with no independent directors have a track record of good investment
performance misrepresent the purpose of the reforms. The focus of the reforms
is governance and the behaviour of boards, not investment performance. All
superannuation funds, be they retail, industry, public or corporate funds, have
the capacity to improve their governance process.[76]
Arguments against the measures
The main arguments against the measures proposed by the
Bill include:
- that
the equal representation model has performed well
- the
equal representation model is an important feature of the superannuation system
and is prevalent in many overseas pension funds
- there
is a lack of evidence to support the changes
- the
imposition of a principles-based framework will create a lack of flexibility
for boards and lead to additional costs without any equivalent benefits.[77]
The AIST sums up many of these arguments, noting:
The lack of evidence to support governance changes highlights
a significant flaw in this proposed reform process. Regulated superannuation
funds are a major contributor to the Australian economy, with the not-for-profit
superannuation sector representing more than $650 billion in funds under
management. While good governance practices should be encouraged and pursued at
all times, AIST submits that mandatory changes to board composition will mean
significant changes to the culture of these large financial institutions and
disruption to fund activities, without any evidence of the need for such
reform, or an articulated benefit to the members. These changes will also come
at a substantial cost (both through implementation and ongoing higher director
fees) - to be borne by the members.[78]
Trustee arrangements for pension funds overseas
Governance arrangements for pension funds overseas provide
some reference for the changes proposed by the Bill. It is important to
distinguish between arrangements applying to corporations generally and those
applying to pension funds in particular.
As noted earlier, support for a corporate board to
comprise a majority of independent directors and an independent chair gained
momentum in governance reviews in the 1990s and 2000s and these requirements
are now established in key governance documents such as the ASX’s Principles
of Good Corporate Governance and Best Practice Recommendations. A summary
of board independence requirements by the Organisation for Economic
Co-operation and Development (OECD) concluded that almost all jurisdictions had
introduced a requirement or recommendation with regard to a minimum number or
ratio of independent directors—three jurisdictions (India, Hungary and the
United States) had introduced a binding requirement for a majority independent
board, while the others had taken a ‘comply or explain’ approach.[79]
The Explanatory Memorandum notes arrangements in Canada
and the United Kingdom for corporations where it is recommended that a majority
or at least one-half of boards should be comprised of ‘unrelated’ or
‘independent’ directors.[80] Importantly, individual companies in Canada and the United Kingdom are not
required to implement such a structure but are only required to report about
adherence to such a principle.[81]
A 2015 report by Mercer on the governance of
superannuation (pension) funds examined the prevalence of independent directors
on pension funds across a number of countries.[82] This research found that in nearly all OECD countries, boards for occupational
pension arrangements are comprised of an equal number of employer and employee
representatives but that this approach needed to be considered in the context
of the different legal framework operating in many OECD countries, when
compared to Australia.[83] Possibly the most relevant to Australia, given the use of the trust model, are
arrangements in the United Kingdom for defined contribution schemes that
require a majority of independent trustees or a majority of non-affiliated
trustees depending on the type of scheme.[84]
Does an ‘independent’ board improve performance?
There is a broad economics-based literature on the
relationship between good governance practices and firm performance, with
studies examining the relationships between structural governance practices
such as board size, independent directors, independent chairs, use of
sub-committees and other matters and performance as measured by profitability
and share price.
In general, these studies have found mixed results on the
impact of independent directors on firm performance.[85] A 2010 review of empirical literature on the effects of independent directors
on firm performance found that there was no strong evidence about the presence
of a majority of independent directors:
...the notion that firm performance improves with the presence
of a majority or supermajority independent directors on the board of firms is
yet to have conclusive evidence. In fact, a good number of the studies point to
the fact that the presence of more executive directors on the board positively
affects firm performance than can ever be contemplated under a board with
majority or supermajority independent directors. In the same vein some studies
clearly point out that in some instances, the presence of independent directors
makes positive firm performance impossible.[86]
More relevant to the provisions of this Bill are studies
that have examined the impact of independent directors on the performance of
superannuation (or ‘pension’) funds.[87] These include:
- a
2008 study of US public sponsored pension plans over the period 2001–2005 on
the impact of outside or independent trustees on investment performance. The
study found no relationship between board composition and characteristics and
investment performance as measured by the excess return of the fund but that
‘board composition plays an important role in plan funding status and asset
allocation decisions’[88]
- a
2012 study of defined contribution funds in Poland over the period 1999–2010
found a positive correlation between the number of outsiders on the board and
the pension unit return. The study also found that other characteristics such
as the age or the education of the board members or the Chairman may be
important[89]
- a
2013 study of the influence of various governance arrangements including the
proportion of independent directors on superannuation funds trustee boards in
Australia for 2009 and 2012. The study found that there was a beneficial impact
of independent directors on industry fund boards but that this relationship was
negative for retail funds and concluded that ‘the beneficial impact of
independent directors on [i]ndustry [fund] boards gives great weight to the
Cooper recommendation for appointment of one-third independent directors’[90]
- a
2015 study of the relationship of between various governance arrangements and
fees for not-for-profit superannuation funds between 2009–10 and 2010–11. The
study concluded that the relationship for board independence had mixed results
and the results from the analysis were insignificant.[91]
Industry groups aligned with the industry superannuation
funds argue that industry funds have outperformed retail funds. They consider
that there is no empirical evidence that the changes proposed in the Bill would
improve the performance of affected funds.[92]
As part of its 2012 examination of default fund
arrangements, the Productivity Commission noted that the equal representation
model has generally operated well to date, but that some arguments for an equal
representation structure become less compelling as funds actively broaden their
membership beyond their traditional base.[93] At that time, the Productivity Commission did not support mandating a
particular governance structure:
The Commission considers that issues relating to board
structure are important. However, overall, there is a lack of compelling
evidence to suggest that any one model of board structure should be viewed as
clearly preferable in all cases. Therefore, the Commission does not consider it
appropriate at this time for a particular structure to be mandated. Further,
the Commission would not want to see restrictions placed on board structures
without such restrictions having a sufficient evidentiary basis, particularly
given the potential impact they could have on competition for default listing.[94]
Schedule 1—key provisions
Part 9 of the SIS Act contains governance arrangements
relating to the composition of the trustee of a superannuation fund. As stated
above, the equal representation rules which are currently in place
provide for equal representation of employer and member representatives and
allow for the appointment of an additional independent trustee or additional
independent director.[95]
The terms independent director and independent
trustee are defined in the SIS Act so that the director or
trustee is not a member of the fund, is not an associate nor an employee of an
employer or employee sponsor of the fund and is not in any capacity a
representative of a trade union or other organisation representing the
interests of the fund members or employee sponsors.[96] Non-adherence to the equal representation rules may result in a fund being
directed not to accept any contributions made to the fund by an employer sponsor.[97]
Appointing more than one independent director to funds
with equal representation boards requires the fund to apply for an exemption to
the SIS Act.[98] The equal representation rules also provide some additional requirements under
the Superannuation
Industry (Supervision) Regulations 1994 for a decision by the trustee board
to be valid only where at least two-thirds of the total number of directors
voted for it.[99]
Item 1 of Schedule 1 to the Bill repeals and
replaces Part 9 of the SIS Act. The new Part 9 contains the substantive
elements of the changes that will require at least one third of trustees to be independent and for the chair to be independent. To that end it includes a
list of circumstances in which a person will be independent for
the purposes of the new Part 9.
Repeal of equal representation model
The new Part 9 does not include any reference to the equal
representation model. However, according to the Explanatory Memorandum to the
Bill:
... the Australian Government’s policy still allows
representation of employer and employee groups on superannuation boards. The
composition of superannuation trustee boards, beyond the one-third independent
directors prescribed, will remain at the discretion of the board (subject to
any requirements set out in the constitution of the trustee and to the
overarching legal requirement that board members are fit and proper and that
boards have an appropriate skill mix).[100]
The removal of the equal representation model is opposed
by several stakeholder groups including AIST and ISA.[101] In particular AIST argued:
... both a member and an employer voice in a mandatory savings
system are vital and that it should be preserved in all sectors of the
APRA-regulated superannuation industry. The representative model ensures a deep
knowledge of the membership, representation of their respective interests in a
mandatory system, and proper consideration of all relevant issues in the
pursuit of the best possible outcomes for members.[102]
The retention of the model for the remaining two-thirds of
the board was supported by ASFA, who noted some potential unintended consequences
such as a superannuation fund board comprising one-third independent directors
and two-thirds employer representatives (meaning members would have no direct
representation on the trustee board) or two-thirds member representatives
(meaning employer groups would have no direct representation).[103]
Independent directors or trustees and an independent Chair
Proposed section 86 of the SIS Act provides
that the Chair of the RSE licensee’s board of directors must be independent
from the RSE licensee (for RSE licensees that are a body corporate), that at
least one third of the RSE licensee’s directors or trustees must be independent
from the RSE licensee (the Chair is included in meeting the one-third
requirement) and that the RSE licensee must comply with any requirements of the
prudential standards relating to the appointment or removal of directors who
are independent from the RSE.
The requirement for an independent Chair was not supported
by AIG and National Seniors Australia who otherwise supported the one-third
independent requirements. The rationale for this view is that the board is best
placed to decide who has the skills and capacity to fulfil the role of Chair.[104]
Meaning of ‘independent’
Proposed section 87 of the SIS Act lists the
circumstances in which a person will be independent from an RSE
licensee for the purposes of satisfying the independent director requirements
in proposed section 86 as follows:
- first,
a person is considered to be independent from an RSE licensee unless certain
conditions—relating to a nominated shareholding interest in the RSE licensee
ownership arrangements and certain business and employment relationships with
the RSE licensee—are present:
-
a
specified nominated threshold limit of under five per cent shareholding
interest (subject to certain exclusions) for an RSE licensee that is a body
corporate in the share capital of the RSE licensee or in the share capital of
the body corporate that is related to the RSE licensee[105]
- a
specified three-year minimum period has passed since the person had a business
relationship with the RSE licensee or trustee that was material[106]—including
a person who has been a director or executive officer of the RSE Licensee and a
person who, as an employee had a business relationship with such a person[107]
- at
least three years have passed since the person was employed as a director or
executive officer of the RSE licensee or a body corporate that is related to
the RSE licensee[108]
- if
the RSE licensee is a group of individual trustees, three years have passed
since the person was a director or executive officer of an employer-sponsor of
the fund who is a large employer or an organisation (representing the interests
of one or more employer-sponsors or representing the interests of members of
the fund) that has the right to appoint directors or trustees of the RSE
licensee[109]
- second,
there is a regulation-making power under which a person falls within the
meaning of independent if certain circumstances apply[110] and
- third,
APRA may determine, under a process outlined in proposed sections 88 and 89,
whether a person is independent from an RSE licensee or not.[111]
The use of specific thresholds of three years and a
shareholding interest of five per cent to determine independence from
ownership, business and employment arrangements are broadly similar to the ASX Principles
of Good Corporate Governance and Best Practice Recommendations and the
Financial Services Council’s FSC Standard No. 20 Superannuation
Governance Policy.[112]
A key term used to establish these thresholds relates to
circumstances that are ‘material’ to a business relationship that the person or
RSE licensee may have had—a circumstance that the Explanatory Memorandum notes
will depend on the facts in each case.[113]
The regulation-making power is included ‘to determine
circumstances in which a person is considered independent regardless of the
circumstances in section 87(1)’.[114] The rationale for the power is to ‘allow APRA to respond to situations where a
person’s circumstances and their capacity to exercise independent judgement is
clear but for reasons such as timing, restructures and mergers and acquisitions’.[115]
Stakeholder
comment
A number of views have been expressed by major interest
groups on the overall drafting of the independence requirements. In particular AIG
considers that the provisions of proposed paragraph 87(1)(f)(i), which
prescribes that a person would not be independent if they were, or had in the
previous three years been, an executive officer or director of an
employer-sponsor who employs more than 500 members of the fund, would ‘ impose
ongoing compliance costs or, more likely, give rise to a reticence to appoint
to the boards of large funds current or recent directors or officers of
domestic organisations with large numbers of employees’.[116]
The Governance Institute of Australia considers that ‘any
strictly prescriptive definition will inevitability lead to difficulties’ and
that ‘now is the time to step back and have a discussion about the governance
outcomes for superannuation funds that should be sought’.[117]
Determinations of independence
Proposed sections 88–89 of the SIS Act create
a process whereby APRA may determine an application by an RSE licensee that a
person is independent from the RSE licensee. APRA may also make a determination
of its own volition that a person is not independent.[118]
In making a determination under proposed sections 88
and 90, APRA is required to take into account the terms of proposed section
87—that is, the circumstances that prevent a person from being independent
as well as the circumstances prescribed by regulations. Despite a person being
deemed not independent because of the terms of proposed section 87, APRA
may determine that they are independent provided that APRA reasonably
believes that the person is likely to be able to exercise independent judgement
in performing the role of director or trustee of an RSE.[119]
APRA has indicated that it expects to use the power in proposed
section 90 (determination that a person is not independent) infrequently on
the basis that ‘the legislative definition should provide sufficient
information to undertake a robust assessment of a director’s independence in
most circumstances’.[120]
Decisions under proposed sections 88 and 90 are reviewable
decisions.[121] This means that a person affected by a decision under either of those sections
may request APRA to reconsider the decision as well as seek review by the
Administrative Appeals Tribunal.
Application and transitional provisions
Part 3 of Schedule 1 to the Bill provides
for a transitional period for existing funds of three years after the date of
Royal Assent.[122] During that time, if an RSE licensee complies with transitional prudential
standards made by APRA neither the new governance provisions in Part 9 of the SIS
Act nor the current provisions in Part 9 will apply. The transitional
prudential standards override any contradictory provisions in trust deeds and
other rules governing a regulated superannuation fund, including the
constitution of a corporate trustee.[123]
This effectively provides for a period of three years for
trustee boards to change their composition.
Schedule 2—key provisions
The provisions of Schedule 2 to the Bill apply similar
arrangements to the Commonwealth Superannuation Corporation (CSC). The CSC is
the trustee for a number of Commonwealth public sector superannuation and
military superannuation funds including the:
- Commonwealth
Superannuation Scheme (CSS)
- Military
Superannuation and Benefits Scheme (MilitarySuper)
- Public
Sector Superannuation Scheme (PSS)
- Public
Sector Superannuation accumulation plan (PSSap)
- Defence
Force Retirement and Death Benefits Scheme (DFRDB Scheme)
- Papua
New Guinea Scheme (PNG Scheme).[124]
Under the Governance of Australian Government
Superannuation Schemes Act the CSC is comprised of a Chair and 10 other
directors.[125] Currently, three of the other directors are nominated by the Australian Council
of Trade Unions and two are nominated by the Chief of the Defence Force.[126] The Minister chooses the five other directors, but must consult with the
Defence Minister before making the appointment.[127]
The Chair of the CSC is appointed by the Minister after
agreement is given by the Board.[128]
The amendments in Schedule 2 to the Bill to the Governance
of Australian Government Superannuation Schemes Act provide for similar
independence requirements as will be applied to superannuation funds by the
amendments in Schedule 1 to the Bill.
Items 1 and 2 operate so that a person is independent
from CSC if the person satisfies the provisions of section 87 of
the SIS Act as amended by the Bill.[129] Those directors who are not nominated by the Australian Council of Trade Unions
or the Chief of the Defence Force must be independent from CSC.[130] In that case, item 3 provides that such an appointment is not
invalid if, after the appointment, the person ceases to be independent
from CSC.[131] Item 4 inserts a consequential amendment to expand the available reasons
for the Minister to terminate the appointment of a director to include that
they have ceased to be independent from CSC.[132]
Concluding comments
The policy reasons for the measures proposed by the Bill
are contested. While there is general agreement about the importance of good
governance at a board level to entity performance, there are differing views
about whether requirements for independent trustee members and an independent Chair
should be mandated or expressed in general principles which individual boards
can choose to implement.
There are also different views as to whether the success
of the equal representation model, under which superannuation funds can choose
to appoint independent members or even Chairs to their boards, will be affected
by the changes proposed by the Bill. At one end of the spectrum, the measures
proposed by the Bill can be viewed as a pragmatic response to a general move
towards appointing more independent members to such boards—one which some funds
are already implementing. However, others argue that the success of the equal
representation model is an important part of the superannuation system and that
there is little evidence that the changes proposed by the Bill are required or
desirable.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Parliament
of Australia,’ Superannuation
Legislation Amendment (Trustee Governance) Bill 2015 homepage’, Australian Parliament website.
[2]. K
Swoboda, Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, Bills digest, 40,
2015–16, Parliamentary Library, Canberra, 2015.
[3]. Governance
Institute of Australia (GIA), ‘Governance
foundations’, GIA website.
[4]. JJ
du Plessis, A Hargovan and M Bagaric, Principles
of contemporary corporate governance, 2nd edn, Cambridge University
Press, Cambridge, Vic, 2010, pp. 5–10.
[5]. Ibid.
[6]. Review
into the Governance, Efficiency, Structure and Operation of Australia’s
Superannuation System, ‘Review into the governance, efficiency, structure
and operation of Australia’s superannuation system: final report, Part two: recommendation packages,
[Super system review: final report], (Cooper Review), The Review, Canberra, June
2010, p. 44.
[7]. Ibid.,
p. 45.
[8]. Australian
Prudential Regulation Authority (APRA), ‘Superannuation
prudential standards’, APRA website. Adherence to the prudential standards
is a requirement of Part 3A of the SIS Act.
[9]. Du
Plessis et al, op. cit., p. 110.
[10]. Committee
on the Financial Aspects of Corporate Governance, Report of the Committee
on the Financial Aspects of Corporate Governance, (Cadbury Report), Gee,
London, 1 December 1992, paragraphs 2.1 and 2.2.
[11]. Ibid.,
paragraphs 4.11 and 4.12.
[12]. Du
Plessis et al, op. cit., p. 136.
[13]. Ibid.,
p. 138.
[14]. Ibid.,
p. 140.
[15]. Australian
Stock Exchange (ASX) Corporate Governance Council, Principles
of good corporate governance and best practice recommendations, ASX,
Sydney, March 2003.
[16]. Ibid.,
p. 5.
[17]. Ibid.,
recommendation 2.1, p. 19.
[18]. Ibid.,
recommendation 2.2, p. 21.
[19]. ASX
Corporate Governance Council, Corporate
governance principles and recommendations, 3rd edn, ASX, Sydney, 2014, pp.
17–18.
[20]. Under
section 10 of the SIS Act the term RSE licensee means a
constitutional corporation, body corporate, or group of individual trustees,
that holds an RSE licence granted under section 29D.
[21]. APRA, Submission to the Senate Economics Legislation Committee, Inquiry into the provisions
of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015,
14 October 2015, pp. 4–5.
[22]. Part
3 of the SIS Act provides that operating standards for regulated
superannuation funds may be prescribed in regulations that may cover issues
such as the number of trustees and the composition of boards and committees and
the disclosure of information about funds to the Regulator. Covenants to be
included in the governing rules of registrable superannuation entities are
specified in section 52 of the SIS Act and include a covenant for each
trustee to act honestly in all matters concerning the entity and to perform the
trustee’s duties and exercise the trustee’s powers in the best interest of the
beneficiaries. Prudential standards are established under Part 3A of the SIS
Act. Standards established to date cover issues such as conflicts of
interest and outsourcing. See APRA, ‘Superannuation
prudential standards’, APRA website.
[23]. Australian
Government, ‘Review
into the governance, efficiency, structure and operation of Australia’s
superannuation system: papers’, Super System Review website.
[24]. The
Treasury, Stronger super,
Treasury, Canberra, December 2010.
[25]. Liberal
Party of Australia and the Nationals, The
Coalition’s policy for superannuation, Coalition policy document,
Election 2013, p. 5.
[26]. A
summary of some of the outcomes of the Cooper Review is included in K Swoboda, Major
superannuation and retirement income changes in Australia: a chronology,
Research paper series, 2013–14, Parliamentary Library, Canberra, 2014.
[27]. Cooper
Review, ‘Part two: recommendation
packages’, op. cit., p. 43.
[28]. Ibid.,
recommendation 2.1, p. 48.
[29]. Ibid.,
recommendation 2.18, p. 64.
[30]. Ibid.,
p. 44.
[31]. Ibid.,
recommendation 2.6, p. 55.
[32]. Ibid.,
recommendation 2.7, p. 56.
[33]. Ibid.,
p. 55. The term ‘independent’ is used in section 10 of the SIS Act to
cover an independent director for a corporate trustee and independent
trustee.
[34]. The
Treasury, Stronger super,
op. cit.
[35]. Ibid.,
pp. 26–27.
[36]. M
Cormann, Shorten
super statement short on detail and substance, media release,
26 October 2010.
[37]. M
Cormann, ‘Second
reading speech: Superannuation Legislation Amendment (Trustee Obligations and
Prudential Standards) Bill 2012’, Senate, Debates, 14 August 2012,
p. 5037.
[38]. Ibid.,
p. 5038.
[39]. Liberal
Party of Australia and the Nationals, The
Coalition’s policy for superannuation, op. cit., p. 5.
[40]. The
Treasury, Better
regulation and governance, enhanced transparency and improved competition in
superannuation, Discussion paper, Treasury, Canberra, 28 November
2013, pp. 12–13.
[41]. Financial
System Inquiry (FSI), ‘Home: the panel’,
FSI website.
[42]. FSI, Financial
System Inquiry: final report, (Murray Report), Treasury, Canberra,
November 2014, p. 133.
[43]. Ibid.,
p. 134.
[44]. J
Frydenberg (Assistant Treasurer), Improving
superannuation governance, media release, 26 June 2015.
[45]. The
Treasury, ‘Reforms
to superannuation governance’, Treasury website.
[46]. The
Treasury, ‘Submissions
to Treasury consultation on reforms to superannuation governance’, Treasury
website.
[47]. The
Treasury, Superannuation
Legislation Amendment (Trustee Governance) Bill 2015 and associated regulation:
Governance arrangements for registrable superannuation entities summary of
consultation process, pp. 3–4.
[48]. Details
of the terms of reference, submissions to the Economics Committee and the final
report (when published) are available on the inquiry homepage.
[49]. Details
of the terms of reference, submissions to the Economics Committee and the final
report are available on the inquiry
homepage.
[50]. Senate
Standing Committee on Economics, Superannuation
Laws Amendment (Trustee Governance) Bill 2015 [Provisions], The
Senate, Canberra, 9 November 2015, p. 22.
[51]. Ibid.,
p. 28.
[52]. Ibid.,
p. 24.
[53]. Senate
Scrutiny of Bills Committee, Alert
digest, 11, 14 October 2015, p. 36.
[54]. L
Chesters, ‘Second
reading speech: Superannuation Legislation Amendment (Trustee Governance) Bill
2015’, House of Representatives, Debates, 20 October 2015, p. 11779.
[55]. G
Brodtmann, ‘Second
reading speech: Superannuation Legislation Amendment (Trustee Governance) Bill
2015’, House of Representatives, Debates, 20 October 2015, p. 11830.
[56]. J
Chalmers, ‘Second
reading speech: Superannuation Legislation Amendment (Trustee Governance) Bill
2015’, House of Representatives, Debates, 19 October 2015,
p. 11647.
[57]. A
Bandt, ‘Second
reading speech: Superannuation Legislation Amendment (Trustee Governance) Bill
2015’, House of Representatives, Debates, 20 October 2015,
p. 11834.
[58]. Financial
Services Council, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 30 September 2015.
[59]. Association
of Superannuation Funds of Australia, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[60]. Australian
Chamber of Commerce and Industry, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[61]. Australian
Institute of Company Directors, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[62]. Choice, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[63]. Australian
Institute of Superannuation Trustees, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[64]. Industry
Super Australia, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[65]. Corporate
Superannuation Association, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 5 October 2015.
[66]. Australian
Council of Trade Unions, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[67]. Australian
Industry Group, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 2;
National Seniors Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 15 October 2015, p. 2.
[68]. Governance
Institute of Australia, Submission to the Senate Economics Committee, Inquiry into the Superannuation
Legislation Amendment (Trustee Governance) Bill 2015, 14 October 2015.
[69]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017, p. 7.
[70]. Ibid.
[71]. The
Statement of Compatibility with Human Rights can be found at pages 30 and 61 of
the Explanatory
Memorandum to the Bill.
[72]. Parliamentary
Joint Committee on Human Rights, Twenty-ninth
report of the 44th Parliament, 13 October 2015, p. 2.
[73]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017, p. 9.
[74]. Ibid.,
p. 12.
[75]. Financial
Services Council, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 30 September 2015, p. 2;
Australian Chamber of Commerce and Industry, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 3;
Council of Small Business Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 1;
Choice, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 1.
[76]. Financial
Services Council, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit., p. 2.
[77]. Industry
Super Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 42;
Australian Institute of Superannuation Trustees, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 4 October 2015, p. 7;
McKell Institute, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, p. 1, 1 October 2015.
[78]. Australian
Institute of Superannuation Trustees, Submission to Senate Economics Committee inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit., p. 7.
[79]. Organisation
for Economic Co-operation and Development (OECD), Corporate
governance factbook, OECD, Paris, March 2015, pp. 70–79.
[80]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017, p. 41.
[81]. Toronto
Stock Exchange (TSX), Corporate
governance: a guide to good disclosure,TSX, Toronto, n.d., p. 6;
Financial Reporting Council, The
UK corporate governance code, The Financial Reporting Council, London, April 2016, p. 10.
[82]. Mercer, Governance
of superannuation funds: a report on independence requirements for trustee
boards, Mercer Consulting (Australia), Sydney, May 2015.
[83]. Ibid.,
p. 16.
[84]. Ibid.,
p. 19.
[85]. See,
for example, S Ferris and S Yan, ‘Do
independent directors and chairmen matter? The role of boards of directors in
mutual fund governance’, Journal of Corporate Finance, 13(2–3), 23
February 2007; G Vintila and S Gherghina, ‘An
empirical investigation of the relationship between corporate governance
mechanisms, CEO characteristics and listed companies’ performance’, International Business Research, 5(10), 3 September 2012, pp. 175–191.
[86]. R
Chibuike Iwu-Egwuonwu. ‘Some
empirical literature evidence on the effects of independent directors on firm
performance ’, Journal of Economics and International Finance, 2(9),
September 2010, p. 196.
[87]. The
term ‘pension fund’ is used in some countries to describe retirement savings
funds that are broadly equivalent to superannuation funds in Australia.
[88]. J
Harper, Board
of trustee composition and investment performance of US public pension plans,
Rotman International Centre for Pension Management, Toronto, February 2008, p. 1.
[89]. O
Kowalewski, ‘Corporate
governance and pension fund performance’, Contemporary Economics, 6(1),
2012, p. 41.
[90]. E
Torunn Nisbet, Influence
of board structure on the performance and governance framework of Australia’s
superannuation funds, APRA, Sydney, December 2013, p. 33.
[91]. M
Tan and M Cam, ‘Does
governance structure influence pension fund fees and costs? An examination of
Australian not-for-profit superannuation funds’, Australian Journal of
Management, 40(1), 2015, p. 131.
[92]. Australian
Institute of Superannuation Trustees, Submission to Treasury, Exposure draft for reforms to superannuation governance, p.
9, 23 July 2015; Industry Super Australia, Submission to Treasury, Exposure draft for reforms to superannuation governance,
23 July 2015, p. 9.
[93]. Productivity
Commission (PC), Default
superannuation funds in modern awards, Inquiry report, 60, PC,
Canberra, 5 October 2012, pp. 100–101.
[94]. Ibid.,
p. 102.
[95]. SIS
Act, section 89.
[96]. Ibid.,
section 10.
[97]. Ibid.,
section 87.
[98]. APRA, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 4.
[99]. Superannuation
Industry (Supervision) Regulations 1994, regulation 4.08.
[100]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017, p. 42.
[101]. Industry
Super Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 5;
Australian Institute of Superannuation Trustees, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 4.
[102]. Australian
Institute of Superannuation Trustees, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit., p. 14.
[103]. Association
of Superannuation Funds of Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 13.
[104]. Australian
Industry Group, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 14 October 2015, p. 4;
National Seniors Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, 15 October 2015, p. 2.
[105]. SIS
Act, proposed paragraphs 87(1)(a) and (b).
[106]. Ibid., proposed paragraph 87(1)(d).
[107]. Ibid., proposed paragraphs 87(1)(e),
[108]. Ibid., proposed paragraphs 87(1)(c).
[109]. Ibid., proposed paragraphs 87(1)(f).
[110]. Ibid., proposed subsection 87(3).
[111]. Ibid., proposed subsection 87(4).
[112]. ASX
Corporate Governance Council, Principles
of good corporate governance and best practice recommendations, op.
cit., p. 20; Financial Services Council (FSC), FSC standard no. 20: superannuation
governance policy, FSC, Sydney, 26 March 2013, p. 10. These two
documents refer to the definition of ‘substantial holding’ in section 9 of the Corporations Act
2001 which includes voting interests of five per cent or more of
the total number of votes attached to voting shares in the body, or interests
in the scheme.
[113]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee
Arrangements) Bill 2017, p. 20.
[114]. Ibid.,
p. 21.
[115]. Ibid.
[116]. Australian
Industry Group, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit., p. 4.
[117]. Governance
Institute of Australia, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit. , p. 1.
[118]. SIS
Act, proposed section 90.
[119]. Explanatory
Memorandum, Superannuation Laws Amendment (Strengthening Trustee Arrangements)
Bill 2017, p. 22.
[120]. APRA, Submission to Senate Economics Committee, Inquiry into the Superannuation Legislation
Amendment (Trustee Governance) Bill 2015, op. cit., pp. 8–9.
[121]. Item
6 of Part 2 in Schedule 1 to the Bill amends the definition of reviewable
decision in subsection 10(1) of the SIS Act.
[122]. Item
23 of Part 3 in Schedule 1 to the Bill.
[123]. Items
24 and 25 of Part 3 in Schedule 1 to the Bill.
[124]. Commonwealth
Superannuation Corporation (CSC), ‘Your superannuation trustee’,
CSC website.
[125]. Governance of
Australian Government Superannuation Schemes Act 2011, subsection
11(1).
[126]. Ibid.,
subsection 11(2).
[127]. Ibid.,
subsection 12(4).
[128]. Ibid.,
subsection 12(5).
[129]. Ibid., proposed subsection 12(4A).
[130]. Ibid., proposed subsection 12(4).
[131]. Ibid., proposed subsection 12(7).
[132]. Ibid., proposed subsection 17(5A).
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