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BFCSA: Industry super funds rule the roost

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Industry super funds rule the roost

The Australian 12:00am March 9, 2019

Alan Kohler

 

We can now safely consign the Productivity Commission’s idea for a “10 best of the best” list of default superannuation funds to the bulging too hard basket. It won’t happen.

Neither party wants to do it, the super funds definitely don’t and the banks even less so, not that they matter for a while. It was one of those dishes that looked great in the PC kitchen, but quite unappetising when the cloche was lifted.

Not that superannuation policy is bipartisan: the Labor Party will re-engage the Fair Work Commission to take a tougher line and choose fewer default funds, and only good ones, not necessarily the correct fund for the award. The Coalition is lost, wandering a post-Hayne
wilderness.

The government only knows for sure that they would very much prefer that industry funds weren’t growing, but are conscious that it is responsible for the fact that they are, having appointed the royal commission, which PM Malcolm Turnbull tried to aim at super funds, but shot the banks instead.

Nor will there be a single national default fund run by Peter Costello, despite your columnist’s support for that idea,
because it would be too hard and would smell like nationalisation, and there won’t be any big changes to governance or structure.

If Labor wins the election, industry funds will continue to grow spectacularly, and in the unlikely event that the Coalition wins, industry funds will continue to grow spectacularly.

One thing everyone agrees on is that defaulting new employees into bad, underperforming funds is unfair and should stop. Apart from Labor wanting to direct the FWC to choose only better performing funds as award defaults, there is general agreement that the bottom quartile of funds should be politely asked to give up.

There a few unresolved questions with this that an incoming government will need to address: what if those funds won’t go quietly; what exactly is “underperformance”; and if you did manage to cut the bottom 25 per cent, there would be a new bottom quartile of the remaining 75 per cent. There is always a bottom quartile.

But at least we’re dealing with reality rather than theory, and practical solutions are being thought up instead of impractical ones.

The thing that will definitely happen — is happening now — is that the large industry funds are quickly getting larger and more powerful. They are flooded with inflows from bank-owned funds and Labor’s ban on franked dividend cash refunds will tend to push more money into them. Also, the bipartisan policy to winnow out badly performing default funds will lead to mergers and greater concentration — and thus more power to the big ones.

So it’s not surprising that a debate has sprung up about what they are doing with that power, and specifically the extent to which they will act as ESG (environmental social governance) police on corporate Australia, or what my colleague Janet Albrechtsen calls “virtue-signalling”.

Greg Combet, now described as the industry super tsar, since he is chairman of both the peak body, Industry Super Australia, and their jointly owned investment vehicle IFM Investors, said this week that there would be more focus on ESG issues.

At about the same time that he was speaking, the former chief of staff of NAB CEO Andrew Thorburn, Rosemary Rogers, was being charged with swindling the bank of millions of dollars and living a blatantly lavish lifestyle.

If missing the fact that your chief of staff is living like a billionaire when you know her salary and her CV doesn’t come under the G in ESG, I don’t know what does, so that would have confirmed to its shareholders, if that were needed, that NAB was adrift in a fog and needs to sharpen up.

As discussed here a few weeks ago, the key events in the flexing of super fund muscle with corporates were the big votes against the remuneration reports of NAB (88 per cent), Westpac (63 per cent), Telstra (62 per cent) and AMP (61 per cent).

Those votes showed that industry funds are prepared to sack directors in the most efficient way they can — with remuneration report strikes. Two strikes and they’re out. Those four boards face second strikes and full board spills this year if they can’t persuade institutional shareholders that they’ve got their act together. That means industry funds.

What’s more this is only the beginning. First, it’s clear that remuneration report votes are not just about remuneration, but have become the pressure point for large shareholders to exert control over boards.

And second, those shareholders are getting larger, better organised and individually more powerful as the new default super policy kicks in and smaller underperforming funds are absorbed or kicked out.

In 1993, the year that Paul Keating started compulsory super in a deal with the unions, Greg Combet started work as a senior industrial officer for the ACTU. Union membership was 40 per cent. Now union membership is 15 per cent, and falling, and the unions have found themselves part-owners of all of Australia’s largest corporations, with Combet running the show. Life is full of surprises.

 

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