“Arguing only about the number of independent directors on a board loses sight of what matters: getting the right mix of knowledge, skills and experience, and managing conflicts of interest.”
Details of the collective skills of the trustee directors should be published annually, the commission recommends.
And every three years, the board should seek third-party evaluation of its performance.
Despite the sparse empirical evidence, standards-making bodies around the world typically set a requirement of majority independence, the report notes.
“Some anecdotal evidence also supports a positive relationship between independent directors and performance in the super sphere,” it says.
“Sunsuper…considered that the engagement of three independent directors had enhanced its governance.
A survey by the commission found about one quarter of directors, or an average of two per board, are independent, although composition varies markedly.
Twenty-two chief executives, representing 6 per cent of assets and 4 per cent of member accounts in the system, told the commission their boards have no independent directors.
But the responses should be viewed with caution, the report says, because research shows almost all non-executive directors on retail fund boards are reported to be “independent” even though nearly 80 per cent are “affiliated’ directors”. That is, executives, employees or directors of a related entity.
Eighteen chief executives, accounting for 40 per cent of assets and 47 per cent of member accounts, reported a majority of independents.
Both the Cooper review of super and Murray review of the financial system recommended mandating a minimum share of independent directors on boards.
The federal government has also been seeking to mandate that at least one third of board positions be held by independent directors.
But the measure was junked just before former prime minister Malcolm Turnbull’s ouster.
As with its draft report, the commission recommends the government make sure there is no legislative impediment to APRA defining what constitutes an independent director, or to superannuation funds appointing independent directors to trustee boards.
It should also give APRA powers to interpret and enforce the definition of an independent director.
Picking up on conflicts of interest identified by the banking royal commission, the report says APRA should require funds to conduct formal due diligence of their outsourcing arrangements at least every three years.
These are the arrangements that see funds pay for investment management or administration services.
In many cases the trustees of the funds engage other parts the same business or organisation, raising questions about conflicted decision-making.
“Further rigour is also needed in the contracts that trustees sign with outsourced providers,” the report says.
“APRA should require trustees to include in all material service contracts a clause that obliges the service provider not to do or take any action that adversely affects members’ interests.”
from Viral up Blog http://bit.ly/2Ccqk30
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