The manuscript is in press for “Independent Directors in Asia”, co-edited for Cambridge University Press with ANJeL stalwarts Profs Harald Baum (MPI Hamburg), Souichirou Kozuka (Gakushuin, Tokyo) and Dan Puchniak (NUS). As previously mentioned on this Blog, contributions have been extensively workshopped at major conferences in Berlin and then Singapore, as well as by individual authors in other forums.
A longer version of the chapter comparing Australia, which I co-authored with Fady Aoun, has also been published in June 2016 by the University of Miami International and Comparative Law Review. Our summary of some trends revealed by the broader comparative analysis in the CUP book is forthcoming by November from the Company and Securities Law Journal. As we conclude briefly in that Note, a comparative perspective on the complex diffusion of independent director requirements across Asia makes us wary about simply extending the requirements for listed companies to industry-based superannuation funds in Australia, as proposed in a failed Bill last year but still being developed through self-regulation.
At present, Australia’s Superannuation Industry (Supervision) Act 1993 (Cth) does not mandate any independent directors for the corporate trustee of such funds. However, if one is appointed, s 10 requires the person to not be a member, or associated with any employer-sponsor or trade union etc representing the interests of fund members. (By contrast, only “substantial” shareholders are precluded from qualifying as independent directors in ASX-listed companies.) The 2010 Cooper Review broadened the definition to exclude also current or former executives of the fund or a related entity, recommending that such “non-associated” directors comprise at least one third of the board if the fund followed an equal-representation model, or otherwise a majority of the board. This was one of few recommendations not adopted by the then (Labor) Government, but in 2014 (under a Coalition Government) the Financial System Inquiry urged a majority of independent directors for all funds plus an independent Chair. The Inquiry conceded that there was little empirical evidence linking better governance and fund performance, but argued that the reform would help improve decision-making.
Groups representing industry funds and some of the smaller retail funds protested that independence would not assure the quality of decision-making. However, more independent directors were recommended for CBus in an independent review in that industry fund, carried out in 2015 by a senior ex-official after staff of CBus were found to have leaked member details to an affiliated trade union. The Financial Services Council, including financial institutions, fund managers and most superannuation funds that are required by Council self-regulation to have anyway a majority of independent directors and an independent Chair, kept pressing the Government to extend similar requirements on industry funds subject to the 1993 Act. Introduced on 16 September, the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 (Cth) proposed at least one third independent directors, including an independent Chair (with a more tailored definition of independence), plus an “if not, why not” regime for those lacking a majority of independent directors on trustee boards. However, the Bill did not proceed when Greens and cross-bench Senators declared their opposition, and it lapsed in April 2016 when the general election was called. Instead, industry funds agreed to introduce to introduce a code of conduct by April 2016 – leaving open questions about the governance of some retail funds (such as IOOF) which have opted out of the Financial Services Council’s self-regulation with respect to independent directors.
The empirical evidence linking superannuation fund performance with governance improvements, and especially more independent directors, remains paltry – as indeed for listed company value and independent directors in Australia and the West, as well as in Asia. There was anyway confusion as to the goals of the 2014 reform proposal, which was mainly aimed at enhancing the legitimacy of Australia’s superannuation system. This may explain why the Bill emphasised a “structural” conception of independence, excluding relationships likely to create conflicts of interest in various types of funds, with even less attention to the “capacity” or “status” conceptions of independence that the ASX principles may be starting to recognise. This risks an ineffective or even counter-productive result. Indeed, a comparative law perspective suggests that extending independent director requirements to industry funds may lead to the new appointees inventing diverse functions to perform – for better or worse.
