FSC SUPERANNUATION CORPORATE GOVERNANCE POLICY RAISING THE BAR

Transcription

1 FSC SUPERANNUATION CORPORATE GOVERNANCE POLICY RAISING THE BAR Australia s pool of managed funds is the fourth largest in the world at $AUD1.8 trillion, of which $1.3 trillion is held in superannuation. Superannuation will grow to $3 trillion by 2020 and $5-and-a-half trillion by The corporate governance and transparency standards of superannuation funds are critically important in maintaining confidence, security and stability in the system. Corporate governance refers to the principles, rules and processes by which organisations are operated and managed and how those in control are held to account. In the case of superannuation, consumers want to know that their savings are secure, that they have access to relevant information about their investments and that the people overseeing the management of their retirement savings adhere to the highest standards. The Financial Services Council supports APRA s proposals to further align corporate governance standards in superannuation with banking, general insurance and life insurance. As a result, the FSC s Superannuation Corporate Governance Policy goes even further than APRA s proposed prudential standards by requiring FSC Members meet the highest standards of transparency and governance. Coinciding with the commencement of APRA s new superannuation prudential standards and MySuper on 1 July 2013, the FSC will introduce binding Member standards on superannuation governance. The FSC s Superannuation Corporate Governance Policy covers requirements in the following areas: Independence Remuneration Conflicts of Interest Environmental and Social Governance Proxy Voting 1

2 1. Independence of the Chair POLICY: Independent Chair required. RATIONALE: In keeping with contemporary governance standards and with the significance of the superannuation industry to Australians and the economy, superannuation funds should be required to have an independent Chair. An independent Chair is required of entities in all other prudentially regulated sectors. 1 It is also considered best practice under the ASX Corporate Governance Council Principles and Recommendations, which apply to listed entities. DEVELOPMENT OF FSC STANDARD: Consideration will be given to the definition of independent and whether any transitional measures are required. A number of existing definitions are available for further consideration, including definitions found in Chapter 5C of the Corporations Act (Managed Investment Schemes) and in Prudential Standard CPS Majority independent directors POLICY: Majority of directors must be independent. RATIONALE: As recommended by the Super System Review, the Superannuation (Industry) Supervision Act 1993 should no longer endorse the equal representation model. The Review recommended that one third of superannuation directors should be independent. The FSC supported this recommendation and we now seek to build on it. In keeping with contemporary governance standards and with the significance of the superannuation industry to Australians and the economy, RSE Licensees (superannuation boards) will be required to have a majority of independent directors. A majority of independent directors is required of entities in all other prudentially regulated sectors. 2 This is also consistent with Principle 2.1 of the ASX Corporate Governance Principles, which requires that a majority of the board be independent directors. DEVELOPMENT OF FSC STANDARD: Consideration will need to be given to the definition of independent and whether any transitional measures are required. 3. Disclosure of remuneration POLICY: Director and senior management remuneration should be disclosed where it is paid from the super trust (fund). RATIONALE: Remuneration is relevant to super fund members when it is paid from the trust/fund and should be disclosed. 1 See for example Prudential Standard CPS 510. This Prudential Standard sets out minimum foundations for good governance of a regulated institution in the deposit-taking, general insurance and life insurance industries. It requires that the chairperson of the Board of directors must be an independent director. 2 Refer to footnote 1. 2

3 This policy does not override existing remuneration disclose requirements under the Corporations Act 2001 or the ASX Corporate Governance Guidelines where they already apply to a financial services company operating a superannuation fund. DEVELOPMENT OF FSC STANDARD: Development of this requirement will occur alongside APRA S prudential standards, in particular the proposed Superannuation Prudential Standard 510: Corporate Governance. 4. Conflicts of interest guidelines POLICY: Directors must not hold multiple and competing superannuation fund board positions. RATIONALE: While some conflicts of interest are able to be effectively managed, others should be avoided. The only effective way of managing the conflict a director faces in holding multiple and competing superannuation fund board positions is a complete ban. In no other industry would competing businesses share common directors. Holding multiple and competing superannuation fund board positions places directors in an untenable position where they are unable to discharge their fiduciary responsibilities to both groups of members. DEVELOPMENT OF FSC STANDARD: Development of this requirement will occur alongside new legislative and prudential requirements (Stronger Super) and existing conflict management provisions. While existing and proposed legal requirements will not require such conflicts to be avoided the FSC standard will, on the basis that, such conflicts cannot be effectively managed and are not in the best interests of members. 5. Environmental, Social and Governance policy POLICY: Trustees must develop an Environmental & Social Governance (ESG) risk management policy that is made available to members. RATIONALE: The environmental and social governance of a company can be a major factor impacting on its financial performance. Therefore monitoring the ESG activities of investee companies is an important aspect of trustees discharging their duties members. An ESG Policy should therefore be developed and approved by the superannuation fund board. This policy should document processes regarding engagement with companies on environmental, social and corporate governance activities and ensuring that voting rights are managed with due care and diligence. In August 2011, the FSC and the Australian Council of Superannuation Investors launched an ESG Reporting Guide for Australian Companies to assist companies in identifying and reporting their ESG risks. The Guide provides superannuation funds and investors with comparable information and data to more easily evaluate and manage ESG risks. 3 DEVELOPMENT OF FSC STANDARD: Further consideration to be given to the scope of the ESG policy, including whether it should be limited in its application to default superannuation (MySuper) on the 3 For more information, click here: 3

4 basis that choice members have made an active investment decision and are therefore less reliant on trustees. Additionally, consideration should be given to whether the policy should be publicly available and how it relates to existing Corporate Governance Policies maintained by FSC members under the FSC Blue Book (Guidance Note No.2). 6. Proxy Voting POLICY: Trustees must develop and publicly disclose a proxy voting policy and publish their Australian proxy voting record. RATIONALE: Superannuation funds are the primary asset holders of Australian equity investments. As the pool of superannuation funds increases this ownership concentration and influence will only become greater. To maintain the integrity of the market and the health of the economy and our capital markets, it is important that superannuation members and other market participants are aware of the voting behaviour of superannuation funds and the principles that guide their decision making. DEVELOPMENT OF FSC STANDARD: Further consideration should be given to incorporating any proxy voting policy into the ESG policy and whether it should be limited to MySuper. Additionally, consideration should be given to how it relates to existing FSC Standard No.13 which requires all FSC Member fund managers to have a proxy voting policy and publish their Australian proxy voting record. 4

5 Comparison of existing legal requirements and FSC Superannuation Corporate Governance Policy CORPORATE GOVERNANCE MEASURE INDEPENDENCE EXISTING LAW NO INDEPENDENT CHAIR; NEW FSC POLICY INDEPENDENT CHAIR; NO MAJORITY INDEPENDENT MAJORITY INDEPENDENT DIRECTORS TRUSTEE BOARDS TRUSTEE REMUNERATION NO DISCLOSURE DISCLOSURE OF REMUNERATION WHERE PAID FROM THE TRUST CONFLICTS OF INTEREST NO PROVISION PREVENTING PROHIBITION ON DIRECTORS SITTING ON MULTIPLE TRUSTEESHIPS (FOR MULTIPLE SUPERANNUATION BOARDS A SINGLE DIRECTOR) ENVIRONMENTAL & SOCIAL NO REQUIREMENT MANDATORY ESG POLICY GOVERNANCE (ESG) PROXY VOTING NO REQUIREMENT MANDATORY PROXY VOTING POLICY 5