Reflections on Representation in Australian Superannuation Governance

Faculty Author Type

Emeritus Faculty [Ronald Davis]

Published In

Australian Superannuation Law Bulletin

Document Type


Publication Date



Australia; Superannuation; Pension funds; Governance


Studies have shown that pension fund governance has a measurable effect on returns on investment, thus the regulation of pension fund governance is an important issue for governments that provide substantial tax concessions to employment based pension schemes and rely on them to provide retirement income for their older citizens. Australia has a rapidly growing defined contribution superannuation scheme funded by mandatory contributions from employers. The governance of these schemes is primarily in the hands of a board of directors of a corporate trustee. For funds sponsored by certain industries the legislation mandates equal numbers of directors appointed by employers and by unions, these “industry funds” are operated on a non-profit basis. A proposal to change the governance arrangements of superannuation schemes has been adopted by the newly elected federal government in Australia. The proposal would require one-third of the directors of industry superannuation schemes to be “non-associated” or “independent” of any connections with the employers, unions or financial institutions involved and remove the equal representation requirement from industry funds. The article is critical of these changes because the justifications offered for the change offer a weak, abstract explanation of its necessity; provide no elucidation of a concrete, measurable goal by which to determine whether the change has produced the desired result; and fail to generate a persuasive narrative about why independence offers value in the context of superannuation fund governance. While “independence” of directors is considered to be important in the governance of corporations, this is seen as a solution to the collective action problems of dispersed shareholders in supervising management. However, superannuation scheme members have an alternative means of addressing collective action problems through the union’s appointment of directors and the unions have the resources and coordination necessary to protect plan members’ interests in the scheme. As well, superannuation scheme members will not have the power to remove the independent directors, unlike the shareholders of a corporation who can use their voting rights to hold director to account. To summarise the concerns, these non-associated directors — adrift from all but the most formal legal ties to the scheme members — will gravitate towards those with the power of appointment, and be vulnerable to capture by the full-time management of the scheme, because of insufficient resources and lack of information necessary to act as an effective constraint on their actions. The lack of a robust system of accountability to members will compound these problems.