Daily Telegraph 10 April 2018
As the Royal Commission into financial services kicked off, I wrote in the Daily Telegraph about the biggest secret in the industry: financial and political support unions receive from industry super funds.
Unions are desperate to defend their superannuated sheep stations, to keep the laws which give union bosses tycoon status – where their interests are put ahead of workers.
Industry super funds have sent $50m in political payments to unions in the past decade - growing rapidly to $22m per annum within a decade.
That is, your retirement savings sent to unions like the CFMEU to pay for political campaigns.
If there were independent directors of these ”not for profits”, the boards would not allow millions of dollars of retirement savings to be paid to unions.
Despite industry funds being investors of $460 billion, so much union activity is now working against the interests of super investors.
In the most brazen example of talking out of both sides of your mouth, unions told voters last election in NSW, the government should be defeated as the poles and wires would be sold to the Chinese.
Poles and wires were then subsequently bought by the very same union backed industry super funds!
Unions also campaign against tax cuts and trade deals, both of which make the Australian companies (which they own through super) more profitable.
One of the major laws which sustains this rot are superannuation governance laws where unions control half of the super board seats.
I provide two real examples of poor governance which should be eliminated by a reform idea that’s been on the table for a decade: mandatory independent directors for super funds.
First, it is generally accepted that a larger super fund can deliver lower fees and better returns for investors.
Mergers between smaller funds are therefore desirable. Unfortunately, many proposed mergers between industry funds have collapsed because the union owners squabble over board seats – because the union’s interests come first. To be fair, some have also been completed.
Equipsuper is a $14 billion fund with two failed mergers in the past five years at the hands of unions.
The Equipsuper chairman Andrew Fairley said after the 2012 merger with VisionSuper failed because:
“… at the heart of the problem was an inability to agree on which trustees from both boards would form the newly-merged board. Put simply, industry fund boards are made up of an equal number of union-backed trustees and employer-backed trustees, so each representative organisation wants to keep its ratio of spots.”
Again in 2017, another merger between Equipsuper and Energy Super failed. Leaked emails revealed the Queensland ETU, which controls board seats on Energy Super, sought Queensland Government support to block the merger as the union would lose board seats.
Clearly, the interests of the union is trumping the mums and dads who invest their super in industry funds.
In other cases, we see bloated boards.
CBus super fund has a board of 19 people. All of these people need board fees – sometimes the cash goes back to the union.
Over a ten year period CBus paid unions an unbelievable $4.2 million in retirement savings.
These points illustrate exactly why Labor and Coalition governments have repeatedly been advised to rebalance these boards with independent, non-union directors.
This would ensure mergers occur in the interests of investors and stop payments to unions.
Second, another key principle is directors of investment companies like super funds should be picked for their expertise and understanding of... investing money.
There is a case unfolding as the Royal Commission rolls on where automatic union control of a super fund by union officials is creating a crisis.
Vision Super is becoming a walking billboard for the need for independent directors. AEC data shows it has sent $300,000 to the Australian Services Union (ASU) in the past two years.
In recent weeks, the Chairman of the Vision Super Brian Parkinson was accused by the fund’s co-owner, the ASU’s Victorian boss Michelle Jackson of “gross misbehaviour and gross neglect of duties."
Jackson’s said: "Mr Parkinson was dismissed from his current honorary office of national conference delegate and the union has withdrawn our endorsement of Mr Parkinson as an ASU nominee of the Vision Superannuation board."
The union’s very actions have demonstrated that being a senior union representative should not create an automatic right to become a superannuation trustee without consideration of competence.
This is even more important because unions control 50 per cent of boards and as we have seen, union bosses can and do put their interests before workers.
Parkinson is digging in. He says it is all wrong and he is innocent. Who knows? It is unclear what happens next. He is still Chairman.
This case has demonstrated the howling conflict which will only be solved with more independence in super funds boards – the very reform unions are asking the Senate to block.
The fund should have the best guardians of workers’ nest eggs, not be chocked full of union and employer representatives whose day job is to be a union or employer advocate.
All types of corporations have problems from time to time. Banks have been no exception.
Yet no other sector has invented a smokescreen to maintain 30 year old laws that no longer serve workers by claiming to be purer than Bambi.
Worse, “not for profit” status has been asserted whilst industry funds have paid massive profits to union owners.
The real life examples show that opposing independent directors is an unsustainable position.
Andrew Bragg worked in the financial services industry for almost a decade – Twitter @ajamesbragg