23 July 2015

Manager (By email - superannuationgovernance@treasury.gov.au)
Insurance and Superannuation Unit
Financial System and Services Division
The Treasury
Langton Crescent
PARKES ACT 2600

“Reforms to Superannuation Governance.”

The Queensland Local Government Superannuation Board (the Board) as trustee for the Local Government Superannuation Scheme (LGsuper) welcomes the opportunity to provide feedback and comments on the proposed legislation to improve governance arrangements in superannuation.

LGsuper

The Board is constituted under the Local Government Act 2009 (Qld) to act as trustee for LGsuper, a public sector superannuation fund. LGsuper provides coverage for all employees in Queensland local government and currently comprises 84,000 members and approx. $9.3b in FUM.

The Board currently comprises 3 member-elected representative directors, 3 employer representative directors and 3 independent directors. The Chair of the Fund, Bronwyn Morris, is an independent director. This structure has been in place since 1 July 2014. The new structure was designed to bring greater balance, leadership and diversity as the Board broadens its combined skills, knowledge and experience.

Comments on the Proposed Legislation

As has been quoted in the press, the Board supports the Government’s proposals to introduce a requirement for a minimum of one third of a board of an RSE licensee to be independent directors. The Board of LGsuper meets this requirement and has benefited from the broader range of skills and expertise which the three independent directors have brought to the business. The appointments have made what has been a good board, better.

However, our Board is concerned that the draft legislation and the proposals being put forward by APRA, by implication, under-value the skills and experience of member and employer representative directors. Many of these directors have made valuable contributions over many years and gained significant Board experience. Further, because by definition they are closer to the members and employers, they have a more direct understanding of those parties’ interests and needs than most independent directors.

•	3 Year Waiting Period under Proposed Section 87(1)

The Board notes that under the proposed Section 87(1) Meaning of independent from an RSE licensee, any person who has had any time in the last 3 years a material relationship with the RSE licensee cannot meet the definition of independent director.

The LGsuper Board has appointed three independent directors to its board and all three had previous employment or board positions with service providers to LGsuper. These previous relationships have been subject to a standing conflict declaration which will expire 3 years after the termination of their employment or board position with the service provider. The three independent directors have brought new skills and experiences to the LGsuper Board which has made a ‘good Board, better’.
Two of the 3 existing independent directors were well known to the Board before their appointment. This knowledge/relationship was an aid to the Board in appointing them as, due to the prior relationship, they were more certain of the fit of the persons with the Board’s culture and thus any risk of the Board becoming less effective following the appointments was minimised. Further, the Board was well aware of their skills and knowledge and how they complemented the existing skills on the Board.
While the existing independent directors will have met the definition by the end of the transition period, in future if the proposed legislation is passed the Board will not be able to make such worthy appointments for at least 3 years following the end of the material relationship with the Board. The requirement could deny the Board some excellent candidates and their skills and industry knowledge may have lessened during the waiting period.
The Board considers that the requirement should be established on an “if not, why not” basis for persons who previously worked for service providers to the RSE licensee. The licensee would then have to justify in their annual report why they selected such persons and how they would improve the performance of the RSE licensee.
The Board notes that the definition under Section 87(1) also covers previous employees of the RSE licensee or its related entities. The Board supports the retention of the 3 year waiting period for such persons as separation of periods of service as staff of funds and directors of funds is generally accepted as good governance practice.

The Board generally supports the proposed legislation to improve the governance of superannuation funds. The change proposed would allow RSE licensees to appoint the best candidates for independent director positions on their boards and minimise the risk of reduced board effectiveness, while being accountable to fund members and the Regulator for appointing persons who may not meet an inflexible regulatory requirement.

Yours faithfully

for Bronwyn Morris
Chair