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Julian Lorkin
UNSW Business School media
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​​In a nation where huge superannuation pools are likely to hold the key to retirement for an ageing population, a robust debate has put the spotlight on the Australian Government's push for more independent directors on super fund boards.​​

In November last year, the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 failed to pass through the Senate, with critics condemning what they considered to be rushed and sloppy drafting of the legislation.​

The proposed changes, flagged in the 2010 Super System Review and the 2014 Financial Services Inquiry, called for all large-scale superannuation funds – retail, industry, public sector and corporate alike – to have a minimum of one-third independent directors and an independent chair as part of efforts to improve consumer protections across the industry.

Now Scott Donald, director of the ​​Centre for Law, Markets and Regulation at UNSW, and Suzanne Le Mire, an associate professor at University of Adelaide law school, have outlined a framework in their forthcoming paper, Independence and the Governance of Superannuation Funds, to inform a rethink of the legislation.

As part of their literature review, Donald and Le Mire found there is a "naïve belief" that independent directors, good governance and superior fund performance are interlinked.

"[But] there was actually no empirical evidence to sustain that," Donald says, adding that while independence may be desirable, its impact on investment performance is unclear.

The authors also suggest the "cognitive" independence of directors should be the focus for the industry, rather than relying on "structural" rules to guarantee independence.

As Donald explains: "Directors should have a willingness and capacity to exercise a genuinely independent judgment in the interests of members, and should be held accountable for such, irrespective of their mode of appointment or whether they satisfy some statutory definition of independence."

Moreover, the authors claim there is scope for the government and regulators "to harness a wider variety of regulatory techniques to achieve what we take to be their underlying policy objective of entrenching cognitive independence".

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