Dramatic Senate Estimates testimony yesterday raised serious allegations about the conduct of Australia’s financial regulator – and it all comes back to the unions, writes Ben Eltham.
Almost since it got elected, the Coalition government has been campaigning against industry super funds – the union-backed superannuation funds that have been outperforming the retail superannuation industry for decades.
Most notably, the government wants to change the way industry super boards are selected. Adopting the recommendations of two separate reviews of superannuation – a Labor review by Jeremy Cooper, commissioned back in 2010, and a Coalition review by David Murray, commissioned in 2013 – the government is trying to legislate to force industry funds to have an independent chairperson and at least one third independent directors.
Currently, industry super funds are governed by boards on a system called “equal representation”, in which boards are made up of industry executives and employee representatives in roughly 50-50 ratios. The new law would change that, forcing industry super funds to spill board positions and appoint new directors independent of companies or unions involved in their sector.
Now dramatic evidence has emerged at Senate Estimates implicating a senior member of the Australian Prudential and Regulatory Authority in the improper lobbying of Senate crossbenchers in favour of a government bill.
The scandal broke late yesterday in hearings of the Senate Economics Legislation committee. APRA’s second-in-charge, Helen Rowell was answering questions from Labor’s Chris Ketter about whether the nominally independent authority had been lobbying Senate independents to get the government’s legislation over the line.
Yes, APRA had, Rowell admitted. The lobbying came in response to a request from Assistant Treasurer Kelly O’Dwyer.
Senator KETTER: And can you tell us who you’ve been speaking with?
Mrs ROWELL: I participated in meetings with some of the crossbench senators.
[…]
Senator KETTER: In relation to the meetings with the crossbench senators, were those meetings occurring at the request of the crossbench senators, at your own instigation or at somebody else’s instigation?
Mrs ROWELL: APRA was asked by the Minister’s Office if we would make ourselves available to answer questions to anyone who wanted to ask questions or get clarification on aspects of the Bill.
To say this is improper is putting things mildly. APRA is one of Australia’s most important financial regulators. Along with ASIC and the Reserve Bank, it is charged with protecting the solvency and stability of Australia’s banking and finance sector. If a 2008-style banking crisis erupted in Australia, APRA would be a first responder.
Needless to say, it’s completely unacceptable for a senior figure at APRA to be involved in lobbying parliamentarians over legislation before the Senate.
Matters are complicated by the fact that Rowell seems to want to get involved in the politics of this issue herself. A week ago, she injected herself into the debate about superannuation governance, criticising industry super funds in a controversial speech. Rowell claimed the argument that industry funds delivered better returns than retail funds was a “fallacy.” Unfortunately, APRA’s own figures say that Rowell was wrong: industry funds do deliver better returns.
Labor is up in arms. The ALP’s Jim Chalmers and Chris Ketter issued a media release yesterday slamming Rowell’s evidence, and criticising “her inappropriate public intervention into the political debate.”
“The Turnbull Government should not be using APRA as a tool to argue its political case,” Chalmers and Ketter wrote. “The behaviour of the Assistant Treasurer politicises APRA and risks bringing into question the independence of Australia’s financial regulator.”
The really strange thing about the industry super funds governance debate is why we’re having it all. The biggest scandals in Australian superannuation have all been in the retail sector, not in industry funds.
The most notorious is of course Trio Capital, a retail super fund that stole $176 million of members’ money, and spirited it away to the British Virgin Islands, where the cash vanished forever. APRA’s conduct during the Trio investigation was embarrassing. APRA conducted no fewer than five separate reviews of Trio between 2004 and 2009, the last just months before the whole house of cards came tumbling down. The Authority completely failed to coordinate with fellow regulator ASIC, and indeed was unaware that ASIC was even pursing Trio.
For her part, APRA’s Helen Rowell yesterday argued in Estimates that “our view is that the breadth of skills and the quality of challenge that occurs when there are independent directors on boards is much greater.” But she also admitted there was no quantitative evidence to back up that claim.
Have union-appointed super fund directors been bad for their members? Not on the face of things. The raw figures show that they have, in the main, been prudent trustees of their members’ funds.
Union-appointed directors are not blameless. The occasional rogue has made it on to important boards, such as the notorious Michael Williamson. Williamson was recently jailed for massive fraud at the Health Services Union. He was a trustee of First State Super at a time when the HSU negotiated controversial super deals with NSW paramedics.
But the problem with the ‘bad apples’ argument is that there is no shortage of spivs and sharks in commerce either. Recent years have seen a series of financial industry scandals at big banks and their related insurance divisions, including the notorious Commonwealth Bank financial planning scandal revealed by journalist Adele Ferguson and whistleblower Jeff Morris in 2014.
To take just one poignant example, Meredith Hellicar, the independent director at the centre of one of Australia’s worst corporate governance scandals, also held a directorship in financial giant AMP – which of course manages billions in super funds. Hellicar was chairwoman of James Hardie when it attempted to move its entire operation to the Netherlands to escape its asbestos liabilities. She was found to have breached the Corporations Act when the company issued a misleading media release; Hellicar was also at various times on the boards of the Commonwealth’s Takeovers Panel, the NSW Treasury Corporation, and right-wing think tank the Sydney Institute.
But Hellicar is far from alone as an independent director failing badly at corporate governance. In fact, independent directors have a pretty poor record of stopping corporate malfeasance in this country.
Independent directors were no help to the Commonwealth Bank when it came to stopping rogue financial planners fleecing ordinary customers of their life savings. Independent directors didn’t help NAB uncover $300 million in rogue trading in the mid-2000s. Nor did independent director Sally-Anne Atkinson, a former Lord-Mayor of Brisbane, do anything to curb the suicidal lending spree that ABC Learning embarked on before it went bust. And independent director Richard Beck – who had an executive role in corporate governance at KPMG –did nothing to stop the swindling at dodgy real estate firm Westpoint before its collapse in 2005.
The real agenda behind the government’s desire to change corporate governance laws for industry super is political, not ethical. Industry funds represent an important power base for trade unions as a whole. The Coalition wants to strike at that base. Retail super funds would also like to get their hands on more superannuation members, who they can then charge exorbitant fees to in order to make higher profits.
Given the government established a partisan royal commission into the trade union movement, it’s no surprise that it has also decided to enlist the independent statutory authority in its ongoing quest to crimp union power.
But the evidence yesterday will pose some challenges for the government, which is still committed to pushing the super governance law through. Kelly O’Dwyer might find she has some tricky questions to answer. So might APRA’s Helen Rowell.
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