Australian super funds’ divestment of Transfield ignites fund governance row

The divestment of controversial outsourcing firm Transfield Services by superfunds has sparked accusations of political posturing and prompted calls for legislation to ensure more independent directors on union-dominated super fund boards.

Yesterday, NGS Super, the A$7bn (€4.3bn) Australian pension fund for the private, independent and religious school sector, became the second fund to divest from ASX-listed outsourcing firm Transfield Services in the past seven days. It follows healthcare fund HESTA which last week exited Transfield over concerns with its asylum seeker detention centres run on behalf of the Australian federal government.

Both superannuation funds have trustee boards with a majority of union members. Six out of the 12 board members on NGS’s and HESTA’s board are linked to unions. It’s also emerged that UniSuper, a $50.3bn fund for education staff, exited Transfield last year.

Leading daily the Australian Financial Review (AFR) has said that this sort of board make-up leads to “political activism” and has backed the federal government’s plans to introduce legislation requiring at least one-third of superannuation boards to be comprised of independent directors, including an independent chair.

While HESTA Chief Executive Debby Blakely has said its decision to divest Transfield was financially motivated, she has also noted concerns around alleged human rights abuses. The AFR reports that NGS Super Chief Executive Anthony Rodwell-Ball said the divestment decision was made on moral grounds but could be justified on economic grounds. HESTA declined comment to RI. Both super funds were under union and member pressure to divest Transfield.

Rodwell-Ball told the AFR that there had been concern among its members about the alleged treatment of asylum seekers at Transfield’s asylum centres on Nauru and Manus Island.This included emails, social media activity and direct engagement from members. HESTA had also been subject to pressure from its union pension fund board members and a social media campaign.

The AFR has said this spate of divestments at union-dominated supers has intensified the debate on the issue of more independent directors on super boards.

It quotes David Murray, who led a sweeping government inquiry into Australia’s financial system, as saying independent directors are “more likely to ask the right questions”. Though, it is not clear in the story whether Murray, who was most recently inaugural chairman of the Australian Government Future Fund Board until 2012, is referring to the supers’ decision to exit Transfield services.

Murray, an ex-CEO of the Commonwealth Bank of Australia, in his review released last December, said a majority of independent directors, with an independent chair, would strengthen the governance of superannuation funds and help avoid conflicts of interest.

The recommendation has been taken up by the Australian federal government, which plans to legislate along these lines. Unions oppose the plan.

The AFR also quotes Macquarie bank deputy chairman Mark Johnson in an article questioning if HESTA has used its “contentious divestment decision” as a means of boosting its public profile.

Johnson, who authored a report into the future of financial services for the previous Australian labour government, told the AFR that such a divestment decision would happen as a normal course of HESTA’s business and would not require members to be specially notified.