PRI’s Reynolds enters political row over controversial Transfield divestment

The ex-Australian Institute of Superannuation Trustees CEO responds to latest developments

Fiona Reynolds, managing director of the Principles for Responsible Investment, has said criticism of divestment from controversial ASX-listed outsourcing firm Transfield Services by super funds is part of a push by the Australian government to limit union influence on supers’ boards.

This week, 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 Transfield in recent days. Healthcare super HESTA exited Transfield last week and UniSuper, a $50.3bn fund for education staff, divested Transfield last year. Transfield has faced criticism for its running of two asylum detention centres for the federal government. Allegations of abuse had led to calls for super funds to divest the organisation.

The move has been criticised by leading Australian daily the Australian Financial Review (AFR), which suggested in an editorial that the supers were influenced by union board members. Certain Australian super funds boards have an “equal representation model” of employees, usually represented by unions, and employers.

But this model has come under fire with the AFR saying a “union-dominated model” on super boards has led to “political activism”.

Super funds have a combined A$2trn (€1.2trn) in assets and grew out of the 1992 Keating Labour government’s introduction of a compulsory “superannuation guarantee” system. The change came about through an agreement between the government, employers and the trade unions.

The scrutiny comes as the federal government plans to legislate for more independence on super boards. It follows a review of Australia’s financial system by David Murray, ex-CEO of the Commonwealth Bank, who said it would strengthen the governance of superannuation funds and help avoid conflicts of interest.

But, speaking to Responsible Investor, Reynolds said: “What do they mean by independent directors? We talk about a company board independent of the management of a company. All directors on supers are independent of the management of the company.

“This is politically motivated. It’s quite a nonsense.Asylum detention centres are a political issue and government takes a strong stance on immigration in Australia. It is in their interest to make supers look wrong.”

Reynolds, former CEO at the Australian Institute of Superannuation Trustees (AIST), also said it was incorrect to describe super boards as union dominated: “It’s not the case. There is a legal requirement for equal representation. The government likes to say it is union-dominated.” She questioned Murray’s argument that independent directors “asked better questions”.

“This is politically motivated. It’s quite a nonsense.”

“In terms of responsible investment, super funds with equal representation have been the most progressive on responsible investment.

“There is no evidence that there is anything wrong with their governance. They keep outperforming. The only conclusion to draw is that this is a push by the Australian government to limit union influence.” The AIST itself said this month it would continue to oppose “unnecessary” changes to the boards of not-for-profit superannuation funds.

Reynolds said now supers had built up substantial assets, the government’s view was: “’Thanks for building it, now go away so we can bring in the professionals.’”

Reynolds also said there had been similar criticism of Australian National University (ANU) when it divested seven coal companies last year. “But now the share price of coal has collapsed, it has been proved to be right.”

ANU’s divestment sparked a media and political storm which turned into a legal battle when Sandfire Resources, a firm ANU dropped, took the Centre for Australian Ethical Research (CAER) to court over an analysis that influenced the divestment. The two settled out of court.

This week, Duncan Paterson, chief executive of CAER, shared a blog saying the recent misfortune for coal shares vindicates the ANU’s decision.