Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Economics Legislation Committee
Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017

Go To First Hit

FRASER, Mr Bernie, Private capacity


CHAIR: Welcome. I invite you to make a brief opening statement, should you wish to do so, but, first, is there anything you would like to add about the capacity in which you appear today?

Mr Fraser : I am here, basically, as a private citizen but one who, as it would happen, knows a little bit about the way not-for-profit funds operate and what makes them tick, having been an independent director of three, initially, and subsequently two, quite large industry funds. It is that kind of experience that led to ISA and AIST asking me to undertake the review of the initial governance bill that came out a couple of years ago, which I did and reported on in February this year. The sponsoring organisations ISA and AIST provided valuable support to me during the course of that exercise. They also remunerated me, but they didn't seek to influence or affect the shape of the report. The report reflects, very much, my views based upon those years of experience. I assume you have had a chance to look over the report but maybe I could make a few general comments relating to it. I'm talking about the governance report and the bill that has come out, which is pretty much the same in content as the governance bill of a couple of years ago.

It is fair to say that the thrust of my report is that the proposals in the current bill and the earlier bill to mandate independent directors and chairs for the boards of non-for-profit funds is, at best, misguided. It is commendable that governments of all persuasions should try to make policy changes that lead to better governance, but that really has to be subject to those changes being targeted to real problems and having the prospect of leading to outcomes that result in better arrangements for the members of the funds concerned. To my way of thinking, the proposals in the governance bill, at the present time, would not pass on either of those two tests.

The not-for-profit funds—which, as you all know, have representative directors representative of employers and the members of the funds—have consistently performed better and behaved better than the retail funds, the funds that are owned mostly by the banks and insurance companies and which, invariably, have a majority of independent directors on their boards and have independent chairs. But the not-for-profit funds consistently outperformed. Why is that? I think a lot of the explanation for that goes to what boils down to a better governance arrangement on the not-for-profit funds, the representative members, the representative directors, being a large part of that. These funds, unlike the retail funds, are not distracted by the conflicts over how much of the profits of the fund need to go to the shareholders, how much has to go or should go into a bonus pool for payments to senior management. The big value and the big attraction for me of the not-for-profit funds has always been that their sole focus is on the members' benefit. Directors of these funds, whether from the employee side or the employer side, are committed to working for the benefit of the members, and not the shareholders or anything else. This reflects the culture and the values that these funds started out with and which they still have, but it also reflects particularly the outcomes that the not-for-profit funds have been able to achieve. It reflects the skills that they've built up in investment and in risk management.

Good governance is basically about good risk management. These not-for-profit funds have been able to build up skills over the years as they've grown and become quite substantial. It's this clear focus that I would emphasise, and have emphasised in the report, that makes me a fan of the not-for-profit funds. There's always scope to approve things, and these are dynamic things. Funds have been improving. The governance of all funds has been changing and improving over time, and this will continue to be a requirement. But what has really underlined the better performance and the better behaviour of the not-for-profit funds, as I say, has been the values and their skills. They're the critical things that are going to be important in determining the future performance of funds. That's going to be a very challenging circumstance. Investment risks and other risks, as you all know, are increasing. They're on the rise for all kinds of reasons: globalisation, technological changes and geopolitical developments of all kinds. It's going to be more and more challenging to maintain the values. More importantly, maintaining the values in the not-for-profit funds is pretty clear because there are no real conflicts with other parties and other interests. Maintaining the skills and developing the right skill mix—and these are going to be all sorts of skills: technological skills and geopolitical skills, not just financial skills, which have been the focus in the past. Getting those skills and keeping them is going to be a challenge for all funds, including the not-for-profit funds. That is really the critical thing, in my mind, in looking to the future of the funds and how they perform and whatever.

The question of independence is peripheral, in my view, compared with those skills and values. If you've got a board table that is comprised, as most not-for-profit funds are, of directors who are committed, who share the values of the members-first approach and who have the skills to make the right decisions most of the time to handle the risks, that is the critical thing. The question of how many of the directors who sit around a board table happen to be independent is peripheral, in my view. It's not germane to the task and the challenges facing all super funds. That's not to say that there's a problem in independence as such—that's fine—but the priorities are the skills and the values. If you can get those from members, that's good. If you have to go outside the representative groups, the employers and the unions, to get the skills—okay, some of those would be independent in terms of the definitions of independence, but the critical thing is the skills and the values.

In the bill and the explanatory memorandum associated with the bill, there's hardly a mention of skills or values; it's all about independence. That, as I say, is why I think it's misguided. It's targeted at the wrong things that are important for promoting the benefit of the members of super funds, whether they're not-for-profit funds or other funds. That is a large part of what the report is about. What it tries to do, in a modest way, is make some recommendations that would build upon the proven value of having strong values and strong skill bases. There are suggestions and recommendations in that report to strengthen the capacity of the not-for-profit funds to make sure that they adhere to the values of having the interests of the members foremost all the time, but also to be alert to and able to recruit the skills that they need in the more risky and uncertain investment environment that they're all operating in now. That is, as I say, what much of the report is about.

That's in marked contrast to the focus on independence—that, if you get independent directors, a majority or a third or any number, and an independent chair, somehow or other these important values and skills are going to materialise. I think that's the wrong approach. You're much better, in my view, to be working directly on improving and maintaining the values of members first, if you're really serious about looking after the interests of members, and having a direct focus on measures to make sure that the funds have the right skill mix at all times to deal with the kinds of situations that are coming forward. They are subjects that are covered in the recommendations in my report.

The alternative model of the independent directors and independent chairs that is explicit in the government's bill is really based upon assertions. We live in this age of assertion, I'm afraid, in so many areas where, if you assert something and repeat it often enough, you're likely to get away with it, but there's too much of that. These assertions that are in the explanatory memorandum and in the thinking behind the government's bill are that, by requiring not-for-profit funds to have independent directors and independent chairs, those funds would be catching up with the best practice domestic and internationally in board governance. But these are furphies. These are assertions that don't stand up to careful scrutiny. There are people you'll be talking to later on who can demonstrate that the best-performing super funds in the world are the pension type funds in the Netherlands and in Denmark, where their representative models have this focus on members at all times. Remember also that, only a decade ago, it was widely regarded as international best practice in the banking sector for banks to let the market rule—let the market rip. As it turned out, the global financial crisis, which we're still coping with in some places, is pretty—

Senator WILLIAMS: Chair, bearing in mind we are having the lunch break at 12.40, can we have opportunities for questions at some stage?

CHAIR: Yes, I will cut you short a little, Mr Fraser, because I know we've got senators with questions, unless you have a point that you'd like to finish with.

Mr Fraser : I was really just trying to anticipate some questions and give you a feeling for the report for those who mightn't have had an opportunity to read it. But I've already done that, so let me end by saying that, since the first report two years ago, more and more evidence has come about that not-for-profit funds have continued to have fewer problems compared with the profit sector in terms of behaviour. There are scandals and assertions of fraud and other bad practice almost every month coming out of the private sector. Secondly, over the last couple of years, the performance of the not-for-profit super funds, which has always consistently bettered the performance of the for-profit funds, has actually increased. The margin of that performance has actually increased over the last two years. So people are entitled to wonder, I think, in light of all this evidence, what the hell is going on here?

CHAIR: That is exactly what this committee is set up to do so we will ask you some questions.

Senator WILLIAMS: You have made your point about how good industry super funds are. Can we get some questions, please?

CHAIR: Can I first ask you about not-for-profit funds and what you include in the definition of not-for-profit funds because obviously there are industry funds represented by the ISA, there are industry super funds more broadly and there are corporate funds. Are they included in your definition of not-for-profit funds?

Mr Fraser : They are in the usual definition, and in the report I have some tables that show the for-profit sector and the not-for-profit sector, which comprises industry funds, corporate funds and public funds. All of those not-for-profit funds broadly have representative type boards.

CHAIR: Are you suggesting that all of those funds that have representative boards outperform those boards—

Mr Fraser : There are different ways of measuring out performance but taken together—

CHAIR: Even the small subscale funds?

Mr Fraser : Yes. On average, the not-for-profit funds as a whole group are a couple of percentage points better than the average of the for-profit funds, and that has increased in the last couple of years. If we just want to compare the performance of industry super funds with the average bank fund or retail fund, again, there is an even bigger margin between those comparisons and that margin has increased. In the last 12 months, the industry super funds on average have outperformed the commercial funds, the retail funds, by about 3½ percentage points. That is a pretty big difference.

CHAIR: You are not suggesting though that the lack of independence on those boards has been the cause of the outperformance?

Mr Fraser : No, but what I am trying to indicate is that it is the skills and the values of the not-for-profit funds and the focus on members.

CHAIR: Yes. Professor Samuel spoke to us this morning and suggested that that the lack of skills on those boards was quite stark, in particular in his the work he did on CBus, which I know you have been closely associated with.

Mr Fraser : CBus is one fund that has had some hiccups in earlier times but it dealt with those problems quite quickly and efficiently with relatively minimum damage to members compared to some of the retail funds. But things are not static; they are dynamic. The industry super funds and the not-for-profit funds generally have been alert to the changing investment environment and the need to have the skills. They are required by APRA to have appropriate skill mixes but they have actually achieved that skill mix. They have been adjusting their skill mixes and have gone beyond financial sector kinds of people and are going to have to continue to do that but they are doing that.

CHAIR: I will ask you a couple of questions first of all about your report that then I want to talk about your personal role as an independent director. The report was part of a deal that was brokered by the Senate crossbenchers to delay the previous version of this bill to require one third independent directors and an independent chair on all super fund boards. Is that correct?

Mr Fraser : The sponsors of my appointment will be coming up later on and you can check with them. But basically the idea, with the backing of the crossbenchers, was to ascertain whether there was an alternative approach mandating numbers of independent electors said could be pursued in place of that approach and that was what gave rise to that report.

CHAIR: Why was the report delayed for so long? It was delayed about a year.

Mr Fraser : It was. The main reason was the election came up. I was working quite busily in the first four or five months of 2016 and then the election came up. There were doubts about the outcome and doubts about how many crossbenchers would come back. There were doubts about whether the—

CHAIR: But that shouldn't make any difference as to whether that the ISA or the AIS should commission a report from you.

Mr Fraser : No, the report was close to completion in May last year.

CHAIR: Who made the decision to delay the release of the report?

Mr Fraser : I did, because it didn't make sense to press ahead with a report. I have indicated this: if you have a look at one of the letters that is copied there that I wrote to all of the stakeholders indicating why I had decided to postpone it until the election was out of the way and there was clarity has to the attitude of the government towards reintroducing the bill, because it lapsed the proroguing of parliament. There was number and attitudes of the crossbenchers who might be around at that time. Even though the report was well advanced by about May last year, just before the election, the election through everybody into confusion and sapped the enthusiasm for employers, unions and other people to focus on this particular matter for the same reason: they wanted to wait.

CHAIR: When was your report actually finally released?

Mr Fraser : On 16 February.

CHAIR: Which was more than seven months after the election.

Mr Fraser : It was a couple of months after the minister indicated, in a speech in November 2016, that the government is going to reintroduce the legislation. She didn't say when, but she said the government was going to pursue the legislation.

CHAIR: You still felt that your call to delay the report was appropriate?

Mr Fraser : Yes.

CHAIR: Can I ask you: did you have a secretariat who are supporting you conducting this review?

Mr Fraser : As I indicated in my initial remarks, I had valuable support from the ISA people in particular in Townsville, organising meetings, typing up and trying to decipher my writing and things like that.

CHAIR: But it was you and you alone who authored the report?

Mr Fraser : Yes.

CHAIR: I will ask you about your role as an independent director. You've been an independent director on multiple industry fund boards—which funds?

Mr Fraser : Initially, I was an independent director. I was the first APRA-approved independent director of Cbus, the Australian Retirement Fund and the Superannuation Trust of Australia, commencing towards the end of 1997. Subsequently, the Australian Retirement Fund and the Superannuation Trust of Australia merged together into AustralianSuper.

CHAIR: Do you think that your contribution and your presence as an independent director on those boards helped or hindered the performance of those funds?

Mr Fraser : I believe it helped. That was not because I was an independent but because I happen to share the values of the funds, focusing on members and improving members benefits. I was able to bring some skills, in terms of investment markets and investment decision-making, from some earlier incarnations of mine. I pushed to keep developing and improving skills. As the funds grew, all of those funds and others as well became very good. Their asset allocations surpassed other funds. There were more prepared to be innovative in terms of going into unlisted assets, property and infrastructure. I remember one of the first meetings I went to with some group of private investment managers. I went along as a representative of one of those industry super funds. I was rather lampooned, really, for working for peanuts, which the directors of industry super funds do as part of the culture.

CHAIR: At least independent directors keep their salaries.

Mr Fraser : Well, we can talk about that too. The other thing was that it was apparently crazy for funds to be getting into things like direct property investments and infrastructure investments, which the super funds were getting into and, as it has turned out, it has been an amazing contributor to that performance that I touched up.

CHAIR: I think somebody with your level of experience in financial markets and also the level of seriousness that you take to the job as an independent director is admirable. Surely, with that level of experience and those skill sets, it would be better if we broadened the net so that we could bring more people in. We need more Bernie Frasers on these boards, surely?

Mr Fraser : There are plenty of them out there, but they are being tapped. That's what I mean. These aren't static things; they're dynamic. Whatever the fund's structure is, if it's going to continue to deliver outstanding benefits to its members it has to have the skills.

CHAIR: But surely there are more skills available outside of the member or union representative model.

Mr Fraser : Exactly. There are. Increasingly, there are requirements for additional skills in all sorts of specialised areas—even in accounting areas or international tax law—as well as technology and investment markets generally. These are all new areas that are opening up, not to mention geopolitical developments, which are going to be more important than economic developments. These skills have to be covered. Industry super funds and the other not-for-profit funds are going out and are recruiting these kinds of people. They are getting the people with the skills who also happen to have the values about members first. Many of them would be independent. They would meet the definitions of independence, but they're being recruited essentially because they're bringing necessary skills and values and happen to be independent.

CHAIR: What you're suggesting is that industry super funds should have nothing to fear from independent directors.

Mr Fraser : But they've got nothing to gain either, unless they're getting directors who have the necessary skills and values and are able to combine these three things. They can get people who have skills and values who happen to be independent. That's happening. There are some numbers the ISA people can give you later in the day.

CHAIR: I'm certain that they will. Mr Fraser, I'm conscious of the fact that I have so many senators here that would have questions for you. Senator Ketter, would you like to go next?

Senator KETTER: Yes, thank you. Your opening statement has anticipated a number of my questions. Just to go to this point, is there any evidence that independent directors do lead to higher returns for members?

Mr Fraser : Not that I've seen and not that I've seen reported. It's not independence that brings about the better governance or better returns; it's the skills and the values of the funds concerned, in my view.

Senator KETTER: You've been on both, so can you tell us about your experience of the difference in how trustee boards operate as opposed to corporate boards?

Mr Fraser : Corporate boards have a more challenging task, really, because they have multiple stakeholders to try to deal with and satisfy. The potential for conflicts is more obvious. You've got three groups of stakeholders in a corporate fund or business. You've got the shareholders who expect dividends. You've got the senior management who, these days, expect to get bonus payments for their performance, assuming they satisfy various tests which mostly relate to the increase or otherwise in the share price. So there's an alignment between the shareholders and the management because their bonuses largely depend upon what happens to the share price. At the end of the queue there are the members of the fund or the consumers of the corporation or whatever. They get pushed to the end of the queue and there's no surprise that there's a lot of dissatisfaction about that distribution of profits.

You go to the other extreme of the no-for-profit funds. As I've been saying, the focus there is on members. You do everything you can to deliver better and sustainable benefits for members. At the end of the day, it's the material benefit to members of a fund that is probably the best measure of the effectiveness of the governance of the funds. There the numbers that are quite clear in what they show.

Senator KETTER: Going to your experience on industry fund boards, can you tell us whether you were able to tell which director came from which group? So whether member directors acted in the way you would expect member directors to operate, and the same for employer representative directors.

Mr Fraser : That was one of the things that really struck me right from the beginning. Apart from an isolated instance, particularly in the early days and particularly at Cbus in those early days—I'm talking about the late 1990s—on both the employer and the union side they were a bit more tribal than the average. But, apart from those particular and isolated incidents, anybody that walked in off the street and sat in on an investment committee or a board committee of AustralianSuper or Australian Retirement Fund and listened to the discussion and the debate would not be able, 90 per cent of the time, to say, 'That director is representing the unions' or 'That director is representing the employers' on the basis of their contributions. That is one of the most telling things that persuaded me that I was on the right horse in backing the industry funds and working with the industry funds in those days.

Senator KETTER: You've already covered a number of the findings and recommendations from your report. What can not-for-profit funds do to improve their governance?

Mr Fraser : They can reiterate—there are some detailed suggestions in the report—that they remain fervently committed to members first. That will be part of their charter. APRA is requiring funds to have charters. That should be right up in lights in the charter. And they can strengthen their skills. They have to have skill mixes and appoint people who come in with new skills. They have to reskill and retrain their existing members so they are equipped to deal with the modern challenges. Again, there are suggestions in the report—modest suggestions, because these things are incremental; you get additional skills when you need them and you retrain and enhance the skills of the existing people you've got all the time. You should be doing that, and that's what's happening.

Senator KETTER: On the issue of gender representation, one of the submissions to this inquiry has suggested that female representation on the boards of industry superannuation funds is still a problem. Is this the case?

Mr Fraser : Yes. In terms of absolute numbers—and again ISA can give you some numbers—there are about twice as many females on the boards of industry funds as there are on the retail funds. But, in terms of proportions, the numbers are pretty slack in both sectors really; 30 per cent or even a bit below 30 per cent. In terms of skills, that gender inequality is unfair and misguided, but it is also unhelpful to the funds in terms of the extra skills that can come by having gender equality on the boards. I have made a suggestion in the report that, while individual not-for-profit funds would have difficulty in having 50-50—because you've got the nurses fund and the building and construction sector where there is a natural majority—if you take the not-for-profit sector as a whole, there is no reason why these things can't be managed so that across the whole not-for-profit sector you've got 50-50. I suggested that should be a goal to be achieved in five years time. When you talk to AIST you can ask them what is happening about that sort of recommendation in terms of their code.

Senator KETTER: I was just going to ask you about the AIST's governance code, which has been released earlier this year. Are you familiar with it? Do you have any views on it?

Mr Fraser : Yes. I recommended in my report that the proposals that I was making in terms of strengthening values, skills and gender equality should be considered for inclusion in the code, which does cover the whole of the not-for-profit sector, the whole three segments. That code was put together by its target date at the end of June, I think. It's out there for members to consider now and to hopefully endorse and take up. I think there is a phase-in period. But, again, AIST will be coming along this afternoon and they will have some up-to-date information for you on that.

Senator KETTER: Okay. What do you think are the risks to the not-for-profit funds if the government's trustee arrangements bill is passed?

Mr Fraser : I just think it will take away some of the attraction of the values and the culture of these funds. I suggest that they have been important contributors to the outperformance of these funds. It's going to put at risk the continuation and that quite significant outperformance that I have referred to in a way that the margin of two per cent or so on would be at risk, in my view.

As I keep saying, it's not independence that is going to deliver good governance and good performance; it's good people with good values and good skills, with their skills base constantly being revised and updated to meet the challenges that are out there—and there are plenty of those.

Senator KETTER: Thank you, Mr Fraser.

Senator BUSHBY: In the interests of time I'll collapse a few questions into one—I wouldn't mind asking a lot of questions of you, Mr Fraser, but we really don't have the time! Central to what you're saying is that the sole focus of not-for-profit funds is members' interests. We heard earlier today that the history of equal representation funds is that they were the vehicle that fitted defined benefits funds, where you needed to have representatives from employers, because it was their money that was ultimately going to be paying the members, and that you also needed representatives of employees to make sure that the employers did the right things with the funds and that the funds were actually there in the end to pay the members. Then, as we've moved to a defined contributions system, having directors on the boards who had specific interests other than the members was no longer as relevant because under defined contributions the interest is 100 per cent that of the members and no longer relevant to the employers or to the employees in the way that they were under a defined benefits system.

Given all that, how does mandating a certain percentage of independent directors change what you say is the important thing, and that is the sole focus of the funds being on members? Surely, if you do cast that net wider and look for people with the values and skills that you think are important, there is an infinitely larger potential pool of people from which to draw an independent director than there is from just employer or employee representative groups? That enables you to look for those values and skills and to ensure that you are removing potential conflicts that could still exist as a legacy of that defined benefits regime.

Mr Fraser : I think that is happening as the requirement for more and more diverse skills grows. It's becoming necessary, as I said before, to go outside the normal stables of employer and union reps. But the values are as important, I think, as the skills.

You said there is an enormous population out there of people who can be tapped into. I'm not sure it is as wide as you might imply when you are looking for people who have the values and who share the culture of industry super funds, which include having relatively modest remuneration arrangements. It's unusual to have bonus arrangements, which is a prominent characteristic—

Senator BUSHBY: What particularly are you talking about with the values? Are you talking about a union background or an empathy with union values, or—

Mr Fraser : No, I've never been a member of a union—

Senator BUSHBY: No, I know you—

Mr Fraser : But I share the value that these funds are there to do the best they can assist members on a sustained basis—

Senator BUSHBY: But I would have thought that the links with employer groups or with employee groups can undermine that potential focus of 100 per cent on members only. By having independence you don't have any ties to other groups that might—

Mr Fraser : That hasn't been my experience. As I said in response to a previous question, in most cases you wouldn't know from the assembled representative directors around a table who were on the union side and who were on the employer side, because they were focused on making sure that the strategies were working or were likely to work to improve members' benefits, that costs were well contained and that fees paid to service providers—whether they are fund managers or others—are very competitive. This is part of the culture, and that shouldn't be put at risk.

As to the need to get extra skills—and I'm not talking about financial skills—and your depiction of there being a lot of people out there, a big population, there are people with financial skills, but I'm not sure that they are necessarily the best people or, given the experiences in the for-profit sector, that they necessarily have the values that you want anyhow. But there would be some who have the values and the skills. These people are being tapped now, and I have suggestions in the report for strengthening this. It is crucial to get people who have the non-financial skills as well as the financial skills—and, increasingly, the former. That is happening. These people with come in with the skills and the values and they would also come in and pass any definition of independence. ISA can give you some numbers on how that has been developing already.

Senator BUSHBY: I hear what you are saying: that there probably isn't a huge number of people who meet the requirements that you think should be met in order to be on these boards. But, surely, where it is limited to just employer and employee groups, that is an even smaller pool from which to find people with those skills and those values. If you cast a net wider, there will be more people, even though it's not necessarily going to be a high percentage of that wider net that is being cast.

Mr Fraser : That's right, but what I have been trying to say is that that is already happening. A particular fund might have to replace a director or might have to appoint a new director to the board because there's a new scheme requirement that has been thrown up by what's happening in the investment world. If they can't get it from the employer group or the union group, what do they do? They go outside and they recruit people like me and others who don't come from either of those stables but have some skills that they need.

Senator BUSHBY: Given that this is only looking at one-third—a mandate of only one-third—what is the harm in requiring those funds to go out to the broader population and find those people who have those values and those skills, while still retaining one-third potentially coming from the employer and employee groups? Where is the harm if you go out and you find those people with the values and the skills that you say are required?

Mr Fraser : There's no harm in it; there's a question of efficiency. If you want to make sure that you have got the skills and the values, go after the people with the skills and the values as the prime requirement. The fact that many of them will happen to be able to satisfy particular definitions of independence, that is a kick for those who are concerned about independence, but let's focus on what really matters» and go directly after the skills and the values, rather than go for independence—they just might magically happen to produce the necessary skills—rather than the targeted approach.

Senator BUSHBY: There is the suggestion that they just tick an independent box and then you'd still be looking for people with the appropriate capacity to do the job.

Senator WILLIAMS: Mr Fraser, is it correct that you were a director of AustralianSuper in 2006-07?

Mr Fraser : Yes.

Senator WILLIAMS: At the same time, AWU national secretary, Mr Bill Shorten, was also a director of AustralianSuper.

Mr Fraser : Yes.

Senator WILLIAMS: Are you aware that the Australian «Electoral Commission declared that year that AustralianSuper paid $26,500 to the Australian Workers Union as a donation?

Mr Fraser : No, it wouldn't have been a donation; it would have been a payment to official office holders of a union who happened to be appointed directors. Rather than the director's fee going direct to the individual, in the case of officeholders, it goes to the union. Exactly the same arrangements apply on the business side.

Senator WILLIAMS: Hang on. My information is that the AEC reported a $26,500 donation from AustralianSuper to the AWU national office.

Mr Fraser : There may well have been donations for particular things too.

Senator WILLIAMS: Unless the AEC have got it wrong or my information is wrong, let's assume that it's right—the AEC's declaration that AustralianSuper donated $26,500 to the national office of the Australian Workers' Union.

Mr Fraser : I don't know whether it did or not. That wouldn't be something I'd know—

Senator WILLIAMS: Let me move on, please. On this very issue, shortly after $25,000 was donated from the Australian Workers' Union to Mr Bill Shorten's election campaign. It seems a bit more than coincidental to me. You are talking about good governance and values and so on. Here's a case where a donation of $26,500 from AustralianSuper to Australian Workers' Union was then fed back into Mr Shorten's election campaign. When you were a director, did Mr Shorten declare in 2006-07 he was going to be a candidate and run for the election? Were you aware of that?

Mr Fraser : I was, but I don't know at what point. I can't remember all that. But, Senator—

Senator WILLIAMS: This is why I get cynical with some of these things, when I see there is money drifting out and where it ends up, and you talk about the best interests of members. I'm with you on the best interests of members; I'm a member of AustralianSuper as well. We're on the same page here. But I have questions about where this money goes and that is what I'm trying to highlight.

Senator KETTER: Chair, Mr Fraser is trying to say something in response to this.

Mr Fraser : I'd be concerned if donations of this kind were being made without members being aware of that. Also, there is a fair bit of hype in some parts of the media about rivers of gold flowing from the super funds through the unions to opposition parties. That is not something that I believe is accurate. These arrangements where an office holder of a union, and it's the same for an office holder of an employer group, have their director's fees paid direct to the organisations rather than to—

Senator WILLIAMS: So if I'm a union rep and I'm a director of a super fund then the super fund pays my union for my work—is that correct?

Mr Fraser : It pays the fee to the—

Senator WILLIAMS: Union.

Mr Fraser : And the same thing happens on the employer side—

Senator WILLIAMS: Yes, exactly.

Mr Fraser : Because the unions are already paying these officeholders. They are salaried employees of the union or the business group. So the union rep or the business rep is working as a director for a day a month or something and is being paid by the union or the business organisation for that, and as a kind of compensation the fees in both cases go not to the individual but to the organisations.

Senator WILLIAMS: This is what seems to have the rotten smell about it, whether it be employers or unions. That's my cynicism about it. Why not just pay the directors personally? If they are independent, they would.

Mr Fraser : And they do. Even if they are appointed by an employer group or a union group but are not official office holders of those organisations, they keep the fees. It's when they are already being paid as part of their duties to attend a board meeting or an investment committee meeting, whether they are businesspeople or union people, the fee goes to the organisation because they are already being paid.

Senator WILLIAMS: Exactly, by the union or the employer. But if they are independent, of course you just pay them for their work. We will let the case rest.

CHAIR: Do directors that pay their salaries declare that, whether it be back to the employer group or to the union that they represent? Do they have to announce that to members so that members know that is where the wages are going?

Mr Fraser : My understanding is that it is all listed and it is very transparent, contrary to some of the impressions that you might get.

CHAIR: Do you think the average member of AustralianSuper understands that the directors are paying their salaries back to either the Ai Group or the ACTU?

Mr Fraser : In limited cases; in those cases where they are officeholders. Maybe this is an area where communication is needed, if it is not already covered. My understanding is that this is all transparent. Again, why don't you ask ISA this afternoon. They would be more familiar with these details.

CHAIR: I think we will do that. Thank you very much for appearing before the committee today.

Proceedings suspended from 13 : 00 to 13 : 32