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Thursday, 30 May 2013
Page: 4672


Mr FLETCHER (Bradfield) (12:18): I am very pleased to rise to speak on this appropriations bill. I want to speak on a matter of particular concern, which is the standards of governance in superannuation funds, particularly industry and public sector superannuation funds. I firstly want to make the point that there are numerous troubling instances of governance issues. I secondly want to make the point that a major factor behind this, I would argue, is the very substantial prevalence of union appointed directors in industry and public sector superannuation funds. I thirdly want to highlight the fact that the Cooper review recommended wholesale reform of governance of superannuation funds to remove the so-called equal representation model—a recommendation which has been conspicuously and repeatedly ignored by the minister, the member for Maribyrnong. That policy on his part is, I venture to suggest, not unrelated to his background as a secretary of the Australian Workers' Union and a director of an industry superannuation fund.

Let me turn to the issue of governance problems. The purpose of superannuation is to fund the retirement incomes of Australians. In section 62 of the Superannuation Industry (Supervision) Act, we see the 'sole purpose' test, which requires the trustee of a regulated superannuation fund to ensure that the fund is maintained solely for the benefit of each member of the fund. It is hard to avoid the conclusion, however, that in all too many instances directors of funds tend to honour this in the breach.

I want to talk firstly about the troubling example we have recently seen with the Victorian branch of the construction and general division of the CFMEU pressuring the building industry superannuation fund Cbus. This follows a dispute between the CFMEU and the construction company Grocon. Earlier this year, Victorian secretary of the CFMEU, Mr John Setka, said his members were angry that Cbus had awarded Grocon a $430 million project in Sydney. 'I reckon it's a slap in the face for the union, what Cbus has done,' Mr Setka is quoted as saying.

The CFMEU has subsequently sought expressions of interest from other superannuation funds to become the default fund for Cbus members. This would appear to be an attempt by a union to use the economic resources of a large superannuation fund over which it has substantial influence, including the right to appoint three directors, to secure industrial or political outcomes, in this case to advance its industrial dispute with Grocon.

What would such action mean for the interests of the 655,000 members of Cbus? We should consider that the property development being pursued by Cbus is being done presumably with a view to maximising the retirement incomes of members. We should also remember that many of the 655,000 members of Cbus are not members of the union. It is their interests as members of the fund which must be paramount in the minds of directors, not the industrial agenda of the CFMEU.

Let me give another example, which is the Transport Workers Union. The Transport Workers Union is closely affiliated with TWUSUPER, a superannuation fund which has $2.6 billion under management and 130,000 members. Those numbers are about a year old. Four of its directors are appointed by the Transport Workers Union. As at roughly a year ago, the four directors appointed were the federal secretary of the TWU, Mr Tony Sheldon, and three state secretaries of the TWU, Mr Wayne Forno, Mr Wayne Mader and Mr Jim McGiveron.

In 2011 the TWU vigorously attacked changes proposed by the management of Qantas to the operation of that company, changes which management said would improve the company's financial performance. Members of TWUSUPER have a right to expect that the sole consideration exercising the minds of directors of the fund is how to maximise the financial returns generated by the fund. This raises an obvious question: how is it that directors of TWUSUPER who are also union officials think about equity investments in Qantas or in other companies in the transport sector?

Another fund I would like to mention is the Meat Industry Employees' Superannuation Fund. The Meat Industry Employees' Superannuation Fund, it was reported in The Australian, made a $30 million investment in a building company, Austcorp. Almost all of that money was lost when Austcorp collapsed in 2009. The Australian has reported that Mr Wally Curran, a long-term secretary of the meat workers union and a long-serving director on the board of the fund, was paid significant consultancy fees by Austcorp. Further, according to ASIC searches, Mr Jon Addison, who is a director of the Meat Industry Employees' Superannuation Fund, has been at various times a director of several Austcorp group companies, including Austcorp Group Ltd.

At the very least, these facts raise questions about whether there was a conflict of interest facing Mr Curran and Mr Addison. They were in a position of considerable trust, managing a superannuation fund charged with the custody of the retirement savings of low-paid blue-collar workers. The question arises: how did it advance the interests of those workers for Mr Curran to receive consultancy fees from Austcorp? So I would suggest to you, Madam Deputy Speaker, that there are troubling instances of governance problems in superannuation funds.

I want to mention another one as well which does not involve union appointed directors but raises many of the same issues. There is a company called Local Government Financial Services, which for many years was owned in New South Wales by the local government and shires association. In 2004 LG Financial Services was sold to the superannuation fund LG Super. LG Super is the fund which has custody of the retirement savings of employees of local government instrumentalities in New South Wales. At the time that the local government and shires association sold the company LG Financial Services to LG Super, there were several directors in common between the local government and shires association and LG Super. This transaction may well have looked very attractive to the local government and shires association as a means of raising funds from the sale of an asset, but the question arises: was this transaction also in the interests of members of LG Super? Did it comply with the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act?

I have argued that there are governance problems in the superannuation sector arising from the so-called equal representation model under which directors are appointed to superannuation funds, and the largest class of directors are union officials who are appointed to be directors of industry and public sector superannuation funds. Let me turn next to discuss how extensively this occurs. According to data issued by APRA, the Australian Prudential Regulation Authority, there are 71 funds which APRA classifies as public sector or as industry funds. If you review, as I have, the annual reports of these 71 funds, you discover that the total funds under management exceed $380 billion. So, by any measure, the governance of these funds is a matter of great concern to many, many Australians whose superannuation savings are governed, are held within the custody of these funds and are directed and managed according to the decisions made by these directors of these funds. Of these 71 public sector funds, there were 551 directors in total and, of those directors, 171 were appointed by unions and the majority were union officials.

A very wide range of funds have a large number of union officials on their boards or have a large number of union appointed directors. I could mention the Australia Post Superannuation Scheme, which has three union appointed directors; AustralianSuper, with $47 billion under management, so an enormous fund, with six union appointed directors; Construction and Building Unions Superannuation, Cbus, with eight union appointed directors; HESTA, Health Employees Superannuation Trust Australia, with seven union appointed directors; Local Authorities Superannuation Fund in Victoria, with four union appointed directors; the Local Government Superannuation Scheme in New South Wales, with four union directors; the State Public Sector Superannuation Scheme—and I am not totally sure which state this is; I think it might be South Australia, but I would need to double-check that—with six union appointed directors; and Sunsuper, with three union appointed directors. And all of these make up a total of 171 union appointed directors on industry and public sector superannuation funds.

If you turn around and look at this from the other angle and you look at the unions which are involved in appointing directors, that is also extremely instructive, because what you find is that a number of major unions have their tentacles extending into a lot of superannuation funds. I want to look, for example, at Unions NSW, which appoints nine directors to several different funds. The CFMEU appoints 15 directors across four funds, and those funds have under management, in total, $29 million. The alternative government of this country, the Australian Workers' Union, has nine directors across seven funds. The ACTU, the Australian Council for Trade Unions, appoints 20 directors across seven different industry and public sector superannuation funds, which have under management in total over $100 billion. United Voice appoints nine directors across four separate funds. The Electrical Trades Union appoints 13 directors across six funds and other unions which appoint directors include the CEPU, the CPSU, the ASU or the Australian Services Union, the SDA or the Shop Distributive and Allied Employees Union—of which I was once a member on the basis that when I was a university student working as a shop assistant it was no-ticket-no-start and membership was compulsory. The USU or the United Services Union, the HSU or the Health Services Union, the Maritime Union of Australia and the Transport Workers Union are other unions which appoint directors to industry and public sector superannuation funds.

I think it is clear from these statistics that the major unions in this country exercise very substantial economic power through their capacity to appoint directors to industry and public sector superannuation funds which have funds under management totalling hundreds of billions of dollars. As I have indicated in the first part of my remarks, this raises significant issues not just because it is, I argue, evidence of a clear strategy pursued by the Labor Party since days of the Hawke-Keating government to extend the economic influence of the union movement, but also because of the clear governance issues which arise when you have union officials appointed to the boards of industry and public sector superannuation funds who may be tempted to exercise their economic power in the interests of the union rather than in the interests of the members of the superannuation fund.

I want to turn finally to the question of the recommendations of the Cooper review, which looked into this question. The Cooper review looked at the governance of superannuation funds and it recommended major changes to the existing equal representation system of unions and employer organisations appointing directors to the boards of superannuation funds. In the chapter discussing this issue, the Cooper review made a number of obvious points about the flaws in the current system, including the fact that many members of superannuation funds will not be members of the union and therefore the fact that the union is appointing directors does nothing to give representation to those members. It pointed out that as more and more people are in the pension phase of their superannuation they are no longer active employees and therefore no longer union members. The Cooper review recommended that the so-called equal representation model—which was the Hawke-Keating government arrangement put in place to entrench the economic power of the unions and extended into superannuation—be fundamentally changed. Surprisingly, that recommendation has been completely ignored by former AWU secretary and the current responsible minister, but, should the coalition come to power, we will be dealing with this.