“Properly qualified, experienced and independent minded board members would never ratify a decision that would allow members’ savings to be used for industrial relations stand-over tactics.”
Australian Industry Group chief executive Innes Willox, who sits on the board of AustralianSuper, said directors were legally obliged to make investment decisions with singular focus on earning the best financial returns for members – acting in their best interests.
And Luke Hooper, special counsel at law firm Mills Oakley, said he doubted that limiting investments to companies that adopted ACTU policy on wages – including the push for a “living wage” to replace the minimum wage – fitted the best interests duty.
“Does it come within the realm of bests interests? In my view it doesn’t,” Mr Hooper said.
“Ms O’Neil’s statements send mixed messages that potentially expose incredibly good quality industry funds to be tarred with a brush that they managed to avoid following the royal commission.
“However, the statements clearly identify that a debate on where members’ best interests begin and end is needed.”
Mr Willox said that while environmental, social and governance factors were serious considerations given their potential to erode the value of stocks, there was no room for funds to act as “industrial weapons” of the union movement, he said.
“Industry superannuation is not an industrial relations weapon, nor does it belong to the union movement,” Mr Willox said.
AiGroup and the ACTU are joint shareholders in AustralianSuper, the nation’s largest fund at $145 billion.
“Ms O’Neil is misguided if she thinks positions advocated by a handful of union leaders will be ratified by the boards of industry funds,” Mr Willox said.
“Board members understand their moral and legal obligations to bring an independent mind to their participation in board decisions and to act in the best interests of fund members.”
Treasurer Josh Frydenberg said the law “requires that superannuation fund trustees and directors act in the best interests of their members and prioritise their members’ interests over all others.”
“If the Labor Party really cared about the retirement savings of Australians, Bill Shorten would condemn this aggressive union behaviour that is attempting to use superannuation as an industrial relations weapon to the detriment of members’ retirement savings.”
Former Liberal NSW treasurer Peter Collins, who sits on the boards of Hostplus and Industry Super Australia, said funds would not “kowtow” to interest groups, whether they be unions, businesses or governments.
“Our sole purpose is to act in our members’ interests and the investment case must stack up, whether it’s more ships on the Australian run or more money for tollways in states that have run down roads.
“Otherwise we are absolutely straight up and down in breach of our fiduciary duties.”
Under legislation enacted following the Banking Royal Commission, directors face civil and criminal penalties if they breach covenants in the Superannuation Industry (Supervision) Act, which oblige them to act in the best interests of fund members. This applies irrespective of whether loss occurs.
Mr Hooper said the test was whether trustee directors were acting “for the betterment of the investment return and not for ancillary reasons”.
“I think it is very dangerous for trustees to look outside of the pool of assets and the sustainable and prudent management of those assets to argue that other factors are in members’ best interests,” he said.
“It potentially exposes trustees to claims that they chased the wrong objective, or failed to chase better objectives that they failed to identify.
“Ms O’Neil’s statements also bring to mind that other covenants, such as exercising care, skill and diligence, and avoiding and managing conflicts of interests must be considered, otherwise trustees and directors become liable for breaches of these.”
Trust law does not permit trustees to be influenced solely by political or social concerns, but in some limited cases the “best interests” of members might not always be financial interests. They might have strict views on moral and social matters, such as might be the case with the health fund Hesta in relation to investing in tobacco companies.
Slater and Gordon Practice Group Leader Mathew Chuk said he felt the wages push did fit the best interests duty.
“If a trustee properly considers it is in the best interests of its members to advocate to the board of a company in which it has invested members’ funds that the company change its industrial practices or wage policies, then it is within the trustee’s discretion to do that,” he said.
“The more significant application of the best interests test (and other obligations owed by superannuation trustees) lies in the retail superannuation space, where significant profits have been made by the parent companies and other related parties of trustees.”
Industry funds are jointly owned by unions and employers. Their boards are typically made up of directors appointed by each, sometimes with an independent chair.
Labor dodged questions whether it supported or rejected Ms O’Neil’s remakrs.
Shadow treasurer Chris Bowen said: “The Liberal Party seems to think that industry fund members should have fewer rights than other shareholders – which is a ridiculous view and wrong-headed, putting ideology and politics before performance.”
“Labor will defend the rights of all Australians to invest in which ever super platform or fund they want, and in the case of industry funds, to act as any other shareholder.”
“And of course the centrepiece of Australia’s super system is trustees acting in the best interests of their members – something that Labor put in place and will always protect.”
The ACTU wants industry funds to use their influence with BHP to resolve a dispute about 80 seafarer jobs working on iron ore ships.
But Ms O’Neil’s comments on Thursday broadened calls for intervention to extend to all companies.
“We know that workers in full-time, secure, ongoing employment accumulate more superannuation than workers who have breaks in their employment and who are in casual, contract and labour hire jobs,” she told the Conference of Major Super Funds.
“What happens to the retirement outcomes of working people if inequality in Australia is allowed to continue to run rampant? If we are investing workers’ capital into companies that exploit workers, how sustainable will that be in the long term?”
Mr Collins said industry funds took environmental, social and governance risks seriously in as much as they posed a threat to investment returns. But achieving social outcomes such as wage rises was a matter for governments.
“Looking into the next five to 10 years, industry funds are not at all going to be at risk of pressure from significant interest groups such as the ACTU or Australian Industry Group or federal or state governments.
“[The ACTU] will advocate for whatever they like. But you’re not going to find industry super funds kow-towing to external pressure because of our legal obligation. The one thing APRA can get us for is failing ot meet our members’ interests.”
Business Council chief executive Jennifer Westacott said super funds needed to invest ethically to achieve the best returns for retirement but if that extended to activism members should be informed.
“There is a fine line between ethical investment and political activism. Funds need to tread very carefully and keep a tight focus on their core purpose, giving Australians the opportunity for a comfortable retirement.”
“Australians don’t have a choice about whether they have superannuation, that’s not the same as choosing to buy into an fund that doesn’t invest in certain companies or products even if they would provide stronger returns.”