Professional Planner wouldn’t usually pay too much attention to a superannuation fund’s stance on a corporate governance issue. But there’s a current example of the board of a fund taking a stand against the board of a listed company that raises some questions for financial planners.
You might not have heard of First Super before now. It’s a $2.1 billion industry superannuation fund set up for employees in the timber, pulp and paper, and furniture and joinery industries.
In the scheme of things, the fund is small. Its total asset value is equivalent to about one quarter of Commonwealth Bank of Australia’s profit for 2013-14 alone.
But considering that First Super’s 69,500 members’ livelihoods depend so much on wood, the fund is demonstrating a remarkable amount of steel by speaking out publicly on its intention to oppose the re-election of two CBA directors at the bank’s upcoming annual general meeting.
First Super has $26.8 million invested in CBA, equivalent to about 1.24 per cent of the fund’s assets. It’s not the size of the dog in the fight that counts, so the saying goes, but the size of the fight in the dog. First Super wants to hold to account the directors of Commonwealth Bank who were serving while the worst of the bank’s financial planning atrocities were taking place.
The two directors who are up for re-election at the coming AGM are Andrew Mohl, a former managing director of AMP; and Launa Inman, a former managing director of Target, Billabong International and Officeworks.
Direct investments
First Super invests directly in equities via two particular mandates, one managed by Industry Funds Management (IFM), and one by Perpetual Investments.
“There are two managers…with whom we have individually managed accounts [IMAs] for Australian equities,” says Bill Watson, the chief executive officer of First Super.
“That gives us the ability to direct them how to vote on company resolutions.
“Our board has got the belief that [owners] should actively engage in governance matters when it’s got the ability to do so. Good governance equals good returns for shareholders.
“The way we get to do that is through engaging through ACSI [the Australian Council of Superannuation Investors], of which we are a member, or through exercising our voting entitlements at AGMs.”
Is the fiduciary responsibility of the First Super board any different to the responsibility that financial planners owe in instances where they conduct clients’ equity investments through IMAs? Should the fiduciary duty of a financial planner extend to actively engaging with investee companies on environmental, social and governance (ESG) issues?
Whatever the legal situation, Watson says it’s just good business for financial planners to be active on corporate governance issues – it proves that planners “have their clients’ backs”, he says.
Adding value
“It also demonstrates that they’re adding value through what they do,” Watson says.
“The way the CBA board has managed this has caused the CBA to have reputational damage; reputational damage means loss of market share, which has a potentially negative impact on the value of the shares.
“You would have seen from all the negative coverage there’s nothing positive about the CBA, and it’s our view that it’s frightening customers away.
“What happened was very serious, and our view is that the board didn’t get on top of it as quickly as it should. Our concern is, are there other things happening in in CBA that the board isn’t on top of? These things do not happen in isolation.”
