Respect and good working relationships between the directors and management are keys to effective superannuation boards, three leading chairs told the Conexus Financial Chair Forum.
Neil Cochrane, chair of $80 billion First State Super’s 13-member board, said the role of the chair is absolutely critical.
“The chair sets the tone,” Cochrane said. “If you set a bad or disrespectful tone, then it’s reflected in the behaviour of the board. I spend a lot of time with all the directors. Twice a year, I meet with them for at least an hour and talk about whatever they want to speak about, without an agenda.”
Cochrane also says independence of thought is essential to the smooth running of a super board.
“We need to make it clearer to our members and the policy decision-makers that we have independent thinking on our boards,” he told delegates at the conference, which included 38 superannuation fund chairs.
John Brumby, chair of the top-performing $10 billion MTAA Super, and Nicole Smith, chair of the $90 billion MLC Superannuation business, agreed with Cochrane that mutual respect among board members, and between the board and management, was crucial.
A matter of trust
“The chair needs to be respectful of everyone’s contribution and encourage people to make contributions,” Cochrane said. “We instituted a minor change; we have a pre-board dinner three times a year and it gives board members an opportunity to meet one another” informally.
MTAA’s board also meets to dine together, which Brumby said can develop a high level of camaraderie, trust and understanding.
Smith said the board needs to operate as an effective and cohesive team, and that comes from respect and candour.
“You need a trusted environment to be able to disagree with one another and debate matters and be collegiate in how it’s done, and you’ll end up with a better outcome because of the debate,” Smith explained. “The chair and CEO relationship is the foundation on which the board sets itself up for success. The board and management relationship is important, so each can disagree and debate.”
She also said an important factor for the effective running of the board was access to timely, complete information.
“Part of that, from the trust factor, is the ability for management to share difficult information and know they’ll get the right response from the board,” she said.
Brumby added: “Mutual respect is essential. The relationship between chair and CEO is the most critical relationship. If you don’t have that, then it doesn’t work.”
Modern boards need diversity
He also said putting effort into the early stages of strategy development was essential. The MTAA Super board included a number of outside speakers at its strategy days to “break out from our thinking”, he explained.
Brumby, who chairs a 3:3:3 board, also emphasised the benefits of diversity.
“The more diverse your board is in attitudes, skill and agenda, the better the mix of ideas. You can’t be a modern board without diversity,” he said.
The MTAA Super board did not have a single woman trustee before Brumby became chair in 2011. Now it’s made up of five men and four women.
The MLC board, which is relatively small, with only seven non-executive directors, includes five trustees who would meet the definition of independent under ASX and Financial Services Council definitions, Smith said.
All three participants in the panel, chaired by Investment Magazine editor Sally Rose, agreed that having a tenure rule for trustees is important but were careful about maintaining the corporate knowledge on the board.
“First State has a nine-year limit, but we are conscious about losing the corporate knowledge. We manage that through the sub-committees,” Cochrane said, adding that all decisions go through sub-committees.
MTAA introduced a trustee tenure limit when Brumby joined the board.
“This was difficult, because a number of directors were over that limit; they loved the board and the fund and wanted to stay. But I think 10-12 years is about the right number. It allows for renewal, and the addition of new diversity,” Brumby said.
Smith, who’s been on the board of MLC for 10 years, said: “MLC doesn’t have a tenure rule. I think it’s a good idea. We need an opportunity for renewal on the board.”