Trustee: Independence of mind and the business judgement rule.
APRA’s new governance standards for superannuation funds apply from 1 July. APRA’s view is that the new standards should not create a burden for trustees of large funds because they are simply reflecting good governance practice and hence should already be standard practice.
There are funds that I know of that would agree with APRA, the reality is however that the bulk of funds have been scrambling to develop and then document their governance practices. In an event, all funds need to prepare for significantly greater scrutiny from APRA.
This is all good I think. The focus of this blog is the issue of independence of mind and how trustees can demonstrate that their decisions have been made in the best interests of the members. APRA’s general approach to regulation was enunciated by Dr. John Laker, the Chairman of APRA, On 27 February 2013 when he spoke on the importance of good governance at the Australian British Chamber of Commerce meeting in Melbourne. In his speech Dr Laker said that APRA wants to see ‘the collective skills and experience of the board in action, independence of mind and spirit — not just form — contributed by directors and the quality of board deliberations’.
Independence of mind therefore needs to be demonstrated.
I think that an adapted version of the ‘business judgement rule’ can provide the framework for trustees demonstrating their independence of mind. The business judgement rule is set out in section 180(2) of the corporations act and provides various protections for directors if they:
“(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the judgment; and
(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.”
In the case of trustees, the business judgement rule needs to be strengthened in two areas. In particular, in b) above trustees also need to declare that only the member benefits from the judgement. The trustees decision should not be influenced by then needs of the fund promoters, service providers or other external influences. Second, with d) above, the trustee needs to rationally believe that the decision is in the best interests of the members.
The ultimate test therefore for independence of mind is that the trustee needs to show that their decisions are rational to any prudent superannuation trustee irrespective of the interests of the sponsors or fund promoters that the trustee may feel a particular loyalty to.
