WORKERS’ CAPITAL
‘Bedtime!’ calls out the mother to her daughter, who is standing in the backyard next to the chicken coop. ‘Goodnight, Doris,’ the daughter says to one of the hens, before turning back into the house.
As the mother and daughter retreat inside, a fox watches on from the bushes. Dusk turns to night. ‘The big banks want to get their hands on your super,’ a voice-over tells us. A trio of foxes encroach on the henhouse: ‘And they’re putting pressure on our federal politicians,’ continues the voice as a disembodied hand unlocks the gate to the coop, ‘to let them in.’ By the end of the television ad, the viewer knows Doris the hen is dead.
In killing just one chicken, the fox-and-henhouse ad gave birth to a fierce new battle between the Coalition government and the Labor Party over control of the fourth-largest pile of money in the world.
By the end of 2018, Australia’s pool of superannuation assets had grown to almost $3 trillion. By the end of 2040, it will have grown to $10 trillion. Due to the sheer amount of money, whoever controls it could wield significant power over corporate Australia, not to mention over the economy and the future shape of the country’s financial sector.
The pool of superannuation savings is basically split three ways. A third of the money is held in SMSFs, which are similar to a family trust. Then there are ‘retail’ funds, which are owned by the banks and wealth management industry and are run on a for-profit basis and open to the public. They include funds such as the Colonial First State funds owned and managed by Commonwealth Bank; the bank profits from managing the savings by charging management and administration fees.
The final third is owned by not-for-profit superannuation providers. Some of these are corporate funds run by a company for their own workers, and some are run by the government for the nest eggs of public servants. However, most not-for-profit funds are ‘industry’ funds that cater to a specific group of employees, such as those in construction. These industry super funds have longstanding ties to the Labor Party. Their boards are made up of a split number of directors who are either employer group representatives or worker group representatives. The latter are in most cases union delegates. For instance, the construction workers’ super fund, Cbus, takes its board directors from employer groups such as Master Builders Australia and from worker groups such as the CFMEU and the Australian Council of Trade Unions (ACTU).
Because of the close relationship between the union movement, industry funds and the Labor Party, the industry fund sector has regularly landed in the crosshairs of the Liberal Party.
The Liberals believe there is good reason to worry. Because of the enormity of the pool of retirement savings, fund managers are now able to take control of entire companies. They are also able to dictate how company boards behave and have an increasing say in company standards relating to environmental, social and governance decisions.
To the Liberal Party, the traditional home of capital management and big business, this is not just a threat to the power and autonomy of the business community, it is also an increasingly viable danger coming from their political enemy. Financial managers of the economy are under threat of control by the party of the worker, and if things continue, business as usual will become a thing of the past.
The industry fund sector knew the government was out to get it, and saw every piece of legislation from the conservative government as another attempt to buckle the sector from asserting itself. It didn’t matter if it was an apparently sensible policy, such as a law to improve the qualifications of board directors, or measures to ensure only those members who needed insurance were automatically charged for it—the industry funds saw each bill as the first move towards death by a thousand cuts.
One of those cuts was the bill put forward by Assistant Treasurer Kelly O’Dywer under the Abbott Government in 2015 that sought to require all super fund boards to be composed of one-third independent directors and an independent chairman. The directors, who would be drawn from neither the employer nor the worker nominating groups, would be appointed to keep an eye on governance standards should either side of the table not fulfil its directors’ duties.
The lobby group representing the union funds, Industry Super Australia (ISA), waged a campaign against the legislation, accusing the government of an ideological attack on industry funds. It was during this skirmish that ISA created the fox-and-henhouse advertisement.
As the debate over the bill came down to the wire, ISA commissioned two versions of the ad and tested them with a focus group of 200 Australians in October 2015. The focus group research showed that ISA’s message resounded with voters. The secret polling showed more than two-thirds of respondents agreeing that ‘Industry super funds are right to warn us about what the banks are trying to do’ and more than half agreeing that ‘Liberal governments tend to give banks what they want even if that’s at the expense of ordinary people’.
Despite the positive results in the polling, ISA decided at the last minute not to run the ad. A separate lobbying campaign, behind closed doors in parliament, managed to convince crossbench senators Jacqui Lambie, Glenn Lazarus, John Madigan and Nick Xenophon to join Labor and the Greens to vote down the government’s super fund governance bill. In exchange for voting against the legislation, the senators got the industry fund sector to agree to a review of governance among the funds, to be carried out by former Reserve Bank governor Bernie Fraser.
Fraser was a friendly appointment, having previously been a director of the largest and most powerful industry fund, the $140 billion AustralianSuper. He was given a year to work on the review. Six months into it, Malcolm Turnbull cleared parliament for a double dissolution election in mid-2016, and Fraser put the review on the backburner. Why bother finishing it when Labor looked like it had a decent chance to take back government? When Turnbull was returned with the slimmest of majorities, Fraser belatedly got around to finishing the review, handing in the final version nearly a year overdue.
His report was slammed as a whitewash by the Coalition government. It said little other than questioning why independent directors would be necessary when industry funds had delivered far better for their members than the rival retail funds had for theirs.
On the face of it, the point seemed fine. Industry funds, as a collective, had given savers an extra 2 per cent more every year in investment returns than the retail sector. Over a decade, this would give savers an extra 20 per cent and could mean a difference of tens of thousands of dollars.
It was an argument repeated ad nauseam by the industry funds. The ‘Compare the Pair’ advertising campaign showed that if you were in an industry fund you’d retire with tens—if not hundreds—of thousands more in your nest egg than if you chose a bank-run fund.
However, by the time the Fraser report was handed in, O’Dwyer had already revived the independent directors legislation. The sector also appeared to have lost the support of the Nick Xenophon senators, who were pissed off with the tardiness of the review. They had given the funds the benefit of the doubt, but it had been thrown back in their face.
On top of this, O’Dwyer had tasked the Productivity Commission with the huge undertaking of inquiring into every facet of the so-called ‘default’ superannuation sector.
The default system of superannuation was the source of industry funds’ power. Because of the way the super system had been established by Labor, a large part of the savings of workers was defaulted into industry funds. Employers and unions would strike deals through enterprise bargaining agreements to decide which fund would be the default superannuation manager when job applicants were signing on to work. If new employees failed to nominate their own super fund, which happens overwhelmingly with younger workers at the start of their career or when they are signing on to part-time jobs while they are studying, 10 per cent of their wages will be carved off and managed by the default fund.
Usually, the default funds are union-backed industry funds. Up to 80 per cent of workers accept their employer’s preferred fund, and industry funds receive on average 50 per cent more of the new money flowing into the super system each year than retail funds.
The Productivity Commission, under the guidance of the department’s deputy chair, Karen Chester, was asked to evaluate whether the current system was delivering for the millions of Australians who were handing over their livelihood to companies they had little knowledge about.
Just the existence of the PC review incensed the industry funds. They believed it to be an ideological attack on them by the government at a time when the banking sector was mired in scandal.
Industry funds believed they had good reason to think it was an attack. Under the previous Labor government, a panel in the Fair Work Commission had been given the power to select which funds would be named default providers. But it had sat idle since the FSC, the lobby group representing the retail fund sector, won a 2014 court case to dismiss the Shorten-appointed group of experts on the basis it was not independent. The Turnbull Government’s minister for employment, Michaelia Cash, had the power to appoint new panel members, and the industry and not-for-profit funds called for the default selection process to be restarted, but the government declined to restart it and offered no explanation as to why.
A month after the Fraser review was dismissed out of hand by the government, ISA decided it was time to launch its fox-and-henhouse advertisement. There were billions at stake, and ISA was prepared to smear the government as willing to let the big banks engorge themselves on the retirement savings of Australians. Bernie Dean, the head of marketing at ISA, reluctantly wrote to Turnbull to say that ISA was dismayed at the government’s failure to listen to its arguments about the correct policy settings for super funds, and would start broadcasting the ad.
ISA spent close to $4 million on the ad and on purchasing slots to broadcast it. During weeks when parliament was sitting, it played back-to-back on Sky News, which is permanently switched on in every parliamentary office on Capital Hill. The government couldn’t escape it. Turnbull wasn’t just exhausting political goodwill by preventing a royal commission: the government was now seen to be actively helping the banks get their hands on even more money.
When Doris the hen is devoured by the foxes, the viewer is left with a simple message: ‘Banks aren’t super’.
The Liberals decided it was time to bite back. The party’s acting federal director, Andrew Bragg, cobbled together a counter-campaign looking to drag Labor into accusations of misspent industry fund money.
Trawling through Australian Electoral Commission (AEC) data on donations, the money trail was easy to find. Over a decade, about $50 million had trickled out of the industry funds into the coffers of the Labor Party. On the face of it, this seemed to be a bona fide scandal: retirement savings held by union funds were boosting the ability of Labor to wage war against the Liberals. The Coalition seized on the figures.
However, when the funds explained the transfers of money, the matter seemed much less clear cut.
First of all, industry funds often made payments to union groups, but the payments were for extremely non-scandalous matters. When funds needed to communicate to their industry employees, they took out advertisements in union magazines or paid fund managers to go to worksites and talk to members and workers about how best to manage their superannuation. These payments, because of the electoral disclosure laws, had to be flagged with the AEC.
All super funds needed to advertise, whether it was to let their members know of developments with their services or to attract new members to their funds, the latter of which would help build economies of scale and drive lower fees for all savers. While a payment to a union magazine had to be declared, no such transparency measure was required for newspaper or television advertisements.
And with many industries, such as trucking, which is typified by sparsely situated and disconnected workers, unions would need to be paid to send representatives out to ensure employees were in control of their nest eggs, their life insurance and their personal details held by the company.
More controversial, however, was the practice of union-appointed directors of industry funds donating their director salaries back to their union. At about $40,000 a year for their services, union-appointed super fund directors kicked back the fees to their union organisation. Rather than pocketing the fees for themselves, the union directors were bound by their duty to the workers they represented at the fund level. Their directorship was a service on behalf of members to ensure the fund was being run correctly, not for the benefit of their own CVs or their bank accounts.
In contrast, independent directors on super fund boards, or even employer group representatives, would take their salaries home. Only in rare cases, such as the example of jailed Health Services Union leader Michael Williamson, did union officials pocket their director’s fees.
For Andrew Bragg, both instances of kickbacks were enough of an opening for a smear campaign against the industry funds.
Bragg had come from humble beginnings before he became the top office-bearer for the Liberal Party. Born in the regional Victorian town of Shepparton, he had worked at the SPC cannery, packaging fruit. Moving on to bigger things, prior to his stint as acting director of the Liberal Party he represented the financial and wealth management industry at the FSC, where he was head of policy.
The FSC was the opposing lobby group to Industry Super Australia. Bragg was given a wide remit there, and the group’s chief executive, Sally Loane, would even allow him to speak for her on important topics when the media came for comment. This was probably because Bragg was a far more effective communicator than Loane, who was later shown by the royal commission to have a poor grip on the intricacies of financial regulation.
In his new role as head of the Liberal Party, Bragg launched a website called ‘The Fair Go’ that sought to pillory the union funds over their handling of member savings.
According to the AEC disclosures, the CFMEU was the biggest recipient of super fund payments, receiving $12.4 million over the decade to 2017 from First Super, Cbus and other funds. Close behind was United Voice, a union representing cleaners and other low-paid workers, which was paid $10.1 million by Hostplus and AustralianSuper. The Australian Workers’ Union, formerly led by Bill Shorten, was paid $1.8 million by AustralianSuper, Cbus, AustSafe and others, while the Transport Workers Union received $7.1 million from a single fund, TWU Super.
If it was war the industry funds wanted, the Liberals decided it was war they would get. The battle expanded in May 2017, when APRA, responsible for ensuring standards in the super sector, was called before parliament for an otherwise routine oversight hearing.
‘I have some questions about some of the integrity measures in the superannuation industry,’ Liberal senator Jane Hume told APRA’s head of super, Helen Rowell. ‘I should give you a heads-up that I used to work in this industry. I have great respect for the organisation I worked for and the people I worked with, but I have some concerns that some industry players, potentially, pose threats to the reputation of those who are doing the right thing.’
A dirt sheet was being passed around the parliamentary offices of Coalition members that detailed allegations made about the chief executive of industry fund First Super, a man called Bill Watson. First Super was a small fund chaired by the boss of the CMFEU, Michael O’Connor, who was one of the most powerful union figures in Australia. The dirt sheet said that Watson had been sacked from his post as chief executive of Sydney Ferries between 2001 and 2004 after a corruption investigation by the state’s anti-corruption body, the Independent Commission Against Corruption (ICAC).
Hume used this information to attempt to bait the APRA executives into attacking Watson over his fitness to serve as director of the $2.6 billion super fund, should the allegations prove true. ‘I can name the superannuation fund if you like,’ she said. ‘I have parliamentary privilege. I am just concerned I might end up in concrete boots. First Super is a fund that has been backed by the CFMEU, a union that is subject to countless lawsuits due to its blatant disregard for the rule of law. First Super has an executive [who] is subject to those claims. Is this something that APRA is aware of?’
APRA refused to engage in the discussion without knowing all the details of the allegations, and the attempted smear failed to shift Watson from his position. When I asked him for a response to the claims, I was provided within minutes with a signed letter from ICAC commissioner Irene Moss clearing him of any wrongdoing. Because the accusations were made regularly against him, Watson kept the letter within reach at all times.
After taking questions on notice from Hume, APRA later responded that two investigations and an independent audit had found ‘no grounds to deem the executive not to be fit and proper’. APRA said it had been made aware in 2009 of complaints about the executive, and that Watson’s previous fund had also investigated the allegations. It had determined that the ‘matter was dealt with’ in 2010. Another investigation in 2013 by First Super, assisted by an independent auditor, had also cleared him.
The government wasn’t satisfied with APRA’s response to the industry funds, and pressured it to investigate the fox-and-henhouse ad to find out if it constituted misusing member savings. The regulator dutifully complied, and wrote to the boards of all fifteen industry superannuation funds that were party to the ISA outfit to find out if they had been involved with the TV campaign.
ISA chief executive David Whiteley had to publicly defend the campaign as the nervous funds sweated on the potentially damaging outcome of the investigation. He claimed the ad had been the ‘third stage’ in an information campaign for industry fund members, following ads about the cross-selling of super products in bank branches and at workplaces. ‘We’re now informing members that there are armies of bank lobbyists placing pressure on parliamentarians. The public has a right to know of the lobbying activities of the major banks,’ Whiteley said.
While the government was baying for blood, it would be let down by APRA’s final ruling on the ad. APRA found that the marketing campaign was backed by research aimed at recruiting members to give the funds greater scale, and that when the ad aired, lo and behold, the industry funds gained more members. APRA couldn’t rule on the politics of the ad, but found it was a cost-effective means of recruiting more members to the funds, which would help create economies of scale for the trustees.
Down but not out, the government tried another route. The minister in charge of passing legislation requiring the funds to install independent directors, O’Dwyer, began circulating information designed to skewer the industry fund sector over its complex network of businesses, which were all staffed with Labor heavyweights. With nearly $1 trillion worth of superannuation assets washing through the industry fund network, the Liberals were trying to connect the dots on where member savings were being directed.
At the top of the food chain was Industry Super Holdings, a giant investment vehicle co-owned by the largest industry funds in Australia. It was chaired by Labor’s godfather of super, Garry Weaven, and owned the online news site The New Daily and the commercial lender ME Bank. It was also the holding company that owned ISA.
Arrows on the government graphic connected Industry Super Holdings to Industry Fund Services, which provided administration services to the funds, and to the sector’s international infrastructure and asset manager, IFM Investors. Then there was IFS Insurance Solutions, a super fund responsible for managing lost super savings, and another that looked after defined benefit schemes.
The government was privately claiming that the graphic had helped persuade Senator Nick Xenophon not to take Labor’s side during the argument over the legislation. The Liberals wanted to make it public in a bid to turn people’s opinion against the industry funds, so staffers set about pushing the document out through the media.
It found its way into my inbox. Having covered the superannuation sector for years, the connections the Liberal Party was seeking to make were, I thought, mostly uncontroversial. Just like the major banks, which owned superannuation assets, infrastructure managers and insurance companies, the industry funds were free to own a number of different companies that could provide the services needed to fulfil the funds’ trustee duties. The document was either a case of the bleeding obvious, or a misguided attempt to sully the Labor-aligned directors of the various businesses. When it landed in my inbox, I wasn’t exactly sure what I was supposed to do with it. There were certainly questions to be raised about the links between senior Labor figures, the superannuation funds and the shared investment vehicles owned by the sector, but without any further information than what was already public knowledge, the document was more or less a statement of fact.
After a few days of not knowing what to do with the document in question, I received a call from O’Dwyer’s office asking me not to do anything with the graphic. Perhaps they knew me well enough to have realised I would write about the fact that they were attempting to drum up opposition against industry funds by connecting the dots between the holding company, rather than simply recite their conspiracy theory about the connections between the businesses, which by this time was already well known.
Despite the government’s best efforts, nothing would stick on the industry funds. They were largely immune to bad press, and further inoculated against poor public sentiment. And why shouldn’t they be? During the period there had been countless bank scandals but the industry fund sector—at this point in charge of almost $700 billion in assets—had not been involved in any sort of scandalous behaviour. The bank-run funds, which controlled the same amount of savings, faced terrible headlines on a revolving basis. What was more, industry funds were delivering for their members hand over fist and leaving the retail sector wallowing in their wake.
When the government was backed into a corner with the royal commission, the Liberals saw an opening. They would task Kenneth Hayne, now the most powerful investigator in the country, with trawling through every aspect of industry fund governance and find what they hoped would be a killer blow.
Government MPs waited again, with bated breath.
The political power play was a curtain-raiser for the royal commission, and the industry funds were deeply paranoid about what Hayne might unearth. As the commission moved on to its examination of the nation’s superannuation sector, the counsels assisting the commission had at the forefront of their minds the need to be seen to give industry funds a hard time.
The scandals in the bank-run funds were well known, and information gathering on them would be fairly straightforward. ASIC and APRA had been chasing the for-profit sector for years over an endless list of indiscretions. However, to avoid any accusations of bias, Hayne would need to be seen to be taking the scalpel just as liberally to what had been until this point the better-behaved half of the super sector. Industry funds were inundated with a flood of subpoenas to produce information for the royal commission.
Union fund directors instantly perceived unfairness. While the commission had served wide-ranging notices to produce information about the super funds’ sponsorships of union events, training and marketing deals, it had not asked for equivalent information on the funds’ relationships with employer associations.
One director of an industry fund complained to me that financial dealings with employer group associations were often larger than the funds being spent on payments for union sponsorship. This was being completely overlooked by the royal commission, according to the industry funds subjected to Hayne’s request for information. Indeed, the employer group directors had often been more problematic than the funds’ ties with unions. ASIC had been targeting default fund arrangements between employer groups and super funds to see if there were any incentives being kicked back to bosses for choosing certain funds as default managers.
Union directors were also far more qualified and savvy than their employer counterparts. Former ACCC boss Graeme Samuel once told senators during an inquiry into superannuation that employer representatives were outgunned in boardroom discussions by union-appointed directors. During his time reviewing Cbus’s corporate governance in 2015, Samuel found representatives from the Master Builders Association ‘were far less capable of representing the views of their organisation’ than union representatives such as former ACTU president Ged Kearney and CFMEU national secretary Dave Noonan. Kearney and Noonan had spent their working lives arguing for their members in a high-pressure, politically intense setting. Master Builders Association appointees, on the other hand, were insulated from negotiating these issues in their day-to-day jobs.
The industry funds believed themselves ready to face anything, but didn’t think they couldn’t handle an unwieldy royal commission if it was beholden to a government intent on damaging just one side of the sector. So it was with much anticipation by the funds that counsel assisting the royal commission Michael Hodge, QC, took the stand at Melbourne’s Federal Court in August 2018.
In his opening address, Hodge laid out the land as the commission picked apart one of the most powerful, but least transparent, financial industries in the world. The superannuation sector, for all its power, operates in the shadows. Money is compulsorily taken out of workers’ wages to the tune of more than $50 billion a year and shunted into funds that employees may not even be able to name. The money is locked away for up to half a century until the workers’ retirement. During this period, workers may not ask any questions of their fund. It is a system defined by disengagement, and super funds operate largely with impunity.
‘And so we have the underlying question of this module which arises from the terms of reference,’ Hodge said. ‘What happens when we leave these trustees alone in the dark with our money? Can they be trusted to do the right thing? If they can, does that mean that the current regulatory system is adequate? If they can’t, what must be done to protect Australians’ retirement savings and to what extent do the entities that own or control the trustees, who are not obliged to act in members’ best interests, act in ways that are ultimately detrimental to members, even if they do not technically cause the trustees to breach the trustees’ duties?’
For three decades, the superannuation sector had been a lightning rod for partisan politics and ideological trench warfare. Now it was about to be put through the most thorough examination of its existence. All of Canberra was tuned in. You could hear jaws dropping across the nation as Hodge instantly chalked up the first win to the industry fund sector as he said no witnesses would be called from Cbus.
With its three board members nominated by the militant CFMEU, Cbus summed up everything critics of industry super hated about the union side of the super system. This was a fund that had been singled out by O’Dwyer for poor behaviour. However, after hammering it with requests for documents relating to a money trail between its savings and the unions, the commission was satisfied Cbus was acting in members’ interests.
It wasn’t for lack of investigation. The royal commissioners probed Cbus on the $7 million in donations made over a five-year period to unions. These donations had been carried out with no formal processes or requirements for tracking whether the agreed services had actually been delivered by the people that received the money. Instead of the royal commission examining the kickbacks, Cbus had already done the hard work for them. The fund had commissioned KPMG to do a review of the practices three years earlier, in 2015, and following the report had put in place a system where it could check that the money was being well spent.
Cbus was let off the hook, but in reality it had been preparing for the worst. Chairman Steve Bracks (a former Labor premier of Victoria), chief investment officer Kristian Fok and marketing boss Robbie Campo had all been forced to provide witness statements to the royal commission, and right up until the end of the week before the hearings, the fund had hired lawyers to coach the executives on how to handle themselves in the witness stand. Some of these lawyers were the same ones who had spent time training Shorten when the former Australian Workers’ Union boss had been called to give evidence at the 2015 trade union royal commission. At Cbus, the staff had been under assault by requests for information on tight deadlines focusing on a few key areas, including the fund’s partnership agreements with unions and employer bodies, credit card spending by executives, and Fok’s investment choices.
In the end, there was nothing damning to pin on them.
Then, in a further bombshell dropped just moments into the start of the fortnight’s examination on superannuation, Hodge said the lack of glaring misconduct was much the same in the rest of the industry fund sector. ‘On the whole, it is our view that the commission’s review of documents identified fewer examples of types of conduct of the industry fund trustees that raise questions … compared with that of the retail funds,’ he said. ‘In a number of cases, though certainly not all, the conduct of the industry funds which we have identified as warranting consideration during the oral hearings is very nuanced.’
Before it had even started publicly grilling executives, the royal commission had essentially told industry fund conspirators to pack it in. Union officials around the country breathed a collective sigh of relief.
Not one for giving up easily, O’Dwyer remained patient. Passage of her legislation targeting the sector would depend on there being enough of a scandal in the industry funds to encourage senators to support the bill, and with some of the country’s biggest industry funds scheduled to appear in the next few days, including AustralianSuper, Hostplus and Energy Super, O’Dwyer maintained the faith. No one who was put on the stand at the royal commission was let off lightly.
After NAB executives were questioned on the stand, AustralianSuper chief executive Ian Silk was the first industry fund executive to be questioned.
If O’Dwyer was Captain Ahab, Silk was the government’s white whale. He was the first high-profile chief executive to sit in the witness box at the royal commission. The banks and wealth management bosses had made junior staff climb out of the trenches and appear in person at the inquiry. Silk was also one of the most powerful financial executives in the country. AustralianSuper was the nation’s largest super fund, and one of the best-performing. Silk’s $140 billion worth of savings was bigger than the country’s sovereign wealth fund, the Peter Costello–chaired Future Fund.
With the company sourcing its directors from peak bodies, such as ACTU president Michele O’Neil, AustralianSuper would be one hell of a Moby Dick for the government to harpoon.
To add to the excitement, Silk was also to be questioned over his fund’s involvement in the fox-and-henhouse ad, and the investment of member savings in The New Daily. The website, funded by a number of industry funds, had attracted the ire of the government for its carriage of pro-industry-fund news and analysis—albeit alongside other not-so-fawning news about industry funds and a range of political, sports and entertainment news.
As soon as the moustachioed Silk took his oath and began to answer questions, the mood of the royal commission changed completely. Months had been spent by the commission’s counsels coaxing executives to provide simple answers to simple questions. At every point, bankers had bloviated, obfuscated, deviated and meandered through their answers, which were spoken in complex legalese to avoid any admission of wrongdoing. It was a breath of fresh air when Silk answered questions straight to the point.
AustralianSuper had paid $2.3 million to help set up The New Daily, which aimed to focus on personal financial news and information to energise members into taking control of their superannuation. It would also provide a valuable source of free news for members amid the carnage in the traditional media industry, which was bleeding reporters and sounding increasingly shrill. The website was initially paid for out of the fund’s $1.50-per-week membership fee, which goes towards administration and marketing. The cost worked out to about 20 cents a year for each of AustralianSuper’s 2.2 million members. At that cost, setting up The New Daily was cheaper than mailing a single document to fund members through the post. The website was eventually sold to the jointly owned Industry Super Holdings vehicle, of which AustralianSuper is also a shareholder.
Silk didn’t think the meagre price tag for setting up the website was any reason to be careless with the cash. ‘Two million dollars is serious money in anybody’s language. For a member-focused organisation, we don’t splash money around lightly,’ he said.
AustralianSuper had painstakingly considered The New Daily before launching it, discussing the website at board level and commissioning research as to whether it would help engage their members with their savings. It was never included in the fund’s investment portfolio and did not return a financial dividend to the fund, but its shareholding in Industry Super Holdings had been ‘written up’ by 30 per cent over the 2017 financial year, which was a positive.
Still, Hodge wanted to know if The New Daily—which had a charter of editorial independence—was spreading industry fund propaganda.
‘In the sense of advocating in relation to the positive features of industry funds,’ Silk said, ‘the difference between the best funds and the poorest funds is literally life-changing for a lot of people. To advocate for superannuation, in particular for the best superannuation funds, the funds that produce the best returns for members, is in the DNA of industry funds, and we were happy to see The New Daily do that. Not be a thoughtless cheerleader for industry funds, but where there are merits of those funds, and where people are best served by being members of those funds. We think it’s important to point those features out to people.’
This sort of advocacy was no more clear than in the fox-and-henhouse ad. For the benefit of the public gallery, the ad was played in full at the Federal Court. Silk explained that it had been ‘squarely directed’ at crossbench senators and politicians, and was made with the intention of derailing the government legislation aimed at reforming the superannuation system. He said the proposed changes could lead to members of AustralianSuper moving to a bank-run retail fund and a decrease in new members joining the fund, which could jeopardise the retirement incomes of members of AustralianSuper.
He then launched into a full-scale defence of the necessity of the ad. Members would be tens of thousands of dollars worse off in retirement if they left his fund, and Productivity Commission data backed this up. The enterprise bargaining system had ensured that the more than two million Australians in the fund were having their savings carefully looked after, often without any knowledge of the expertise being deployed for their advantage. Without the ad, millions of everyday Australians could unknowingly wander into cross-selling, gouging and rorting of the bank-run super funds, Silk said.
‘I don’t want to interrupt you, Mr Silk, but is the point you’re trying to make that your fund generates higher returns than a bank fund?’ Hodge said.
‘Well, that is the case,’ Silk said.
In the end, Silk was able to show that the advertisement, which took $500,000 of AustralianSuper funding, was conducted within the limits of the ‘sole purpose test’, which requires money to be spent in the best interests of members. He was able to back up the strategy with reams of research papers, focus-group data and documents deliberating board decisions.
The fox-and-henhouse ad also achieved its aim. The legislation, which Silk believed would threaten the retirement savings of the millions of Australians who enjoyed the benefits provided by industry super funds, was stalled in the Senate and going nowhere fast. ‘But it’s a battle that has been won, not the war,’ Silk said.
Indeed, there were more skirmishes before the industry funds could expect to survive the fortnight. Another big target of the government was soon to take the stand. The $40 billion fund Hostplus, which looks after the savings of some of the poorest-paid Australians from the hospitality and tourism industries, was due for its appointment with the royal commission. Hostplus maintained strong connections with the United Voice union. One of the union’s nominated directors on Hostplus was Tim Lyons, a Labor stalwart and former assistant national secretary of the ACTU who in 2015 led an ill-fated attempt to topple the ineffectual ACTU national secretary at the time, Dave Oliver.
However, Hostplus generally only made headlines for the right reasons. It was the best-performing fund on a one-, three-, five-, seven-, ten- and fifteen-year basis, and its chief investment officer, Sam Sicilia, was one of the few industry fund figures to be routinely interviewed by the financial press for his expertise. Even Scott Pape, the so-called Barefoot Investor, who doles out simple financial advice to help ordinary Australians, was a fan of the fund.
Still, Hostplus chief executive David Elia kitted up for the examination of his career. Again, even when there appeared to be questionable use of member savings, Elia reassured the commission it was directed at protecting the fund from an onslaught of external factors that didn’t have members’ best interests at heart.
Maybe that is a polite way of putting it. Elia had to explain just how Hostplus found $260,000 of its members’ own savings every year to spend on tickets to the Australian Open tennis slam in Melbourne. Those tickets and that money went towards wining and dining 120 chief executives and employer representatives who had a relationship with Hostplus. It was the fund’s annual ‘flagship entertainment event’.
On its face, this was an out-and-out scandal, but, as Elia attempted to explain, it was done with only the best of intentions. Despite being a leader of the sector, Hostplus was always at risk of having its default fund status taken away by employers who would then take their workers’ savings to other higher-cost funds, including ones run by the banks. Hostplus had once lost a contract with one of the largest hotel chains in the country because Elia did not have a good relationship with its chief executive, he said. Bosses, it turned out, weren’t choosing Hostplus because it was the best place to store their employees’ savings—the bosses wanted to be feted in return, under threat of taking away their contracts. If this happened, Hostplus would lose its economy of scale.
It was a constant battle Hostplus had with other funds in the market, particularly those of the major banks and wealth managers. A 2012 review of the super system by the PC had found that bosses could be enticed to sign over their workers’ savings to banks in return for special deals on financial products and accounting services. Former ASIC executive Jeremy Cooper’s review of the super system two years earlier had also warned against retail funds providing ‘bundled services’ to employers in exchange for superannuation assets.
‘Unashamedly, unashamedly, we utilise entertainment [and] corporate hospitality in order to strengthen the relationship we have with our employers,’ Elia said. ‘I wish I didn’t have to do it. But the reality is it is a competitive landscape.’ The money came out of Hostplus’s $1.50-a-week administration charge, not members’ investments, and worked out to about 1 cent a week per member. ‘It’s not an insignificant sum of money, but it’s done for the right purposes,’ Elia said.
It was an undeniably sleazy deal, but plundering a few hundred thousand dollars a year looked like child’s play compared to the bigger rorts, worth billions annually, in the bank-run sector. Plus, in this case the scandal appeared to fall back onto dodgy bosses. In an ideal world, wouldn’t a company choose the best-performing fund in the country to handle the savings of its employees? It was the bosses paying the superannuation, after all.
The Australian Open tennis schmooze was the heaviest hit the royal commission could land on the industry funds. As more representatives from the union-backed side of the superannuation system appeared for questioning, the more it became clear that they were operating on a different wavelength from the banking executives of previous rounds. Much of the time, the bankers could barely be trusted with their responses. It didn’t seem like they believed the answers they were giving, either. Not only did the industry fund executives say what they believed, but you got the idea they also believed what they said.
Such was the case when Scott Wilson, the chairman of the $7 billion Queensland-based fund Energy Super, appeared in the Federal Court. He was there to explain why Energy Super had decided not to proceed with a planned merger with a rival fund, the $14 billion Equip Super—especially when the merger had been found to be in the best interests of its members. Energy Super had been beset by stalling membership and increasing costs and fees. The potential merger would have saved members $20 million a year, with much of the benefit coming from reduced investment costs.
Small funds refusing to merge was such a problem that APRA had even created a hit list of almost thirty funds it wanted to either find a partner or face a forced marriage. Being stuck in a small fund with high fees and poor investment returns could see a saver tens of thousands of dollars worse off at retirement compared to a member of a fund with proper scale.
There was just one problem as Energy Super and Equip headed to the altar: Equip was notoriously anti-union. Wilson told the royal commission that Equip chairman Andrew Fairley had told Energy Super director Mark Williamson that allowing union-nominated representatives to sit on the board of the merged fund would sink the deal. ‘We’ve worked for years to get rid of them and we’re not going to reopen the practice,’ Fairley allegedly said.
The union directors of Energy Super would not allow the merger to go through if Equip wouldn’t allow worker representatives on its board. Who would argue inside the fund for the interests of the members? Energy Super had a long and proud history of engaging with its workers all over the Sunshine State. What was more, it was delivering better returns for its members than Equip. ‘If we can’t be guaranteed that an anti-union employer-based fund is going to allow us to have union representation on their board going forward, what’s going to happen to our members in Far North Queensland? What’s going to happen to our members in Cairns and Townsville?’ Wilson begged.
For the union movement, super is a sacred workplace right that was won by the workers and their representatives in the 1980s. ‘When we talk about superannuation funds, the interests of unions and the interests of members of the funds are so aligned as to be indistinguishable,’ Wilson said before launching into a rally cry for the sector. ‘It’s what we do. We look after members’ money through the accumulation and into retirement.’
The industry fund sector had its week in the dock, and was given a clean bill of health. There were some issues with behaviour in the sector, but they appeared to be mostly minor, and there wasn’t much evidence of misconduct to recommend anything remotely resembling a civil or criminal charge against the sector.
If there were any lingering doubts about whether the royal commission was holding open the door to make findings of bad behaviour by industry funds, Hodge made it clear. ‘Not open,’ he said. ‘For the avoidance of doubt … the preferable conclusion on the relevant evidence is that the conduct was not misconduct or conduct falling short of community standards and expectations.’
The government had been waging war against the union funds for years, and now the most powerful financial inquiry in the country’s history had barely grazed the cheek of the industry funds. The chickens could sleep easy in the henhouse. The fox hunt had only just begun.