Why industry super funds should avoid activism

Fears that industry funds could use their financial clout to support political or industrial relations campaigns were kindled when ACTU president Michele O’Neill last month demanded that 30 industry funds use their leverage as major shareholders to force BHP to take on 80 seafarers who are losing their jobs.

BHP had announced plans to stop using local shippers to transport iron ore from Western Australia to BlueScope’s Port Kembla steelworks in Newcastle, and would instead use cheaper foreign shipping crews.

The ACTU’s ham-fisted effort to encourage industry funds to back an IR campaign prompted a counter-response from Treasurer Josh Frydenberg, who sent a letter to the Australian Prudential Regulation Authority arguing that this was “dangerous development” and to warn that superannuation was “not a plaything for union bosses nor a platform for pushing their industrial relations agenda”.

Industry funds will likely ignore the ACTU

But Frydenberg’s comments illustrate a basic misunderstanding of industry funds. Those responsible for running industry funds are acutely conscious that the whole success of the industry super funds has been based on the fact that they’ve approached their role in an extremely professional manner, more so in fact than their competitors in the retail sector.

The industry funds will know that their achievements have been hard won, and that continued success can’t be taken for granted. They won’t want to undermine their hugely impressive track records – and the enormous legitimacy that this has bestowed on the industry funds sector – by engaging in major political or IR campaigns.

This means that it’s far from certain that industry funds will pay all that much attention to the ACTU president’s demand. One industry fund executive said that although it was likely that the issue of the sacked seafarers would be raised with BHP in the course of the normal dialogue with the company, the fund would listen to BHP’s rationale for its decision.

This accords with comments from Heather Ridout, the chairman of Australian Super, who earlier this week dismissed claims that the country’s largest super fund might be dragged into industrial relations.

“You have to trust the governance model, you have to trust the ethics and integrity, you have to trust the regulators. We shouldn’t be dragged into political debates.”

And ANZ chairman David Gonski took a more nuanced view this week when he said industry funds had a right to attempt to influence commercial decisions, because every shareholder in every company was entitled to express their views. But, he noted, the ultimate decisions were taken by directors rather than shareholders.

And that’s where industry funds have to be very careful not to cross the line.

It’s certainly valid for industry funds to express their opinions to management on a wide range of issues, provided that they’re acting in the interests of shareholders as shareholders. But they should be extremely wary of being co-opted to push some political or social agenda under the cloak of acting to promote long-term shareholder value.

If they take this path, industry funds will run the risk of undermining the respect and the authority that they’ve built up over the past decades as a result of being well-run businesses with a strong focus on members’ interests.

They’ll also create the very real threat that industry funds themselves will become battlefields for major conflicts, with various factions battling to assert their dominance so as to advance their own ideological positions.

It is relatively easy for someone like Greg Combet – the former Labor minister who is now chairman of Industry Super Australia – to propose that industry funds can still deliver strong returns for their members while making greater use of their financial clout to force companies to focus on environmental, social and governance matters.

The risk for industry funds is that if they follow the Combet route, any success they have in forcing through social and political changes is likely to be to the detriment of their hard-won reputation for delivering strong long-term investment returns.

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