There is little empirical evidence to suggest that board member independence in the superannuation system would boost investment performance but it could contribute to maintaining the legitimacy of the super system, a new study suggested.
The Centre for International Finance and Regulation (CIFR) released a study, which said that the ‘evidence' of improved investment performance from good governance in the super and pension sector relies mainly on the higher cost structures sometimes evident where trustees employ related parties to help with the administration of the fund.
However, Dr Scott Donald from the University of New South Wales, who authored the study with Suzanne Le Mire of the University of Adelaide, said the lack of evidence of superior investment performance should not mean the idea of independence should be dismissed.
The absence of evidence (in either direction) should not, however, be seen as fatal as independence does support good decision making which is essential in superannuation governance," Dr Donald said.
"Independence also offers a number of other potential advantages that have not been fully explored in the superannuation debate. This includes the potential to enhance legitimacy of a system in which stakeholders are forced to participate but in which they may feel under-prepared or disempowered."
The paper concluded that the government should formulate a more sophisticated, nuanced, and more compelling argument justifying the establishment of structural independence on super fund boards than it has in the past as this could contribute positively to enhancing decision processes.
One of the approaches that should be taken when regulating for independence is imposing specific structural barriers that spot and forbid connections that could threaten or be inconsistent with independence in order to ensure independence.
But the paper warned it would be difficult to identify potentially threatening relationships, and the appointed person's independence may become questionable only after their appointment.