Unions have a right and a responsibility to make out their case about the links between performance and good industrial relations argues ACTU Secretary Greg Combet.
I am very pleased to be speaking here, at my first CMSF. As some of you might know, I have recently joined the Board of STA, which means I will be involved in superannuation in a more detailed way than has been the case since I joined the ACTU eight years ago, the last two years as Secretary. I have had, however, a long industrial involvement in superannuation, both through my work at the Waterside Workers’ Federation, which had established superannuation for its members in the 1960s, and in my time at the ACTU. I am very mindful of the important role that unions have played in ensuring that all Australian workers have an entitlement to superannuation, and that they have access to funds in which they can have confidence.
It is appropriate here that I pay tribute to my predecessor, Bill Kelty. Bill’s passion for superannuation, and the efforts he and others made towards achieving the system we have today cannot be overstated, and I am sure that he will continue to contribute through his membership of the board of ARF.
The ACTU is as committed to superannuation today as it has ever been, and I want to start out by quickly explaining to you the nature of that commitment.
Unions directly represent nearly 2 million union members, all of whom have an interest in the adequacy and safety of their retirement incomes. With this in mind, the ACTU and unions have an interest in ensuring that superannuation funds fulfil their prudential responsibilities, including by seeking strong returns balanced by appropriate risk, and by ensuring that administration and investment costs are as low as possible consistent with professional levels of service.
Taking this basis as our starting point, the ACTU is concerned to address a number of key issues. The first is the question of adequacy – it is well-established, that nine per cent, which will be reached through the Superannuation Guarantee in July this year, is not sufficient to ensure reasonable living standards in retirement. Irrespective of which Government is in Canberra, options need to be developed about increasing contributions – whether through the taxation system, direct employer contributions, member co-contributions or a combination.
The second issue is the attack being waged on the trustee system, and industry funds in particular, by the Federal government. Crude attempts to link the failure of some small funds, none of which had union representation, or effective employee representation for that matter, to industry funds and union-nominated trustees, demonstrates clearly what the Government is on about.
The Government’s objective is to shift superannuation from the non-profit, jointly run superannuation system to the retail funds and master trusts operated by its mates in the banking and insurance industries.
The policies with which the Government went to the election, with a couple of exceptions, like requiring quarterly payment of contributions, are largely directed to helping those best off, and encouraging money into retail funds.
You will be hearing more from the ACTU about this and other matters in due course, but I intend now to turn to the issue under discussion in this session.
First of all, let me make it absolutely clear to anyone who hasn’t been listening for the last 15 years – the ACTU has not, does not and will never support union-appointed trustees, or any other trustees, jeopardising members’ retirement incomes by making investment decisions based on considerations other than the interest of those members.
Unions do not instruct trustees how to invest members’ funds, as you in the industry well know. The evidence that this does not occur can be seen in two key features of our system.
The first is that a two-thirds majority is required for trustee boards to make a decision, and in most cases, decisions are made by consensus. The examples of union/employer splits on boards are rare. Most commonly, employer and union-appointed trustees tell me that superannuation meetings are the one arena where industrial relations agendas remain outside, and everyone shares the same objective.
The second is that industry superannuation funds do not generally make decisions about investing in particular stocks: almost universally, this is delegated to funds managers. In practice, it is simply unmanageable for fund boards to make these kinds of decisions.
However, this is not to say that issues like good labour relations are irrelevant to superannuation investment. They are not. Just as we have seen evidence that sustainable environmental policies, and concerns for the human rights of the communities in which they operate are linked to long-term performance, it is increasingly demonstrable that good labour relations are linked to performance.
Not that there should be anything surprising about that – adversarial relations with employees will never be positive for companies. You’ve really got to worry when one of our top blue-chip companies makes an announcement about redundancies which deliberately exaggerate the numbers involved, because it believes it will boost its share price. The scandal of executive options schemes which encourage short-term cost-cutting with an eye to the market rather than the future of the company requires much more attention than it gets.
Some of you might have seen a US study conducted by Lisa Lynch from Tufts University and Sandra Black from the New York Federal Reserve. The study found that the average unionised establishment that adopted high performance management techniques recorded productivity increases 20 per cent higher than the baseline firm, twice the gain recorded by non-union establishments adopting the same techniques. Overall, unionised companies averaged 16 per cent higher productivity levels, while their non-union equivalents were 11 per cent lower than the baseline, mainly because high performance management was more common in union shops.
I think it is reasonable for funds managers, particularly those who do in-depth qualitative analysis of companies, to look at the types of relationships companies have with their employees, and ask some of these questions:
Is the company committed to observing core ILO standards on child labour, forced labour, non-discrimination, collective bargaining and freedom of association?
Does the company, in practice, behave consistently with the ILO standards? For example, if a company uses agents in Asia who exploit child labour, or if it forces individual contracts on employees who want to bargain collectively, even though the latter is legal in Australia, there are issues which are relevant to investment.
To say that there is a relevant issue does not necessarily say what should be done.
A range of surveys have shown significant support amongst investors and superannuation fund managers for socially responsible investment policies. Some funds have responded by offering so-called “ethical” funds as part of member investment choice.
Another strategy is one of “active engagement”; shareholder involvement with a company, whether informally or through proxy voting, in an attempt to improve company management and performance. The concept of active engagement has won widespread support, including from the Blair Government in the UK, and from both sides of the political spectrum in Australia.
The support of unions for observance of labour standards and improved corporate governance is not complicated. One reason is to protect and improve the working life of employees. But like the groups mentioned above, unions are also interested in good corporate governance because it is an essential component of good performance. And better performance means better returns for the beneficiaries of superannuation funds.
At the present time, activism of this type is generally related to issues like executive remuneration, board composition and overall management effectiveness. However, it is inevitable that issues like environmental and social sustainability, in which I place labour relations, will become more important. It is certainly an issue gaining greater attention overseas.
While I don’t see unions trying to exert influence through trustees, I do support campaigns like that of the CFMEU a couple of years ago, which was aimed at convincing shareholders of Rio Tinto to support a greater number of independent directors on the board, and a commitment by the company to ILO labour standards.
The resolutions received about 20 per cent of votes cast, which was considered pretty extraordinary for a first attempt, but what was really interesting was that very little of that support came from industry funds. Overwhelmingly, the votes came from funds managers and institutional investors who looked at the issues on their merits and supported them. It should also be noted that the campaign succeeded in another way: not long afterwards, Rio Tinto sat down with unions for the first time in some years, and as you may have seen, has been gradually rebuilding its’ relationships with the ACTU and unions.
To sum up, I believe that unions have a right and a responsibility to make out their case about the links between performance and good industrial relations, and that investors should consider these arguments on their merits, in the context of their legal obligations. Obviously, the demand for socially responsible investment, and the Financial Services Reform Act requirement in relation to disclosure of considerations including labour relations, will also help to put these issues on the agenda. I think that’s a good thing, and I suspect the community in general, including our fund members, would agree.
This speech by ACTU Secretary, Greg Combet was delivered to the Conference of Major Superannuation Funds
Thursday, 14 March 2002
Royal Pines, Ashmore, Queensland