Conflict of interest adds to corporate governance woes

Three ex-NSP Buck executives have launched a superannuation consultancy business, The Heron Partnership, as an independent firm, which has flagged trustee boards' biggest problem as being conflict of interest of the consultants overseeing outsourced tasks.

Heron Managing Director, Christopher Butler says while his company is not scare mongering on the issue, it is one which is not going to go away and which institutions have acknowledged needs to be dealt with.

The problem arises, according to Butler, when a fund hands over its advisory services, administration and asset management over to the one consulting firm. And if that firm is part of or a subsidiary of a fund manager, there is an obvious conflict of interest if the consultant recommends putting funds into its own master trust.

"This is not good corporate governance," Butler says.

And it is not just a question of ethics.

"These are large master trusts with $3 to $4 billion in assets; if something goes wrong, this affects a whole host of members from many different employer groups, not just one group of members if this was a corporate fund," Butler says.

"We're not saying this is about to happen, but good corporate governance is all about protecting members' interests."

Butler says the problem has existed for some time, but with the recent link between the massive corporate collapses and large accounting firms in the US has brought the matter into the spotlight.

"Look at the accounting firms. Andersen was doing too many things in the one house," he says. "If we mirror that across to the major financial institutions in this country, we need to lift our game on corporate governance."

Butler proposes a three-pronged attack to deal with risk evaluation for super funds. The first step involves identifying the pressure points caused by a concentration of delegations to individual service providers. The second, to assess risk, including a concentration of potential conflicts of interest, and lastly, to mitigate any risk by taking appropriate action and application of strong governance principles.

Heron has already had an overwhelming response to the ideas of potential conflicts of interest financial institutions fear could affect them, Butler says. He expects an industry fund to become its first super fund client in the next few weeks.