10.2 Evidence

10.2.1 Energy Super

In 2016, Energy Super was interested in merging with another superannuation fund. It thought that a merger would benefit its members through increasing membership numbers, changing its membership demographic and reducing administration costs.[1] It had held merger discussions with several superannuation funds since 2011.[2]

The most advanced discussions were with Equipsuper. Those discussions began in early 2016.[3] In May 2016, staff from Energy Super and Equipsuper performed an evaluation study that found that there were many benefits of a merger, including increased scale in investments and lower investment fees.[4]

On 2 June 2016, Energy Super wrote to Equipsuper proposing that the merged board be equally split between directors from each entity, with Energy Super’s contribution including two unionnominated directors, two employernominated directors, and one independent director.[5]

This reflected the existing board of Energy Super, which had one independent director, four employer-nominated directors, and four directors nominated by either the ETU or the Australian Municipal, Administrative, Clerical and Services Union Queensland (QSU).[6] The largest employers contributing to the Energy Super Fund were Queensland Government-owned corporations such as Energy Queensland Limited and the Queensland Electricity Transmission Corporation Limited.[7]

On 15 June 2016, the Chair of Equipsuper Andrew Fairley wrote to the then Chair of Energy Super, Mark Williamson, saying:[8]

It is important to the Equip board there be a commitment from Energy to adopt the approach of a skills-based board. This would logically mean that in circumstances where a skills matrix has been established by the merged fund[,] in the event that persons nominated by the unions or employers did not have the necessary skills as measured by an independent third party consultant then the board would retain a right to not accept the nomination, and to request another nomination of individuals that did have the appropriate skills.

A process would need to be developed, based on objective criteria, using arm’s length parties to make judgments about the skill levels of individuals concerned.

The proposal about board appointments differed from Energy Super’s existing process. Energy Super did not engage a third party consultant to evaluate nominees to its board.[9] Rather, when candidates were being considered, it engaged with the nominating organisation to ‘talk to them about who we’re after’.[10] Further, under the Energy Super constitution, to be appointed to the board a person must satisfy Energy Super’s Fit and Proper Policy.[11] The Fit and Proper Policy contains a board skills matrix. Applying that matrix shows the experience and diversity of the board, and identifies gaps the board should fill.[12] Mr Wilson said that Energy Super has regard to that matrix when considering new board appointments,[13] and since June 2014 the board’s performance (as distinct from proposed appointments) has been analysed by an independent consultant each year.[14]

Mr Wilson said that he agreed that it was reasonable to have a skills-based board.[15] He said that Energy Super had not been opposed to Equipsuper’s approach, but wanted to see the process and criteria that would be involved.[16]

By late July 2016, Energy Super and Equipsuper had appointed a joint working committee of directors of their respective boards and had entered into a memorandum of understanding.[17] The parties aimed to enter into an implementation agreement by the end of October 2016.[18]

In September 2016, a report by KPMG concluded that a merger of Energy Super and Equipsuper would provide ‘members and employers with annual cost benefits of up to $20.5 million’.[19] The report also concluded that the new fund size would strengthen corporate governance and achieve additional scale.[20] KPMG thought that superannuation funds the size of Equipsuper and Energy Super should consider mergers, to achieve benefits of scale and to combat risks such as low member growth and competition from larger and similar sized funds.[21]

Following that report, the funds engaged with member and employer stakeholders to get their views about the potential merger.[22] But it appears that it was at this point that the merger discussions started to collapse.

On 13 September 2016, Mr Wilson emailed a fellow ETU-appointed director of Energy Super, Peter Simpson, saying that he and the Chair of Energy Super were ‘trying to pull up the merger’ (meaning to stop it going ahead).[23] Mr Wilson said that from the outset of negotiations in early 2016, Mr Fairley had said that Equipsuper would not accept union-nominated directors on the board of the new fund. At the same time, other directors of Equipsuper told Energy Super ‘not to worry’ about it.[24] Mr Wilson said that when he sent the email he believed that the merger would not ultimately proceed. As a result, he wanted to stop it to avoid spending any more money.[25]

On 23 November 2016, Mr Simpson sent an email to the Chair and CEO of Energy Super, saying he had ‘concerns that our position on having a spot on the board has been undermined by the wording’ of the draft constitution provided by Equipsuper.[26] For reasons that were not explained in evidence, Mr Simpson then forwarded this email to Mark Bailey, the then Queensland Minister for Energy, saying:[27]

I’m unsure if you’re across Energy Super’s current discussions with Equip Super in Victoria about a possible merger?

The GOCs [government owned corporations] that are represented on the [Energy Super] board will have a big say in whether or not any merger proceeds we may need to talk to you about Govt’s position on this prior to Xmas.

The next day, on 24 November 2016, Mr Simpson again forwarded Mr Bailey correspondence between him and other board members regarding his proposed amendments to Equipsuper’s constitution.[28] Mr Simpson then forwarded the chain of emails to an organiser for the ETU, stating, ‘I will talk to Bailey down the track about Govt knocking this off my aim is to not have it happen’.[29]

Despite these events, the merger process continued. At a joint meeting of directors of Energy Super and Equipsuper on 1 December 2016, management of Energy Super was asked to work on a principles paper that would articulate the proposed board appointment process and identify the differences between each of the funds’ Fit and Proper policies and board appointment processes. It was proposed that Equipsuper would then review the paper and identify potential amendments to the constitution to circulate.[30]

At about the same time, Mr Fairley was asking Equipsuper’s employer representatives about their views on the merger. On 15 December 2016, Mr Williamson emailed a number of Energy Super board members. He told them Mr Fairley had said that, out of five Equipsuper employers, one was ‘indifferent’, two were ‘passively against’ and two ‘aggressively against’ the merger. [31] One of those employer representatives said that it would ‘aggressively oppose merger plans with Energy Super’, based on ‘1. Dilution of shareholding status [and] 2. Board appointment process’. This employer apparently said that it preferred Equipsuper’s Board Skills Policy. Mr Williamson said that Mr Fairley told him Equipsuper would not proceed with the merger unless Energy Super agreed that there were no automatic rights for the ETU and QSU to nominate board positions, and that all board members had to comply with Equipsuper’s Board Skills Policy.[32]

Mr Wilson said in evidence that this was a problem for Energy Super. He said that Energy Super valued the engagement of the unions as an important feature of the fund and that unions contributed significantly to the fund, including in respect of member engagement[33] and representation of member’s interests.[34]

At a meeting on 20 December 2016, the board of Energy Super resolved that the merger should proceed, but on the basis that there would ongoing union representation on the merged board.[35] The same day, Mr Fairley wrote to Mr Williamson terminating the merger discussions. Mr Fairley said that ‘the Equip employers’ would not agree to an entitlement to appoint member directors in the manner proposed’.[36]

Mr Williamson’s response on the next day expressed his disappointment that discussions had been terminated, and said that the board of Energy Super ‘unanimously agreed the merger is still in the best interest of our Members’.[37]

10.2.2 CSF Pty Ltd

Like Energy Super, CSF has been open to merger opportunities for some years.[38] Mr Haysey said that CSF believes there to be significant benefits of a merger with SCS, particularly the benefits of increased scale, and that any increase in the number of members and funds under management would lead to reduced administration costs for members.[39]

In December 2016, CSF commissioned Rice Warner to conduct an assessment of the potential benefits of a merger with SCS.[40] That report said that the CSF and SCS funds would both benefit from increased scale, and faced challenges in growing individually from their current positions. The report concluded that ‘[t]he potential to merge CSF and [SCS] presents a unique opportunity at a time when the superannuation industry faces a period of rationalisation and change’.[41]

Mr Haysey said that merger discussions between CSF and SCS started in 2017, and that CSF believed that a merger of the funds was in the best interests of their members.[42] However, from the outset of negotiations, it became clear that the primary point of contention was the composition of the board of the successor fund.[43]

Initially, on the basis that CSF regarded its fund as demonstrating superior performance (a point about which I make no finding), CSF propsed that the CEO, CIO and Deputy Chair should come from CSF, and that CSF should be the successor fund.[44] CSF was content for the Chair to come from SCS.[45] By contrast, SCS thought that appointments at board and executive level should be determined by an independent process.[46]

As negotiations progressed, CSF changed its proposal for the SCS Chair to be the Chair of the merged fund, and asserted that ‘a new independent chair is essential’.[47]

By September 2017, CSF and SCS had agreed on all elements of the proposed merger except who would be in the role of Chair.[48] By this time, CSF contended that the Chair should be Daniel Casey.[49] Mr Casey had been employed by CSF as a consultant to assist with the merger process. This became known to SCS ‘late in the process’.[50] SCS did not consider that Mr Casey was an appropriately independent person to chair the merged fund.

On 26 October 2017, the Chair of SCS submitted a ‘final proposal’ to CSF. He proposed that the merged fund have equal board representation, an independent chair selected through a market search process, and that CSF’s CEO be the ongoing CEO.[51] That is, the only matter appearing to be in dispute between the two funds was who would chair the merged fund.

CSF did not accept the proposal. Negotiations ended.

Mr Haysey told the Commission that the merger discussions failed because CSF thought that its fund, rather than the SCS Fund, should be the successor fund. He said that CSF thought that if its proposal was not accepted, the policies and procedures that (it believed) led to its superior returns might not be guaranteed.[52] In circumstances where the board of the new fund would set policies and procedures, and both parties agreed to equal representation on the board and an independent chair,[53] it is not clear why the question of which fund should merge into which would be a matter of any real moment.

In any event, merger discussions began again in early 2018. They continued at the time Mr Haysey gave evidence in August 2018.[54]


[1] Transcript, Scott Wilson, 10 August 2018, 46835.

[2] Since 1 January 2012, Energy Super had engaged in merger discussions that had gone to a stage where Energy Super considered that a merger may be possible. Those discussions were with: AUSCOAL Superannuation Pty Ltd as trustee of the Mine Superannuation Fund: Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, 43 [211(a)]; AUST (Queensland) Pty Ltd as trustee of Allied Unions Superannuation Trust (Queensland): Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, 43 [211(b)]; and Maritime Super Pty Ltd as trustee of Maritime Super: Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, 43 [211(c)].

[3] Transcript, Scott Wilson, 10 August 2018, 4687.

[4] Transcript, Scott Wilson, 10 August 2018, 4688; Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-60 [EYS.0013.0001.0090 at .0091].

[5] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-80 [EYS.0008.0001.1325].

[6] Transcript, Scott Wilson, 10 August 2018, 46657; Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-1 [EYS.0001.0001.0005 at .0015].

[7] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, 3 [25].

[8] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-81 [EYS.0014.0001.3075].

[9] Transcript, Scott Wilson, 10 August 2018, 4690.

[10] Transcript, Scott Wilson, 10 August 2018, 4676.

[11] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-1 [EYS.0001.0001.0005 at .0017].

[12] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-1 [EYS.0005.0001.0029 at .0049.0050].

[13] Transcript, Scott Wilson, 10 August 2018, 4690.

[14] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, 16 [83]–[84].

[15] Transcript, Scott Wilson, 10 August 2018, 4690.

[16] Transcript, Scott Wilson, 10 August 2018, 4690–1.

[17] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-61 [EYS.0013.0001.0002].

[18] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-61 [EYS.0013.0001.0002].

[19] Exhibit 5.133, 6 September 2016, KPMG Project Power High Level Assessment, 4.

[20] Exhibit 5.133, 6 September 2016, KPMG Project Power High Level Assessment, 27.

[21] Exhibit 5.133, 6 September 2016, KPMG Project Power High Level Assessment, 3.

[22] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-55 [EYS.0013.0001.0128 at .0130.0131].

[23] Exhibit 5.134, 13 September 2016, Emails to and from Mr Wilson, September 16.

[24] Transcript, Scott Wilson, 10 August 2018, 4693.

[25] Transcript, Scott Wilson, 10 August 2018, 4693.

[26] Exhibit 5.135, 23 November 2016, Email from Simpson, November 16.

[27] Exhibit 5.136, 23 November 2016, Email from Simpson, November 16, 3.

[28] Exhibit 5.137, 24 November 2016, Email from Simpson, November 16.

[29] Exhibit 5.137, 24 November 2016, Email from Simpson, November 16.

[30] Exhibit 5.131, Witness statement of Scott Wilson, 26 July, Exhibit SW-85 [EYS.0008.0001.0761 at .0762.0763].

[31] Exhibit 5.131, Witness statement of Scott Wilson, 26 July, Exhibit SW-86 [EYS.0008.0003.0019].

[32] Exhibit 5.131, Witness statement of Scott Wilson, 26 July, Exhibit SW-86 [EYS.0008.0003.0019].

[33] Transcript, Scott Wilson, 10 August 2018, 4670.

[34] Transcript, Scott Wilson, 10 August 2018, 4697.

[35] Transcript, Scott Wilson, 10 August 2018, 46968.

[36] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-51 [EYS.0008.0003.0364].

[37] Exhibit 5.131, Witness statement of Scott Wilson, 26 July 2018, Exhibit SW-52 [EYS.0008.0001.0718].

[38] Transcript, Peter Haysey, 15 August 2018, 4998.

[39] Transcript, Peter Haysey, 15 August 2018, 4998.

[40] Exhibit 5.240, December 2016, Merger Assessment Prepared by Rice Warner.

[41] Exhibit 5.240, December 2016, Merger Assessment Prepared by Rice Warner.

[42] Transcript, Peter Haysey, 15 August 2018, 5001.

[43] That is not to say that other issues were not important to one, or other, of the parties. Mr Hartley, for example, said that SCS was concerned about the continued operation by CSF of its banking services: Exhibit 5.248, Witness statement of David Hartley, 13 August 2018, 6467 [169].

[44] Transcript, Peter Haysey, 15 August 2018, 5003; Exhibit 5.241, 27 March 2017, Letter CSF to the Chair of SCS.

[45] Transcript, Peter Haysey, 15 August 2018, 50023; Exhibit 5.241, 27 March 2017, Letter CSF to the Chair of SCS.

[46] Exhibit 5.242, 6 April 2017, Letter ACSRF to CSF.

[47] Exhibit 5.243, 9 May 2017, Letter CSF to ACSRF.

[48] Exhibit 5.244, 27 September 2017, Email Bugden to Haddock.

[49] Exhibit 5.244, 27 September 2017, Email Bugden to Haddock.

[50] Transcript, Peter Haysey, 15 August 2018, 5008.

[51] Exhibit 5.245, 26 October 2017, Letter ACSRF to CSF.

[52] Transcript, Peter Haysey, 15 August 2018, 5011.

[53] Transcript, Peter Haysey, 15 August 2018, 5011.

[54] Transcript, Peter Haysey, 15 August 2018, 5012.