WAS it an act of protest or simply exasperation?
WAS it an act of protest or simply exasperation?
The decision by five blue-chip independent directors to resign from the government’s proposed superannuation privatisation vehicle, GESB Mutual, could be seen as either – and was painted as both – by various parties linked to the state’s $10 billion fund manager.
From inquiries made by WA Business News, the directors’ decision to act as one came from the belief that the state government had all but ruled out the mutualisation of the fund manager.
GESB Mutual chairman Wayne Osborn and fellow Western Australian directors Keith Spence and Fiona Harris, as well as east coast-based Andre Morony and Peter Warne, quit GESB Mutual late last month after receiving a draft report from Rod Whithear, who was appointed by Treasurer Troy Buswell to review the future of the state’s superannuation body.
The GESB demutualisation process was started officially in 2007 when the enabling legislation was agreed by state parliament following support from both sides of the political fence. The demutualisation was designed to allow state government employees to have choice while also providing GESB with the ability to retain some scale by attracting new members rather than just withering away.
The view was that, if choice was a one-way street, the smaller and potentially less sophisticated members would be left, reducing GESB’s economies of scale and making the remaining superannuation administration a costly burden for government.
The privatisation, however, stalled 18 months ago due to a disagreement about the cost of the privatisation to the government.
When then-treasurer Eric Ripper made an 11th-hour decision on June 30, 2008 to halt the process, it seemed to be little more than a delay in proceedings. Indeed, while Mr Osborn’s chairmanship had already been made public at that point, the other four independent directors were announced in October, with the rescheduled mutualisation expected within weeks.
It never happened and, almost a year and half later, they’ve had little to do in a formal capacity.
Events such as a change of state government and the global financial crisis, as well as continuing debate about the financial implications of the mutualisation, have conspired to put the privatisation further in doubt.
In July, Mr Buswell sought to have a rethink of the options in the form of Mr Whithear’s review.
The GESB Mutual board saw that draft a few weeks ago and, notwithstanding the opportunity to comment, clearly understood what the government had in mind did not involve the mutualisation plan which they’d been employed to oversee.
“This is a government decision,” one former director said. “If their intention is not to mutualise then there is no point in us being there.”
This was a point of view echoed by at least one other former director, though the official line was that the mutualisation process was salvageable, if unlikely.
Insiders at GESB believe the mutualisation could be achieved and that the big roadblocks of 18 months ago – the level of reserves and the tax impact – could be resolved.
But what can’t be undone is if the government has had a change of heart.
Superannuation is a very complicated business and the GFC has brought into sharp focus the impact of market movements on investors’ wealth. In the case of GESB, a huge number of existing and former state employees have lost the protection of the government.
While many want to be able to choose their own superannuation provider, there are likely to be many others expressing some angst about the process. In this era of bailouts, there might also have been the concern about what the state’s obligation might be if the privatised business faced new financial challenges in the future.
The politics of the situation may be prompting the treasurer to err on the side of caution, despite his vocal backing for the privatisation when he was in opposition.
In part, the previous issue of reserves may also have some impact on this.
It is understood that Treasury and GESB disagreed on the level of reserves – thought to amount to hundreds of millions of dollars – the mutualised entity should be allowed to take with it. The scale of those reserves, which GESB argued it needed, also highlighted to some the issue of the financial vulnerability of an entity slipping away from the secure embrace of the state to face a hostile competitive world.
In a statement made regarding their decision to resign, the independent directors have gone out of their way to dismiss this threat, pointing out that GESB’s “management team ... have acted with utmost professionalism and in the best interest of members, presiding over strong operational performance”.
On the other side of that coin, though, was the retail superannuation industry, which was less interested in having a new competitor on the block.
Not only would a mutualised GESB become the 13th biggest fund manager in the nation, it has been building up an army of financial advisers to generate new income when mutualisation was to occur.
From these quarters the argument regarding GESB’s privatisation was less about its viability than the possibility of the state subsidising a massive new competitor.
The retail industry prefers the prospect of GESB remaining a government body whose members have a choice to leave.
GESB insiders argue that such a decision not only destroys an asset to the state, but will also prove costly in the longer term as a dwindling number of smaller account holders create an administrative drain on the state.
They believe Western Australia is losing the opportunity to create a stand-alone financial services entity based in Perth, to replace the failed efforts of the past such as the privatisations of SGIO and BankWest. It is believed the directors back this view.
But there are many who believe it is not the state’s role to create competition for the private sector. Readers need only look at the recent restructuring of the Forest Products Commission to see that.
During the past three years, there has been much protestation and exasperation from both retail industry players, public servants and public sector union representatives about the way GESB was to be privatised.
What has yet to become clear is how GESB came so close to being privatised before it was stopped in its tracks, a decision-making process which has cost millions and wasted significant resources across the top end of government.
That is certainly more than exasperating.
