The Business Of Superannuation

Kat McPhee  00:09

When I first joined, it was a pretty non-competitive, lots of gentlemen's agreement style industry, not overly innovative, everybody had their patch that they would stick to. It felt like an industry that was going to be that way for a really long time. And then we had a Royal Commission, which actually then unearthed some pretty poor behaviours and really infused that need to be a member first across the whole industry, and that really drove up the competition.

Dr Juliet Bourke  00:43

After a bruising public investigation into the industry, superannuation in Australia is starting to look very different. Aware Super is one of the nation's largest funds, and with a majority female member base, they're on a mission to close the gender retirement gap. They're shaking up a system crying out for change, all the while making sure their advocacy makes good business sense. It's a fine line to walk, but it makes super an exciting industry to work in right now. I'm Dr. Juliet Bourke, and this is The Business Of a podcast from the University of New South Wales Business School. Katrina McPhee is the Chief of Staff at Aware Super. And if you're not familiar with that role, let's break it down. 

Kat McPhee  01:28

Chief of Staff has nothing to do with staff. Ironically, just so everybody knows. And the amount of LinkedIn requests I get from recruiters is quite amusing. I pass them on to the People and Workplace people. So Chief of Staff is one of those generalist roles that usually sits at the right hand of a leader. In my case, it's the CEO, Deanne Stewart. And I’ll describe a couple of different parts of the role. So essentially, it can be like doing the bottom third of that leaders role and enabling them to do the big, more strategic items. The other parts of my role, though, are executive team performance. So how often we get together what we talk about, how do we make sure that we're operating as a connected business. And then I also look after our advocacy, government relations and internal comms divisions, so which is -

Dr Juliet Bourke  02:16

It sounds like a lot.

Kat McPhee  02:18

I like diversity and I have an absolute passion for humans and human behaviour. And it's one of those roles where you get to invest, not necessarily in the output of the work, but how the work gets done within an organisation and the connections, whether it's formal or informal, that just make that work a lot easier.

Dr Juliet Bourke  02:38

So let's pull a bit harder on that thread, which is you looking out into the world, that sort of advocacy piece. What are you seeing in superannuation land?

Kat McPhee  02:47

It's obviously always varied. And we're really blessed here in Australia to have the superannuation system that we do, having compulsory super since the early 80s means that we're in quite a privileged position. In terms of the savings nest eggs, I mean, 160 billion, and we’re the third largest. So you can imagine, there's quite an amount of money circulating in the system. But I guess we start to think about with that kind of money and the custodianship we feel for our members, we ask where are the inequities? Both within the system - how do we make sure that people can adequately save for their retirement and have a truly dignified retirement - but also, what are some of the more bigger issues that we as investors can really face into? And that's about being a force for good. How do we make the world a better place? It's all one thing to have money to retire. But if we don't actually have a wonderful world to live in, then it feels counterintuitive. So things like climate change and energy transition, they are really important to us not only is making good logical sense from an investment point of view, but actually having an impact on the world.

Dr Juliet Bourke  03:56

Do you think that's a different approach to superannuation than you might see in sort of, I'm going to say more commercial funds, that you've got an interest in the environment that you're creating, not just the return to the superannuation fund?

Kat McPhee  04:09

I think we are truly blessed to have a CEO and a chair that are incredibly focused on these sorts of issues. So I think Aware probably dials them up, potentially more than others. But I think you'll see in a lot of the profit to member funds that this is quite common, but an ESG approach to investments is almost like a consumer expectation now. So commercial organisations, whilst they probably wrestle more with the shareholder versus the member interest, I think in ESG, and the impact of investments on the world is something that's becoming more and more common and more and more demanded by members.

Dr Juliet Bourke  04:48

You mentioned that, you know, Aware Super is leaning into some of the big issues of the day and I know that gender equality is one that's right in your spotlight.

Kat McPhee  04:57

Yeah, very much that. Absolutely. So I think I mean, the genesis of that is if you think about the industries that we serve the two largest being healthcare and teaching, they're predominantly female-based occupations. So we have a 70% female membership. And we've seen quite an intrinsic link between gender pay gap, and then what happens to the retirement pay gap. There's lots of things we can do about female work participation and equality in workplaces and recruitment policies. But the number one determinant of a good retirement outcome is actually your salary, because they're intrinsically linked. So where we might have a 13% pay gap, by the time you've reached retirement, that's a 30-40% retirement gap. And one of the biggest passion points that we have is that older females, retired females, are the fastest growing population within the homeless community, and they're going relatively unseen. And that's because there's been this baked in inequality in the system. So one of the number one things we need to lean into address then is that gender pay gap.

Dr Juliet Bourke  06:06

Well, how can you do that? You're actually at the other end, you're the one that's taking the cream of it, the superannuation dollar, you're not in the business of determining pay? 

Kat McPhee  06:18

Well, yes, and no. So we've got three avenues that we look at this from. So number one, the most influential is the money that we hold, and gender equity and pay equity is on the top of our list when we're actually engaging with the companies that we invest in. As you can imagine, with $160 billion, you do have a significant seat at the table, we have a team of I think it's 12 to 15 people that are out meeting with boards with CEOs, and asking them hard questions, whether it's gender equity, modern slavery, climate, so we believe in having a seat at the table, and often don't divest from more problematic companies, because we do have that ability to sit at the table and influence from within. So we actually do have quite a bit of influence, as does the superannuation industry in its total, the other avenue, which we take very seriously is the advocacy platform that we have with government. So once upon a time, when the Treasurer or the Minister for Superannuation wanted to meet with industry, he would meet with or they would meet with the banks. Now, because of the significant amount of money in super they're meeting with us as well. So we, we have a voice an important voice, especially a member first and profit to member voice at that table to really shape policy that impacts our members as well.

Dr Juliet Bourke  07:39

So you've got two ways of then influencing existing narratives or existing conversations within our community. One, where you put your investment and the second is in relation to policy, I'm wondering, do you actually bring things to the table new ideas, you know, this is what we should be doing, not just reacting?

Kat McPhee  07:57

When I first joined, it was a pretty non-competitive, lots of gentlemen's agreement style, industrial relations style industry, not overly innovative, everybody had their patch that they would stick to, it felt like an industry that was going to be that way for a really long time. And then we had a Royal Commission, which actually unearthed, you know, some pretty poor behaviours and really infused that need to be member first across the whole industry, and then really drove up the competition. So we've we've gone from 150-160 odd funds, I think we're, we're south of 100 funds now. Competition is fierce, we’re about winning the minds and hearts minds of all members, not just a particular sector or a particular industry. And I think it's just a really, truly dynamic place.

Dr Juliet Bourke  08:49

So just thinking about this at a very practical level, what are those changes that you've seen? You've seen it, it become more competitive, it's more human focus. Now, what does that look like on the ground?

Kat McPhee  08:58

You're taking it in a practical sense. I think you're taking sensibilities or capabilities out of more commercial organisations. If you think about the focus on digital transformation, if you're thinking about member experience or human-centred design, are you thinking about how FinTechs or technology companies have used principles of deliberate delivery and iteration? We're in this really unique space where we're large organisations with significant money behind us, but its members money, so we have to use it very pragmatically. But we get to work within big organisations and infuse these really modern capabilities, which is incredibly unique. Usually, you're in a small startup, running on the smell of an oily rag trying to do these things or you're in enormous corporates, which is really hard to change, superannuation is usually midsize businesses we’re 1500 people that's not enormous. And you can actually have really profound impact on what you're delivering for your members. By implementing things that feel not overly modern elsewhere but revolutionary to an industry like ours. 

Dr Juliet Bourke  10:06

Yeah, it wasn't known for being upfront, but it's kept you there for 15 years and, and at a personal level what keeps you there and enables you to be it's now Chief of Staff?

Kat McPhee  10:17

It's two things, I think it is the greater purpose of why we're here. And that is to provide people with a dignified retirement. And I think we've all got parents or relatives or friends who, well, I know my personal story is my mum and dad kept working well into their 70s. And so that is a passion of mine to make sure that people have choice around how and when they work. So that effort to make sure that people engage and make good choices has always been a driving force for me. And I think the other part of it is just that humans that that kind of purpose brings into an organisation that culture at Aware is nothing short of astounding. There's such caring, gorgeous people with this ruthless focus on delivering for the community and for our members. It's a pretty hard place to leave.

Dr Juliet Bourke  11:08

Yeah, I've certainly seen that in my engagements with you know, your former chair and your current chair and CEO, they really navigate this moment between being very commercial, but very human-centred, I mean, they might they're only three touch points. But yes, you're telling me that's, that's embedded in the organization?

Kat McPhee  11:28

Yeah, it's infused all the way through. And like any industry that is transforming, there are still parts superannuation don't do as well.

Dr Juliet Bourke  11:37

Are you going to tell us what?

Kat McPhee  11:41

Well, I'm leading a programme of work at the moment, which is around modernising our ways of working and trying to be as nimble and member focused as possible. And I think one of the interesting dynamics that's going on in our industry at the moment is you've got commercial base funds trying to infuse member first. And they've got these deep commercial mindsets. And so they'll put in things like a member office for the trustee to govern being member first. Whereas on the industry fund or profit to member side member first is your core.

Dr Juliet Bourke  12:16

It’s the core, it's commerciality that was actually what you needed. 

Kat McPhee  12:21

So that commercial acumen and the shift from they're not just for one member, but for all members. And that requires deeply commercial decisions. And you need to use money in incredibly wise ways and derive as much value as we can from the capital that we collect through our revenue from members because it's ultimately members money, so it has to go back into how do we support them, but you have to do that in a really, really smart way. So both sides of the industry are on different journeys. And it'll be really interesting to see how that plays out over the next five years, I really hope retail funds can infuse that industry methodology into their world.

Dr Juliet Bourke  13:02

What's a difficult decision that a superannuation fund has to make? 

Kat McPhee  13:08

It's a difficult one, it's really interesting. I think in the investment space, it's one we get asked all the time, is how do you balance this advocacy and investing for the greater good with generating returns for members. And you can think about things that might generate great returns and have done over the last 12 months like oil, gas, these things that have become incredibly expensive. And if you were still invested in those things in last 12 months, you made great money. But we know over the longer term, over the next 20, 30, 40, 50 years that that is not a good decision to make. So it is making sure that you balance that long term view with short term gain, but also things and I can use the affordable housing example if you like, affordable housing is a nationwide issue. We saw this a little while ago. And to be honest, it was an investment-based decision that we were looking at the property sectors that were in and commercial and industrial properties. And there's sort of the build to sell market didn't have the longer term future that we were looking for. So we started looking at the build to rent market to how might we become a landlord essentially as a superannuation fund? And then we started thinking about it. Okay, well, if we were to build this infrastructure near our clients, our teachers, nurses, healthcare workers, what if we had these investments near those assets near where these people could work? And how might we then offer up, you know, more affordable rent to essential workers? So that's what we did. And people often say, Well, how are you giving something up for that? Are you by giving it more affordable housing, giving up rent that would ultimately be returned for members? And there's a really simple answer for that. Number one, we don't do anything if it's not a good investment for our members in the first place. But the programme actually Is that we offer up a portion of the property to essential workers at 80% market rate, which is a 20% reduction in the rent that we could, we could generate. But what we found is by giving that to teachers and nurses and police officers, number one, they're fantastic community citizens, they generally stay in properties far longer, they do less damage to the properties. And people want to live around a police officer, or they want to live next door to a teacher or a nurse, the communities that they then build have been quite extraordinary. So what we're seeing is the profitability of those rental agreements over time,

Dr Juliet Bourke  15:37

Having less turnover, less damage to the property. 

Kat McPhee  15:42

All of those things were actually we're doing social good. But we're actually maximising the return for our members at the same time.

Dr Juliet Bourke  15:48

So two thirds of Aware members are women and the leadership team as well, we've talked about the CEO, and the chair, both being women. How do you think that that representation, that profile of representation is changing the way you operate as a superannuation fund?

Kat McPhee  16:07

It has to be significantly, I feel blessed, I work for an extraordinary CEO, an extraordinary chair, both women, our previous chair was also extraordinary. Our board is, I think, equal representation on board equal representation on the exec team. And if I think about the 80 odd people who report to our executives outside by and large, equal representation, and I think maybe that is, one of the biggest encounters that we're super has is deeply caring, inclusive culture that we have, and I can't help but think that is a balance issue. It's not a female, it's not a presence of female, it's the fact that we do have balance and equality in those in those leadership positions. And that that infiltrates into the rest of the business. And it makes you know, I'm sure it helps having a female CEO to get this one through. But we were one of the first organisations to implement menopause leave. And it's very funny, I find it wildly amusing to say the words of menopause and menstrual leave at an executive table with men who still blush and they will continue. I'll continue to say it until they stop blushing, because we do need to normalise this conversation. But I think it gives you the ability to lean into more female based equality issues or access issues in workplaces when we do have really strong voices that are willing to champion on behalf of women.

Dr Juliet Bourke  17:34

So you've mentioned a number of leaders in superannuation, what is it about them that you look at and want to be?

Kat McPhee  17:50

I would have to say, the two core things that sum up potentially the three of them are the common threads, other than they're all exceptionally clever people, is a real deep, deep sense of humility, and a sense of contribution or service. And it's never about them. It's never been particularly I know you've worked with or spoken with Deanne quite well. It's never about her, it's about what she's contributing to an issue a conversation, or a purpose. That is what drives her. And I think that humility, sets a tone then for the rest of the organisation. And I would say there's leaders all through my organisation, leaders, not just instructional leaders, but thought leaders or passionate leaders within our entire business that I look at, and it is this humility and acts of service. And that creates a culture where it's just a joy to be around and brings out your absolute best.

Dr Juliet Bourke  18:53

You've talked about influencing other superannuation funds, but what about influencing other industries? What can other companies industries learn from you, the way that you approach problem solving the way that you approach big picture issues?

Kat McPhee  19:09

It's a really interesting question. I'd say it's not just Aware, but superannuation in general, we are long term investors. And what that does is drive a really interesting dynamic in the way that we make decisions. So it allows us or gives us the permission to think longer term to think about the longer term impacts on whether it be our members or community or the returns that we generate. So I know that sometimes more challenging in other industries but allowing yourself the space to think longer term and there's a lot of prevalence of really short term thinking and short term gain. That really then does have an impact on your purpose and the drive of an organisation and the cultural feeling that short termism can then sort of permeate through the organisation. And whereas for us being able to take that really long term view, we get to sit in the needs of our members, we get to sit in the needs of our community, we get to think about investment decisions that have long term good. And the culture that that then drives and the thinking that that then drives is, is very, very different.

Dr Juliet Bourke  20:18

Do you think there's anything that we can learn in the way that you approach risk? Because Australia is not known for its innovation. Or let me put this differently, Australian boards are seen as being quite conservative, quite risk averse. And is there anything that you've done in superannuation that we could learn from?

Kat McPhee  20:38

It's a journey for us as well, you're talking to one of the most regulated industries in Australia is that I think our list of obligations we need to meet each year is in the 1000s. But we do need to take a proactive approach to the two types of risks, there's investment risk, and then there's risk in the way that we operate. And it's a bit of a journey for us. I think when you work in a highly regulated environment, there is a propensity to be quite risk averse and not do the right thing and not end up with the name in the paper and losing consumer trust. But we do in order to make the big bold moves need to go down a risk acceptance path. And we've been on that journey. For the last three years, we've got an amazing CRO, who is guiding us through how do we use good risk awareness as our ticket to high performance. So understanding your obligations, understanding where you need to be and then operating within those boundaries, rather than just seeing risk as a yes, no answer. And risk aversion like we've been battling this for a little while, because especially after a Royal Commission, people get really nervous. They don't want to be the next person hauled up behind before Mr. Hain being asked really horrible questions. So people became incredibly binary about risk, it was risky or not risky. So we're just back on that journey of going okay, where are the boundaries, where’s safe where's our tolerance, and then encouraging people to play to those boundaries so that you can be innovative. Otherwise, binary risk views stifle innovation completely.

Dr Juliet Bourke  22:15

Even in a tightly constrained industry, there is room to be bold. And sometimes that boldness can come from moments of reckoning. Your industry doesn't need to go through a Royal Commission to uncover its flaws. But some honest reflection might show you where that courage is needed. Professor Frederik Anseel is a Senior Deputy Dean at the University of New South Wales Business School. And he studies how people and organisations adapt to change. Frederik knows that it's an art form to take on constructive criticism. And being open to change is easier said than done. He looked to research about the impact of the global financial crisis on people working in banking and found that true vision and resilience is forged in difficult moments - if you know what pitfalls to avoid.

Professor Frederik Anseel  23:05

We saw divergent trajectories, and so we saw that everyone sort of took a hit during that period. And so that meant that both their well-being and their performance trajectories really declined throughout that global financial crisis. But then we saw sort of a divergence trajectory where some people really quickly recovered and then were on an upward trajectory, while other people sort of didn't recover and stayed at lower levels or of muddling on but not really recovering. And so we try to understand what was happening there. 

And so we saw at the individual level, we saw two things, some people kept on reflecting on the past, and it turned into rumination. And so the rumination actually made things worse for people because it becomes very emotional and sort of people starting wondering what I did, what did I do wrong, and other people were to blame for this. And it wasn't only me, but you don't get out of that you don't learn from rumination because it's sort of a very circular process. And then we saw the people that also reflected on what happened but with a very forward looking future focused sort of mindset. And then we saw that the people that were reflecting with that future-focused mindset, those were the people that were quickly recovering, and getting out of the sort of the valley of despair, as I would call it, right. 

And so what we saw is that also people that did not reflect also struggled in that recovery. So you needed to have two things, taking time to reflect but also having that forward looking future focused mindset. This is something to think about. If you everyone goes to this type of crisis in their career, it will happen to everyone. And so, recovery, it means that resilience is that you can it's the way you deal with the things that happened to you the incident. Since you need to take time to step back, and sit and reflect on it right, just immediately moving forward and pretending nothing has happened and go forward, that won't help, right? You have things that happen that are left unprocessed, and you will not learn from them. And so I think, taking the time to process to reflect and look forward and think about, so now how do I use those things for the next step? That would be important, right? 

But if we move from there from the individual resilience, and now think as industry, super industry, collective resilience, how does that work? Right, I find that very intriguing question, because I don't see a lot of research on this. But I also don't see a lot of reflection in the industry, how you come out of this as a group as an industry. So I think I would almost invite people in the industry to think about collective resilience. So how does that work? Given that as an industry, you all go through it collectively. It also means that the stain, the hurting the stereotypes, it is not individuals, right? It is associated with the whole industry, it means that you need to come out of there as a group. And I think the best thing to do is basically, not to try to find who was at fault or attribute blame, because then it sort of becomes worse, right. And I think that's why this sort of Royal Commission is actually a good thing. Because it, it's an investigation in a very thorough systematic way. It also allows you to say it ends here, we went through it, it ends here, these are the conclusions. Now, the only way is up, things can only get better from here, right? And then I think as an industry, you need to take that responsibility together and say, Okay, let's not dwell on the past on all those things, probably can also have rumination as a collective, right. And so you need to also have that forward looking future focus, sort of reflection as a group. Now, let's take those lessons and run with them. And I think that collective resilience, I think that's an important sort of challenge sort of a mission that people take to heart.

Dr Juliet Bourke  27:28

Business can be an incredible force for change, especially when your revenue base is made up of regular people who want what's best for, well, regular people. So if you're in an industry that needs to transform, that's an opportunity for you to lean in and make a difference. 

The Business Of podcast is brought to you by the University of New South Wales Business School, produced with Deadset Studios. To stay up to date with our latest podcasts, as well as the latest insights and thought leadership from the business school, subscribe to BusinessThink at businessthink.unsw.edu.au.