When leading US pension fund CalPERS blew the whistle on the Walmart board last year for bribing Mexican officials to secure market access to booming markets south of the border, the decision made headlines. The collective assault on nine sitting board members of the world’s third-largest company may have been shot down at the annual shareholders meeting, but the record vote against successfully shined a spotlight on big box abuses in the fledgling narco-state.

It’s the sort of ballsy front-foot activism historically absent locally, where union-backed industry funds have cleaved to a strict interpretation of the Superannuation Industry Act‘s “sole purpose’ test” — that theoretically locks trustees and fund managers into maximising raw returns to the exclusion of anything else.

But for CalPERS, which oversees $US260 billion in retirement savings of Californian public sector employees, it was business as usual. Since the mid-1980s the behemoth has repeatedly intervened at board level in the companies it invests in if, it thinks management — and governance — isn’t up to scratch.

Despite overseeing a hulking pool of assets that jumped 6.6% last year to $281.1 billion (or 19% of Australia’s total super pool of $1.4 trillion), local industry funds and the big public service pension funds (that grew by 5.7% last year to $232.3 billion, or 18% of the total take) have been reluctant to exercise their substantial voting rights. Howls of outrage inevitably follow at the prospect of muscle-flexing, with the spectre of “union-controlled” funds holding commerce to ransom. Yet industry and public service funds draw half their representation from employers, with an independent chair increasingly thrown in for good measure.

When the Construction, Forestry, Mining and Energy Union recently asked one its four big super funds, the $18 billion Cbus, to review its relationship with builders Grocon — which was suing the union for $10 million over an industrial dispute — Industrial Relations Minister (and former industry fund trustee) Bill Shorten perked up to complain that “industrial relations disputes should be ever played out at the boardrooms of superannuation funds, full stop. What matters is the best interests of the members of the fund.”

Earlier this month, Crikey first revealed that another CFMEU fund, First Super, was divesting its News Corporation stock over governance issues and financial underperformance linked to Rupert Murdoch’s voting gerrymander. This week The Australian Financial Review reported Australian Super — that boasts Australian Workers’ Union national secretary Paul Howes and ACTU secretary Dave Oliver as trustees — had voted against Rupert Murdoch and son Lachlan at the News AGM last year over the so-called “Murdoch discount“.

“There is a connection between poor governance and investment returns. I think it is going be a growth area …”

The Sisyphean challenge of governing industry super is this: at what point and to what extent should unions intervene when a fund, through its own investments and despite robust returns, starts cutting its members’ necks though job cuts, environmental vandalism and assaults on collective bargaining?

Union attempts to influence boards — using the “100 member rule” that permits dissident motions at AGMs if 100 shareholders agree — are not new: think the Finance Sector Union’s 2003 campaign to place a representative on the ANZ board; the AWU’s 2004 bid, prosecuted by Shorten, to get resolutions passed on executive remuneration and improved corporate governance; or the Australian Manufacturing Workers Union’s 2004 demand that the NRMA hold an extraordinary general meeting to change its constitution in support of roadside patrol officers.

But those kind of actions, that typically occur in the shadow of enterprise bargaining negotiations, seem symbolic when compared to the hulking $600 billion in voting rights overseen by industry and public sector trustees. That heft, that can bolster or serve as an adjunct to broader campaigns, is looming large given declines in other forms of union power — namely a decline in membership density to 18% of the Australian population and the modern day rarity of strikes and secondary boycotts.

At its annual congress last year, the ACTU established a “Capital Stewardship Program” to “protect and advance the interests of superannuation fund members”. The policy pledged to “give workers a voice in the investment markets by intervening in public debates and by leading corporate governance shareholder initiatives and advocating for regulatory reform” by pioneering “new forms of member engagement with their funds, particularly in relation to how funds invest their contributions”.

ACTU assistant secretary Tim Lyons, also a director of the Industry Super Network, told Crikey the union versus shareholders equation isn’t a zero-sum game.

“There is a connection between poor governance and investment returns,” he said. “I think it is going be a growth area because Australian funds are going to have to take a more aggressive attitude towards the governance of companies because the size and scale of our investments means we’re going to have increasingly significant stakes. In these companies that are really poorly run and demonstrably don’t give proper returns to investors, there’s going to have to be some hard calls made between them.

“It’s possible for people to own the stock but who want the company to operate in a manner which is consistent with principles around ESG [environment social and governance] considerations. Then in the longer term that produces a better return likely to be a more profitable and sustainable company.”

First Super-style divestment, Lyons says, is the “nuclear option” — often simply voting stock against incumbent board members or in favour of progressive resolutions can have an equally pleasing effect.

In a 2005 paper — From the Picketline to the Boardroom: Union Shareholder Activism in Australia — the University of Melbourne’s Kirsten Anderson and Ian Ramsay identified three points of common interest between unions and shareholders: companies that maintain a productive workforce are more likely to be economically successful; sound work practices are likely to increase the company’s reputation in the marketplace; and union members, through their stakes, are actually part-owners of the company concerned.

But the duo also identified limitations to industry fund activism — namely the layers of bureaucracy that typically cocoon members’ compulsory contributions. The votes associated with the 9% drawn from wages is filtered through the board of trustees who, in turn, devolve investment decisions to a phalanx of fund managers. At AGMs, it is often fund managers, rather than trustees, who decide on voting patterns. Then there are the legal impediments: the general law requirement that trustees operate in the “best interests” of the fund and the “sole purpose” test. Further, industry funds rarely control a majority of shares — they usually need to collaborate with other institutions to get motions up, meaning planned reforms often trend towards conservatism.

Speaking in his capacity as CFMEU national secretary, Dave Noonan told Crikey the hurdles aren’t insurmountable. CFMEU members are “obviously looking for decent retirement incomes … but members have an interest in where their money goes and they don’t want to see it go to socially destructive investors and investors that destroy shareholder wealth and treat workers and the environment badly. That is an issue.”

“Employers are not putting their money into superannuation but having a huge say on where it’s spent.”

ETU Victorian state secretary Dean Mighell, whose union supported the Cbus action, points out unions started superannuation in the 1980s by forgoing a 3% wage increase and putting 3% into super: “It was completely pioneered by unions — I’m sure [Bill] Kelty would tell you he was the mastermind,” he said.

“The trustees are duty-bound to get maximum return for members of the fund … while that’s great, if it’s without regard for what’s in the best interests of the workers that’s where the problems start. Employers are not putting their money into superannuation, but are having a huge say on where it’s spent.”

Mighell calls on super members to elect their trustees, provided they’ve had the proper training, and for funds to prioritise infrastructure investments to breathe life into Australia’s flagging dual-speed economy. “The whole country’s not a mining boom … I just think super have a massive role to play to improve and work and assist workers and they’re not doing it,” he told Crikey.

Paul Murphy, manager of institutional investments for the Australian Council of Superannuation Investors, says progressive interventions can often dovetail with a company’s bottom line.

“If you only look at value in the dimension of immediate financial returns then it does drive you down that kind of path … but if you’re a fiduciary investor you’re looking after a whole generation’s worth of savings. So a company that’s deliberately flouting labour standards for example is very unlikely to fulfil its broader stakeholder responsibilities.”

ACSI adheres to a “less sexy”, “sunlight is the best disinfectant” policy when it comes to disclosure to force companies to prove they are addressing governance issues.

But if the latest developments are any indication, industry funds are likely to move well beyond non-binding disclosure to protect members’ interests. It’s their money, after all.