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Controversy Over Australia Future Fund's New Head

A political squall has blown up over irregularities in the process by which Australia’s Future Fund, the country's $77 billion sovereign wealth fund, appointed David Gonski as successor to chairman David Murray.

In six short years, Australia’s Future Fund has gained a reputation as a leading force for transparency and good governance in the big money world of sovereign wealth funds. So there’s no small irony that critics are saying the government has ignored those principles and interfered with the leadership transition at the A$73 billion ($77 billion) fund.

David Gonski, one of Australia’s most powerful, well-connected businessmen, has been named as the new chairman of the Future Fund, replacing its founding chairman David Murray, who will step down on April 2. The decision, which was formally announced on Wednesday in a joint press release from Treasurer Wayne Swan and Minister for Finance and Deregulation Penny Wong, has sparked immediate controversy — and raised the possibility that the Future Fund, which has earned a reputation as an exemplar of good governance, may not be immune to political meddling.

As chairman of ASX, operator of the Australian Securities Exchange, as well as chairman of investment manager Investec Bank Australia and Coca-Cola Amatil, Gonski has extensive experience leading major companies and commands respect in Australia’s business community. But originally, Prime Minister Julia Gillard’s government had asked him to serve as an adviser during the lengthy search process — and in that role, he had conducted extensive interviews with members of the Future Fund’s Board of Guardians about their nominees for the chairman’s post.

According to press reports, Gonski relayed the board’s preference for former Treasurer Peter Costello, who is a current board member, to the government. But instead of choosing Costello, a member of the center-right Liberal Party, the Labor government of Prime Minister Julia Gillard appointed the messenger. At the same time that Gonski’s appointment was announced, the government also named Steven Harker, CEO of Morgan Stanley Australia and a director of the Australian Financial Markets Association and Investa Property Group, to the board.

In the hours following the announcement, outgoing Future Fund board member Brian Watson publicly accused the government of trampling the basic tenets of good corporate governance in naming Gonski chairman, calling the consultation process a “sham” in a blistering interview with The Australian. Perhaps more concerning than Gonski’s appointment, however, is the opacity surrounding the Gillard government’s decision to override the Future Fund board’s own recommendation.

Gonski has not yet issued a formal statement and it is unclear when he learned that he was under active consideration for the role. To date, however, public outrage has focused on the government’s lack of organization in conducting the year-long search. Murray, who stayed on an extra year beyond his initial five-year tenure at the government’s behest, has been characteristically blunt in his assessment of the process, saying that the protracted search had been disruptive for the board. “The decision has been left late every time,” he told the Australian Financial Review.

Despite the political fracas that now attends the Gillard government’s decision, Gonski inherits an organization that has an outstanding global reputation thanks in no small part to Murray’s leadership within the Future Fund and without. As the inaugural chair of the International Forum of Sovereign Wealth Funds — and now as its honorary chair, a position he will continue to hold until 2013 — Murray has long advocated for transparency, accountability and good governance across the sovereign wealth fund community. That responsibility will now fall to Gonski, who faces increasing political pressures at home as domestic lobbying groups seek greater access to the Future Fund’s investment capital.

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