By virtue of its sheer size, Australia's largest superannuation fund will struggle to find "independent" directors, as stipulated by proposed new rules, the Australian Industry Group says. 
Under the government's plan, all super funds will be required to have one-third of board seats filled by independent directors from   July 2017, and a majority of independent directors on an "if not why not" basis by   July 2019.
There will be a new definition of "independent", and Ai Group says executives and directors of companies including Westpac, Woolworths and Macquarie Bank will be rendered ineligible because they have so many employees who are members of Australian Super.
Ai Group, which co-owns Australian Super with the Australian Council of Trade Unions, described the new rules as "overly restrictive" and said they "appear to unnecessarily exclude many highly qualified people from qualifying as 'independent' ".
The government anticipates the change will cost the industry $8.5 million for initial recruitment and training of the extra independent directors, and then $12.3 million annually.
The shake-up is designed to dismantle the equal representation model of industry super funds, which is perceived by some as giving unions an undue influence over the $2 trillion super industry.
On equal representation funds, employer and employee groups each nominate 50 per cent of directors. Retail super funds, such as those owned by the banks, have voluntarily moved to a majority independent director model.
Minor party and independent senators are being heavily lobbied over the proposal, which could come to a vote this week.
Passage of the legislation would be a crucial first victory for Assistant Treasurer Kelly O'Dwyer, who was appointed to the portfolio when Tony Abbott lost the prime ministership.
Australian Super is Australia's largest fund and, with two million members. By virtue of its size, finding "independent" directors will be problematic, according to Ai Group policy head Peter Burn.
The Superannuation Legislation Amendment (Trustee Governance) Bill 2015 establishes that a person will not be independent if they are, or have been in the preceding three years, a director or executive officer of an Ai Group member company that employs 500 or more members of the fund. Funds will be allowed to apply to the prudential regulator for special dispensation.
"On average, any organisation with more than 5000 employees would have 500 Australian Super members," Mr Burn said.
"Many of our leading companies have more than 5000 employees. Many other companies with less than 5000 employees would also employ more than 500 Australian Super members.
"Examples of such companies include CBA, Westpac, ANZ, Woolworths, IAG, QBE, Computershare, CSL, Macquarie Bank."
The Business Council of Australia backs the change.
Ai Group supports the principle of having more independent directors but, along with concerns about the restrictive definition of "independent", believes the board should be free to choose whichever chairman is best for the job.
National Seniors Australia holds the same view.
But Industry Super Australia and the ACTU have questioned the need for change at the funds that use the equal representation model.
While the Governance Institute of Australia previously supported the proposals, it now says "it would be best if the bill did not proceed".