The Australian Prudential Regulation Authority (APRA) believes directors of superannuation funds should not serve more than 12 years on their boards.
Speaking at the AIST Chairs Forum, APRA deputy chair Margaret Cole said the regulator’s published prudential guidance on board tenure is that organisations should enshrine maximum tenure limits in their board renewal policies.
“We recommend a maximum of 12 years,” Ms Cole said.
“Long tenures erode the capacity of directors to exercise independent judgement,” she argued.
Ms Cole opined that long-term directors can become too closely aligned with management and are less likely to challenge decisions.
“Even in the best organisations, long tenure can block openness to new ideas and different ways of doing things. It is often a barrier to an unvarnished assessment of culture,” Ms Cole said.
As such, over the past year, APRA’s supervisory teams have been engaging closely with super boards where it believes there has been a lack of focus on board tenure.
“We’ve made considerable progress to date, with many trustees having resolved their tenure issues. However, there is still more to be done,” Ms Cole said.
Tenure, however, is just one element of board renewal. Namely, APRA’s focus also extends to the composition of a high-performing board which, according to Ms Cole, should reflect the skills and experience needed to understand and respond to the risks and opportunities that a particular organisation faces.
“That includes having a diversity of perspectives and the skills to adapt as the business environment evolves,” Ms Cole said.
Acknowledging that getting the right mix on the board “isn’t always as easy as it could be”, Ms Cole made it “very clear” that she wasn’t attacking the equal representation model.
“We see high-performing boards in this model.
“But existing constitutions and board renewal policies may be restrictive. Or the board itself might not be empowered to appoint new directors,” Ms Cole said.
“These are challenges but they can be overcome … and we are seeing boards led by their chairs, thinking deeply about these issues, having conversations with their stakeholders to identify changes needed, so they can set clear expectations about the skills needed for their boards.”
Ms Cole also stressed the importance of ensuring boardrooms are safe places for directors to challenge the status quo or voice contrarian views, without fear.
“This ‘psychological safety’ is critical to robust decision-making,” she said.
“I challenge chairs and boards across the spectrum of business models to think about how you operate as a board, how self-reflective the board really is of its own performance. You can be ‘functional’ and tick all the compliance boxes. Or you can take your trusteeship to another level by building a high-performing board that puts the best financial interests of your fund members at the centre of everything you do.”
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
