APRA warns of danger of long board tenures

The Australian Prudential Regulation Authority (APRA) has proposed more robust self-policing of tenure limits for directors, among other strategies to improve the quality of governance across the superannuation industry.

In opening remarks at the AIST Chairs Forum in Parliament House, Canberra, APRA deputy chair Margaret Cole, said super boards needed to be robust, diverse and high performing.

She highlighted the statutory authority’s recommendation of 12-year maximum limits on director tenures as she felt long tenures were affecting boards’ judgement.

“Long tenures erode the capacity of directors to exercise independent judgement. Long-term directors can become too closely aligned to management and are less likely to challenge decisions,” she said.

VIEW ALL

View all

“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.”

APRA’s supervisory teams had been closely engaged with super boards on this issue, she added, though “there is still more to be done.”

She also pointed out the importance of “psychological safety” among directors, to be able to challenge decision-making in the boardroom without fear.

A well-considered succession plan in the event of director departures or expiration of tenures and improving diversity in the boardroom were other key strategies proposed by the APRA.

“Getting the right mix on the board isn’t always as easy as it could be. This I want to make very clear isn’t an attack on 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,” Cole noted.

She also pointed out that the most important distinction between high-performing boards and other boards remained an openness to new ideas and change.

“A high-performing board will set itself apart from simply functional boards by looking outwards and forwards. It creates resilience by being open to challenge, open to new ideas, and open to change. 

“A chair who wants to create a high-performing board will set agendas that scan the environment for new threats and new possibilities, will set an effective board renewal strategy to bring in fresh thinking and skills and will build a culture in which directors are actively encouraged to question and challenge management and each other to drive good decision-making,” she said.