The excessive tenure of directors on the boards of mutual ADIs has drawn APRA’s ire, in a sharp speech by deputy chair John Lonsdale to a COBA forum yesterday.
The proportion of directors serving 10 years or more on mutual boards is almost double that of directors on the boards of ASX 200 companies, Lonsdale told the COBA CEO and Director Forum.
It’s nothing the sector does not already know well, but has long been reluctant to confront.
“The chart shows that regional mutuals and smaller mutuals tend to have the highest proportion of long-tenured directors on their boards,” Lonsdale said.
“This is not surprising, and reflects the challenges regional and small mutuals face in attracting new directors. However, that does not mean the issue should be ignored.
“While there are no current limits on board tenures within the ADI prudential framework, the Australian Institute of Company Directors’ not-for-profit governing principles state that: ‘Boards should consider how a director’s tenure may impact their performance, particularly if serving for ten years or longer’.
“Board tenure, composition, capabilities and performance are important aspects of good governance, and the areas where we see the most scope for improvement within the mutual sector.”
APRA has, in fact, articulated its concern about excessive tenure within the prudential framework.
“Our cross-industry prudential standard on governance (CPS 510) requires authorised deposit-taking institutions to have a board renewal policy that considers whether directors have served for a period that could materially interfere, or could be perceived to materially interfere, with their ability to act in the best interests of the institution,” Lonsdale said.
“And yet, directors are remaining on mutual boards far longer than their ASX 200 counterparts. The boards of 19 out of the 60 mutuals regulated by APRA have an average director tenure of at least 10 years.’
Just under one in three of all directors in the mutual sector have been on the same board for a decade or more, with just under one in six having tenures of 15-plus years.
In a number of cases, mutuals are bound by longstanding constitutional rules that require a majority of directors to be from the “bond” – the customer cohort – or from a particular geographic area.
“In the interests of their customers and good governance, boards should consider consigning to history outdated provisions in their constitutions that undermine their ability to operate effectively” Lonsdale said.
“Despite being in the banking business, almost half of boards in the sample have either only one director or no directors with contemporary banking experience.
“The lack of banking experience is more pronounced on the boards of regional and smaller mutual,” Lonsdale said.