Board directors in Australia could have their tenure limited to 10 years under a proposal being considered by the Australian Prudential Regulation Authority (APRA).
This move by APRA is among several other proposals that aim to strengthen finance, insurance and pension sector governance.
APRA chair John Lonsdale said, “We have got 150 directors in this country with a tenure greater than 12 years and 30 directors with a tenure greater than 20 years. We think that’s too long.”
The regulator is also proposing that companies identify and document the skills and capabilities needed for both the board and each individual director. They should also evaluate boards’ and directors’ existing skills and take active steps to tackle skills gaps through professional development, succession planning and appointments.
Mr Lonsdale said, “We are not proposing that APRA’s role will be to tell boards what skills and experiences they need to govern their entity. What we want is assurance that they have properly considered what skills and experience the board needs. Where gaps are identified, we want to see evidence that active steps are being taken to fill them.”
Additionally, APRA is considering a requirement that at least two independent directors, including the chair, not be members of any other board within an entity’s group.
APRA said around 80% of the 1,500 entities that it regulates, have governance issues at the core. A recent review found that almost 50% of boards of mutual banks had only one or no directors with contemporary industry experience.