Twelve years’ tenure – maximum. That’s how long the regulator decided was enough for most board members of superannuation funds.
“[The Australian Prudential Regulation Authority’s] view is that long periods of tenure can affect a person’s capacity to exercise independent judgement,” the regulator’s SPG 510 – Governance reads.
The guidance, issued in late 2016, suggested it was important for superannuation funds to have a board renewal policy that documented the maximum tenure period for each director and the circumstances under which the board member may deviate from the tenure policy. The figure of 12 years was decided after broad industry consultation.
“APRA expects that the length of each director’s tenure would be examined shortly before the end of each term served and that there would be limited circumstances in which maximum tenure limits exceeding 12 years would be appropriate,” SPG 510 states.
The Australian Institute of Superannuation Trustees notes that the majority (81 per cent) of directors of AIST member funds were appointed to their positions after 2010. The average length of tenure is 6.3 years, and the median length of tenure is 4.4 years. Further, 40 per cent of directors were appointed after Jan 1, 2015.
AIST notes, however, that 19 per cent of trustee directors have been on their board for longer than 10 years. Research by Investment Magazine has turned up examples of trustees who have served longer than 12 years – sometimes stretching into decades. The explanation boards and trustees have offered for this centres around the balance between board experience, corporate knowledge and skills and the need for board renewal, fresh perspectives and further broadening of experience and skills.
AIST chief executive Eva Scheerlinck says: “We think, for the most part, 12 years would be appropriate for most circumstances, because we value board renewal, particularly if that is managed properly alongside a skills matrix and a need for maintaining some corporate knowledge within the board through the time. We recognise that there are some exceptions and nobody should have a use-by date on their value, if you like.
Some of us can do it for two or three years, some for 15. Boards need to know how things are working, how the dynamics are, what the level of knowledge and experience is – and that is a matter for them to decide. There is plenty of regulation of how boards work, including the need for an annual assessment of the board’s performance.”
Investment Magazine spoke with board chairs and board members, some of whom have served for longer than 12 years, some of whom are stepping down from their positions, and some of whom have less than 12 years’ tenure.
David Buley has been an employer director of NGS Super since December 2005, appointed as a representative of Association of Independent Schools NSW, where he is chief financial officer. He says he has no plans to step down from the board.
“We have a skills matrix self-assessment to determine whether the board as a whole has the requisite skills,” Buley says. “I have, obviously, 30 years in finance and a CFA, as well as a master’s in applied finance investment. I sit on the investment committee. I do the 20 hours of personal development needed every year, and most of the boxes in that skills matrix I tick as advanced…From my point of view, I think I bring considerable value to the board, notwithstanding that it’s an employer/employee representative board. There is an expectation that those directors offered up have the requisite skills. No one is sitting on the board as a passenger.”
NGS Super has a second board member who has served longer than 12 years – Peter Fogarty, the deputy chair, who has served since December 1995 as the representative from Catholic Hierarchy NSW. Fogarty was contacted by phone and declined to speak. He did not respond to a follow-up email.
“We certainly chat from time to time about what skills the board needs, in terms of marketing and legal – you outsource what you need; however, what you really need on a board is the business acumen,” Buley says. “You’re advising on running a business, you have to have diversity, agreed, which is why the representative model works OK. But you can’t be oblivious to how you run a $10 billion fund. While I think that setting any number is arbitrary, [APRA] had to choose a number and we all tend to think in terms of threes – four terms of three, that’s quite generous.”
The big trade-off That trade off of renewal versus skill and experience is at the heart of the questions chairs must pose to the board, said Peter Kronborg, a governance adviser to the Australian Institute of Company Directors (AICD).
“This is clearly a part of the art form of sound governance – where the wisdom of leaders has to come through,” Kronborg says. “There is no perfect answer. It’s not able to be done by a formula; it has to be done by human judgements and the particular judgement here is around wisdom. We do need a board that is populated by the relevant skills, diversity of viewpoints through age, gender, ethnic, and organisational experiences. We can’t just live with having passion alone, or years of service, as the key attribute that people are making the judgements/membership decisions on.”
“It’s jarring [when you see a bad board], a board that has just too many long-serving members or is too engaged in group-think and group-support. Again, this is one of the challenges; we’re looking for cohesive boards, but not a same-think board, and not an ‘I’ll scratch your back if you’ll scratch mine’ board. It’s obvious that the whole expectation of boards has risen progressively over the last 20 years, and significantly over the last two years.”
One long-serving board chair who has made the decision to step down is AvSuper chair George Fishlock. He joined the board of AvSuper in 1999 and became chair in January 2013.
“The reality is I’ve been on the board for a long period of time, and from a business planning perspective, you have to recognise at some point in your tenure that you need to be looking at who’s replacing you and getting the right people on board for the right period of time,” Fishlock says. “[Part of this is] being able to train incoming board members up to a suitable standard. All of those factors lead you to a point where you have to pick the right time to leave both the board and, in my case, the chairman’s position, leaving the board in the best possible position, given knowledge and experience. You don’t want to lose all that corporate knowledge/experience at the same time.”
Fishlock notes that in some cases, it might be challenging for superannuation funds that have member-based nominees on boards to find new trustees with the requisite financial or investment skills, meaning that those trustees who do have those skills might need to remain in place longer.
“Some funds are limited by the skill set they can attract with direct nominees, so when you finish up in the situation with the right people, you don’t want to lose them,” Fishlock says. “That needs to be addressed. I believe superannuation board positions require a lot more understanding of the business and the regulatory environment that you operate in, than perhaps [board positions] in a broader organisation [require]. It takes longer for directors to get their feet under the table and then to be able to provide good input on the whole board process and the operation of the business. You need a few more years than the normal situation. Getting someone up to speed and getting value add from people takes longer than on other sorts of boards.
“Most superannuation funds are about investment, and directors have to have a good strong understanding of that.
It is not sufficient to be able to delegate those authorities to people with more knowledge, because at the end of the day, the board director is the one who bears the obligations and the responsibilities.”
Renewal and diversity
As borne out by the AIST statistics mentioned earlier, superannuation funds in general are focusing on board renewal and on placing people with the diverse set of skills required for managing billions of dollars for member retirement outcomes. Also, funds that have long-serving directors are taking steps towards succession planning.
A representative of LGIAsuper told Investment Magazine that Fiona Connor, a member-representative director since July 2001, will be stepping down from the board as of June 30.
Cbus Super has two directors who have served longer than the organisation’s policy of three, four-year terms: Glenn Thompson, chair of the remuneration committee, who has served since December 2001, and Peter Kennedy, who has served since March 2004.
“Cbus currently has two directors who, whilst exceeding the maximum tenure period, meet the exceptional circumstances prescribed in the policy,” Cbus writes in a statement. “Both directors are up for review in 2018 and Cbus has already commenced this process. Directors who fall outside of the maximum tenure period are reviewed annually by the board (or more frequently as required). Regular reporting on tenure and director appointments is submitted to the board throughout the year.”
Hostplus also has two directors that have served longer than 12 years: Mark Robertson, serving since June 2003 and Robyn Buckler, who has served since May 2003.
“Hostplus is governed by three independent directors including an independent chair, three employer directors and three employee directors,” a Hostplus spokesperson writes in a statement. “Our representation model ensures sound decision-making processes, and diversity of skill and experience, which contributes towards strong member interests.
“We believe well-functioning boards have a mixture of experience and new blood. All Hostplus directors are within the fund’s Board Renewal and Performance Assessment Policy. And, in accordance with APRA’s prudential standards and guidance, we undertake regular assessment of director performance.”
Angela Emslie, chair of HESTA, is also a long-serving board member, joining in 1999 and becoming chair in 2013. She has announced she will step down at the end of her term.
REST Industry Super has two particularly long-serving trustees: Joe de Bruyn, who has served since December 1988 and is sponsored by the Shop, Distributive and Allied Employees Association; and Rohan Jeffs, who has served since July 1990 and is sponsored by Woolworths. Investment Magazine contacted de Bruyn by email, and he declined to comment, as he was overseas at a trade union congress at the time of publication. Jeffs did not directly respond to an email. REST chair Kenneth Marshman declined to comment on the record.
AIST’s Scheerlinck points out other exceptional circumstances under which a trustee could stay on beyond the 12-year limit, such as in the case of a fund merger.
“Bringing together separate organisations and separate cultures might require a transition phase [in which] people stick around and exceed tenure limit; it’s very important to bring across the values of the transitioning fund in those circumstances,” she says. “There are also boards that have experienced a lot of renewal that might be out of their control because events happen. People get sick, people resign. You could be planning for someone to come off the board and then have a whole bunch of people leave in a short period of time, and you need that corporate knowledge to stay on the board for longer. I understand that we need guidelines; a number like 12 years is a useful guide, but it’s not necessarily reflecting the reality.”
With superannuation facing political scrutiny, calls for mandatory independent directors, and the overarching backdrop of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there is a stronger focus on superannuation governance. Even so, in the event that a long-serving trustee does not step down voluntarily, or the board chair does not press for a trustee to step down, there is no direct provision under the Superannuation Industry (Supervision) Act for APRA to remove that trustee for long tenure alone.
Governance adviser Kronborg suggests boards must focus on improvement, rather than ad hoc decisions made to fit the specified tenure.
“The important thing now, with this greatly heightened focus on governance, is that we ensure our governance processes are enhanced even further, but that we don’t slip into risk aversion governance, which we’ve seen sometimes before – in fact, just about always after a crisis period,” Kronborg says. “So now the challenge for boards is to look at what they can do to improve but not throw out innovation, progression and even risk-taking decisions that advance the company, rather than just being focused on risk aversion [in] decisions.”