In a letter to all registrable superannuation entities (RSEs), the Australian Prudential Regulation Authority (APRA) has outlined the findings of its thematic review into board governance practices in the industry. The review examined how well RSEs were meeting the requirements of Prudential Standard SPS 510 Governance (SPS 510), which was introduced on 1 July 2013.

The review covered 29 licensees of various types, sizes, ownership models and board structures, and focused on board composition, board appointment and renewal, and approaches to board performance assessments.

Based on the findings of the thematic review, APRA has issued a range of recommendations, including that RSE licensees should:

• consider the optimal composition of their boards in the context of their business and strategic plans;
• consider the extent to which the use of independent experts signals a skills deficiency on the board;
• have sound board renewal and succession planning processes that strike an appropriate balance between ensuring continuity and bringing in diversity and fresh perspectives; and
• develop a robust and objective board assessment process that considers the performance of individual directors, as well as the board as a whole.

APRA observed that:

• many RSE licensees, in seeking to comply with SPS 510 and Prudential Standard SPS 520 Fit and Proper (SPS 520), have adopted processes to ensure that individual directors meet minimum fit and proper requirements. However the majority do not go further to actively consider the optimal composition that is appropriate for the board as a whole, taking into account their strategic plan and the skills, capabilities and experience needed to effectively execute the plan;

• better governance practice was demonstrated by RSE licensees with clearly articulated policies on optimal board composition, which addressed a range of relevant aspects including achieving appropriate diversity, policies on multiple directorships and current and expected future skills and experience requirements;

• renewal policies and practices of some RSE licensees demonstrated a tension with the spirit and intent of SPS 510, for example by not requiring the board to take into consideration previous terms served on the board when assessing the period of tenure or not enforcing the tenure limits set out in the policy; and

• board performance assessments that move beyond self-assessment, to include more objective and independent review, often through the use of external experts, are viewed by those boards as providing significant benefits through identifying means for improving the board’s performance.