New APRA proposal for Boards – Implications for charities and not-for-profit organisations

April 28, 2025

Imagine this …

Imagine this: You are the CEO of a vibrant not-for-profit organisation. One of your directors, who has been a cornerstone of your Board for the past nine years, is beloved by all the staff. This director has been a constant presence at every Board meeting, event, celebration, and strategic planning session. They know every detail of your organisation inside and out, and you often seek their guidance on corporate history. Their passion for your organisation and its purpose is undeniable.

Then, your Company Secretary delivers some tough news: the director must retire from the Board as of 1 July 2025. You feel a pang of sadness at the thought of losing such a valuable member. The director's dedication and expertise have been invaluable, and you will miss their presence deeply.

However, your Company Secretary reminds you of a clause in your organisation's constitution that mandates all Board directors retire after nine years, with no option to renominate. Despite the disappointment, you understand the importance of this rule for ensuring fresh perspectives and board renewal. With a heavy heart, you accept the recommendation and prepare to bid farewell to your esteemed director, grateful for their years of unwavering service.

You then ask yourself … what is our succession plan?

Reinforcement of the importance of board tenure limits by APRA

On 6 March 2025, the Australian Prudential Regulation Authority released a discussion paper that proposed a lifetime service limit of 10 years for non-executive directors of banks, insurance funds and super funds. APRA has said that such a service limit would:

• encourage fresh ideas and board renewal;
• facilitate well-managed turnover of directors - to maintain expertise, stability, and continuity of organisational corporate history;
• help banks, insurance funds and super funds be welcome to new ideas; and
• drive succession planning as part of best practice governance.

APRA's proposal acknowledged that there are almost 200 directors that have served for over 10 years, and around 30 directors that have served for over 20 years.

It is important to note that APRA's proposal does not apply to charities and not-for-profit organisations.

However, the policy behind APRA's proposal is directly relevant and important for good governance with succession planning for charities and not-for-profit organisations and a reminder that board renewal is important for the good governance of all organisations.

The good governance recommended by the Australian Institute of Company Directors' Not-for-Profit Governance Principles and Council for Not for Profits encourage charities and not-for-profit organisations to consider - on an ongoing basis - Board skills, diversity and renewal needs. Usual key practices for consideration include:

1. Term limits: Implementing term limits for board members such as that required by APRA is crucial. A common practice for charities is to limit directors to a maximum of three terms, often three years each. This helps balance continuity with the infusion of fresh perspectives.
2. Board composition and diversity: Ensuring a diverse board in terms of skills, experience, and demographics is essential. Diversity brings different viewpoints and ideas, which can drive innovation and better decision-making, especially where directors have lived experiences which can directly relate to the purpose of the charity or not for profit.
3. Regular board evaluations: Conducting regular evaluations of the board's performance helps identify areas for improvement and ensures that the board remains effective and aligned with the organisation's purpose.
4. Succession planning: Developing a robust succession plan for board members ensures a smooth transition and continuity in leadership. This includes identifying and mentoring potential future board members.
5. Ongoing education and development: Providing continuous education and development opportunities for board members keeps them informed about best practices, governance trends, and the specific needs of the organisation including emerging trends and technology risks.
6. Clear governance policies: Establishing clear governance policies, including those related to board tenure, roles, and responsibilities, helps maintain transparency and accountability.
7. Engagement and involvement: Encouraging active engagement and involvement of all board members in the organisation's activities fosters a deeper understanding and commitment to its mission.

Takeaways

It is important for charities and not-for-profit organisations to review their Board skills, diversity and renewal as part of good governance.

Dentons regularly advises charities and not-for-profit organisation on governance and best practice with Board renewal.

In doing so, we have regard to your governing documents, Board charters, Board renewal policies, and Board skills matrices and other governing documents. We regularly conduct whole of governance audits and provide recommendations to not for profit and charities to future proof their leadership. Please do not hesitate to contact us if you would like to have an initial no-fee discussion as to your current governance arrangements and scope for review and updating.

Sources:

1. Governance Institute of Australia. "Not-for-profit Good Governance Guide."
2. National Council of Nonprofits. "Principles & Practices: 'best practices' for nonprofits."
3. Australian Institute of Company Directors. "Principle 3: Board composition."