It is not considered good practice to have boards that are comprised solely of management, according to Catherine Maxwell (pictured above), the General Manager Policy and Advocacy at the independent Not For Profit Governance Institute of Australia, which has around 7,400 members (20% Not For Profit).
For just over an hour, Senior Counsel Assisting Peter Rozen QC quizzed Ms Maxwell – who has worked for the Australian Prudential Regulation Authority (APRA), the ASX Corporate Governance Council and the Australian Institute of Company Directors (AICD) and now an organisation with around focused on governance – around how various aspects of governance can be improved in the sector – including board makeups.
“Why is that?” Mr Rozen asked, clearly with his mind still on the Bupa case study.
“Because you really need to have independence of judgment at the sort of apex of the decision-making body of the organisation and, certainly, contemporary good governance practice is to have, where possible, and it’s not always going to be possible, a majority of independent directors,” Ms Maxwell explained. “By independent I mean that they are not executives of the organisation. So, if you can avoid that situation, it’s generally considered good governance to have a majority of independents.”
“That is presumably because one of the important roles of a board is to challenge management,” Mr Rozen remarked.
“Absolutely,” agreed Ms Maxwell. “Or to oversight management, yes. And they need to have that independence of mind so if you are – it is, to use the vernacular, you’re marking your own homework.”
The GM – who has done some amount of work with aged care providers including three aged care specific workshops with Leading Age Services Australia (LASA) – also argued against board members serving for longer than 10 years.
“It can be quite surprising, that you would have directors on boards for 15 or 20 years, which is, probably, way too long,” she stated.
“Why is it too long?” Mr Rozen enquired. “That’s a little counter-intuitive in some ways, because they would have…”
“They would have a very deep knowledge of the organisation, but I think they get too close and because – a very important quality that a director should bring to a board is independence of mind and independent thinking and the ability to exercise oversight and to think strategically,” she said. “And if you’ve been with an organisation for 20 years, it’s going to be much harder, to think in a fresh way about what’s coming and about issues.”
“So, certainly, as a rule of thumb, in the listed sector, somewhere between – nine to 10 years or three times three-year terms is considered to be appropriate,” Ms Maxwell added.
However, when the Senior Counsel brought up a comment from Professor John Pollaers that the sector cannot “stand on its own two feet” because of the extent of Government founding, Ms Maxwell didn’t accept this comment.
“It’s, certainly, considered less prestigious than working for example, in a mainstream large health organisation. So, there would be, possibly, that perception, but nonetheless the people that I have encountered from the sector are incredibly passionate about what they do and very committed to doing a good job and doing it well.”
As always, the Senior Counsel wanted to test some propositions with Ms Maxwell, namely whether there’s a place in the aged care regulatory framework for a due diligence duty being imposed on board members of aged care providers.
Ms Maxwell says her understanding is that aged care boards already take health and safety seriously and will generally do training every two years. However, she did say there was room to adopt a requirement for a legal duty to ensure the healthy and safety of others is not put at risk.
“That that might be something that’s currently available but it’s not actually being used,” she said. “Certainly, look, it would be worth looking at for the sector, provided it’s appropriately tailored to the sector.”
Mr Rozen also questioned the GM on whether KPIs for aged care executives to produce good outcomes in quality audits should be examined by the regulator – another direct reference to the Bupa South Hobart case study.
“On its face that would be a legitimate key-fulfilments indicator, but if the culture of the organisation was such that it was more important, to have a hundred per cent success on that KPI, than to admit that something had gone wrong and that we might need to look at what we were doing…” Ms Maxwell said.
“Yes; it could be counterproductive,” agreed Mr Rozen.
Ms Maxwell also agreed with Commissioner Lynelle Briggs’ suggestion that aged care boards should be doing ‘health checks’ of their businesses on a regular basis.
“You really should – most policies – well, all your policies should have in them a time within which they would be reviewed, and, in fact, it’s – I tend to like to review the board charter once a year,” she noted. “I think that’s worth doing. You look at your constitution every couple of years and then other governance documents on a – possibly, two-yearly cycle of review so that you’re constantly looking at something that you’re doing with a view to making it better.”
The GM also approved of Mr Rozen’s suggestion that boards set ground rules about the information that they need from management.
“It’s often referred to in teaching as the Goldilocks principle, just right,” she explained. “So – and you often do that when you’re teaching people about writing minutes; it’s just enough detail, not too much, just enough. But it is about the Board having a regular conversation about – ‘Do we think we’re getting the right information? Is it in the format that we need? Does it assist us?’”
Commissioner Briggs made it clear however – no board members are exempt from being responsible for the quality of care provided by their organisation.
“Most aged care organisations for example, are receiving a sizable amount of money, even if they’re small – and that differs from a smaller organisation that might be managing a sporting-facility or ground or whatever,” she commented to Ms Maxwell.
“You’re absolutely right,” she agreed. “There has to be accountability.”
“So, there are horses for courses in terms of expectations around organisations that are receiving sizable amounts of Government money, I think,” the Commissioner added.
“I think that’s absolutely – and it’s important, to always have that in mind as well,” Ms Maxwell. “These are public funds, that are granted by the Government. So, it’s – you have to be accountable for the spending of those funds. So – yes; it’s a very important consideration, and I think that’s why I, probably, started a number of my remarks with ‘It doesn’t matter, whether you’re – this is a paid or unpaid role; the job’s the same’.”
As Mr Rozen summed up, aged care providers need a board that understands the industry, understands the law and understands their business.
“It’s possible, you don’t know what you don’t know, as a board member,” he concluded.
“Unfortunately; yes,” said Ms Maxwell. “But we have seen that illustrated with some of the very largest companies in Australia quite recently.”
