DUBBO, NSW, Australia–As is often the case in the United States, there is a sharp debate underway in Australia over how long people should serve on credit union boards.
The differing views follow a report from the Australian Prudential Regulation Authority, which published an analysis of board tenure at 60 credit unions and banks in the country. The analysis found 42 directors who had at least 20 years or more service on a board.
Chris Shepherd, who started as director of one-branch Macquarie Credit Union in 1971, told the Australian Financial Review he strongly objects to any suggestion board members can be too old or serve too long.
“It’s not about age or years of tenure. It’s about performance,” he told the publication. “A credit union’s no different to an ASX-listed company really. If you’re a director and not performing, the board or the chairman should do something about it.”
Shepherd, who said he is paid $2,000 a year for being a director, was the longest-serving director on a new list of banking directors compiled by the Australian Prudential Regulation Authority, according to the Financial review.
The report noted that APRA has recent warned about extended tenure, but many of the longest-serving directors are pushing back.
“It’s all right for these people in their ivory towers in the cities to have these philosophies,” John Gorman, a director since 1984 at Central Murray Credit Union, told the Financial Review. “And it might be relevant to Collins St, Melbourne, or Pitt St, Sydney. But I don’t think it’s very relevant to a small country town that’s trying to keep a local cooperative [lender] growing.”
Roiling the Waters
The report stated that APRA “roiled the waters” in March when its deputy chairman, John Lonsdale, told an industry conference that directors were remaining on mutuals “far longer than their ASX 200 counterparts”.
“The boards of 19 out of the 60 mutuals ... have an average director tenure of at least 10 years,” Lonsdale was quoted as saying. “Long-term directors can become entrenched, too closely aligned to management or past decisions, and less likely to challenge decisions.”
The Financial Review reported it applied via Freedom of Information laws for APRA’s compiled list of directors, which the organization eventually provided after minor corrections and redactions. It shows directors with at least three decades’ tenure are on small and large mutuals, and none based in capital cities, the report states.
Gorman, an attorney who was fourth-longest serving director on that list, told the publication there was “no justification at all for saying that because I’ve been on the board for a very long period of time then I should leave”.
“The reality is the proof is in the pudding … Central Murray Credit Union is still going,” he told the Financial Review, which added the CU’s annual report shows it has two branches – one open only on Thursdays – and that loans have grown from $47.6 million in 2014 to $69 million last year.
It’s Not About the ‘Peanuts’
Gorman further told the Review the board was dedicated, the pay “peanuts” and that many mutuals were based in regional areas, so the pool of capable people was reduced.
“Where do you think we’re going to get our directors from in a small country town?” he asked, adding that residents would not support a local credit union if there was no one local on the board.
The Financial Review reported that almost 100 mutuals have merged or shut down in Australia over the past 16 years, with Gorman saying he got “no assistance as the chairman from APRA at all.”
“All I get is ‘Why … don’t you pack up and go, and just let the credit union fold?’” he told the publication.
Shepherd of Macquarie Credit Union told the Financial Review a director could take two terms before properly grasping the situation, so it was “wrong to turf someone just as they were hitting their straps.”
Shepherd added he had stayed on so long because he believed in the mutual ethos of providing for members without having to pay out dividends to shareholders.
Other Comments
Other views expressed to the Financial Review included:
- Lauren Peek, who started in 1992 at central NSW-based South West Slopes Credit Union, told the Financial Review that any stagnation problems would stem back to individual directors rather than from tenure periods. “Even though [there have] been long tenures on the board, we’re obviously doing something right,” he said.
- Allan Carter, chairman of The Broken Hill Community Credit Union, which he joined in 1993 and has almost $87 million in deposits, said APRA had “got it wrong”. Problems such as group-think did not stem from tenure, he told the publication. “That’s a factor around the quality of your board, the diversity of your board, and the fact there is no one dominant person,” he said. He said Broken Hill ensured directors went through assessment, including having external experts peruse the board, and people were prepared to challenge each other.