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In an opinion piece published in a recent issue of The Australian, Jonathan Wenig, a corporate and M&A partner, shares his viewpoint on the proposal set forth by APRA for strict term limits in the banking sector. Wenig highlights the potential consequences of implementing such a policy and raises concerns about its effectiveness in promoting sound governance practices within financial institutions.

Wenig begins by acknowledging APRA’s intention to enhance board composition and performance by introducing term limits for directors. However, he questions whether this approach is the most effective way to achieve the desired outcomes. Wenig argues that imposing rigid term limits may have unintended consequences, such as limiting the experience and expertise available to boards. He suggests that a more nuanced approach, which considers factors like director independence and board diversity, may be more beneficial in promoting effective governance.

Moreover, Wenig expresses skepticism about the ability of term limits to address underlying issues related to board performance. He notes that simply rotating directors based on fixed timeframes may not necessarily lead to improved decision-making or accountability. Instead, Wenig advocates for a more holistic approach to board evaluation, which takes into account factors such as director skills, competencies, and contributions to board discussions.

Wenig also raises concerns about the potential impact of term limits on board continuity and stability. He argues that frequent turnover of directors may disrupt board dynamics and impede long-term strategic planning. This could ultimately undermine the ability of boards to provide effective oversight and guidance to management. Wenig suggests that a balanced approach, which combines term limits with other governance mechanisms, may be more effective in promoting board effectiveness and accountability.

Overall, Wenig emphasizes the importance of considering the broader implications of APRA’s proposal for term limits in the banking sector. While acknowledging the need for strong governance practices, he cautions against implementing policies that may have unintended consequences or limit the ability of boards to fulfill their responsibilities effectively. By taking a more nuanced and comprehensive approach to board evaluation and composition, financial institutions can better position themselves to address the evolving challenges of the industry.