Wow, what a week it’s been. I wish I had a dollar for every research report I’ve received and conference call I’ve had on Brexit!

On a more serious note, Brexit and its impacts on financial markets will surely have caused some challenging circumstances for some of our members.

If you have any relevant Brexit related experiences you’d like to share, please drop us a line or post on the FTA LinkedIn site. As a finance and treasury community, we all gain from hearing about each other’s issues, both the things we’ve tried successfully, and the things that haven’t worked. These are the “pieces of gold” that show us we’re not alone. As FTA members, we’re part of a broader connection and support network.

The FTA Constitution

It’s about this time of year, as the November AGM approaches, that the board is charged with reviewing the FTA’s key governance documents such as its Board Charter and Constitution.

“So what?”, you might ask.”Why should members care about the Constitution?”

Well, a Constitution is a serious part  of any organisation’s corporate governance. It outlines the contract between the company and each member, and between a member and other members.

The Constitution also covers the basics of governing an organisation, including powers, responsibilities, roles and principal activities. In other words, it provides a guide for how directors and members must conduct the affairs of their company (or association). And crucially, it can only be changed by you and your fellow members. So it’s important to understand the circumstances that may create a need for change.

It’s good practice to review a constitution annually. Usually only minor changes are required, to keep the constitution aligned with the Corporations  Act, the main piece of law that applies to incorporated companies.

Occasionally, more substantial changes are required, such as when the organisation has been through material change (e.g. change in purpose, operating model, membership construction etc.).

Sometimes situations arise where governance standards have progressively or suddenly changed, requiring a different approach or new standard because of changes to cultural norms. An example of this is the topic of board tenure.

Board tenure has recently been a contentious topic. Some schools of thought believe extended tenure may adversely affect director independence and diversity (i.e. no “fresh blood”). An alternative viewpoint says long-serving directors provide experience and consistency, both of which positively contribute to both institutional memory and organisational performance.

A study conducted in 2013 by the University of Singapore titled “Zombie Boards: Board Tenure and Firm Performance” concluded that “the empirically observed peak value in Tobin’s Q is around board tenure of 9 years”.

So, what does the FTA constitution say about terms for its directors?

It states that directors will be appointed for a 3 year term and that a director may not serve more than 2 consecutive terms. So the longest period a director can serve is 6 years.

While having 3 year terms and finite periods of service is common among many not-for-profit organisations, it’s not uncommon to have the ability to serve 3 consecutive terms i.e. a theoretical service of 9 years with possible re-election every 3rd year.

In the board’s latest review of the FTA Constitution, our company secretary commented on the current limit of 2 consecutive terms. She was keen to evoke thought and discussion on how appropriate this rule is. Also, does it align to the concepts outlined in the AICD’s Good Governance Principles and Guidance for Not-for-profit organisations, in particular, Principal 2, Board Composition?

If the University of Singapore study is anything to go by, I’d suggest our company secretary has a valid point and the 3 year by 3 consecutive terms is more appropriate.

As always, thoughts and comments welcome.

Mike Christensen FFTP
FTA President