AICD endorses major changes to governance in Aged Care

The AICD, which limited its comments to matters specific to the governance responsibilities of directors, supported most of Counsel Assisting’s submissions in principle. We agreed that, given the deeply disturbing evidence of failures in Australia’s aged care sector heard by the Royal Commission, there was the need for major changes to governance practice and regulation.

The AICD supported suggested changes to governance structures of aged care providers including:

• the need for a majority of independent, non-executive directors on a board
• a “fit and proper person” test for key personnel, including directors, of an approved provider
• enhanced mandatory annual reporting to governments by providers
• an express obligation to notify the regulator of changes to key personnel, including directors
• a requirement in governance standards that boards have a mix of skills, experience and knowledge of governance to ensure the safety and high quality of care provided
• a mandatory care governance board committee
• governance standards requiring boards to establish systems for feedback and receiving complaints and establish proper risk management practices
• acknowledgment by boards of their the role in providing leadership on culture.

We expressed the view that some flexibility needed to be provided in the application of some standards, for example it might be impractical for a remote community board to be independent.

The AICD accepted the concept that there should be civil penalties for breaches of a new Aged Care Act and that directors who are “knowingly concerned” in breaches may be found liable, suject to appropriate defences being available, including due diligence defences where applicable.

We expressed some reservation about the removal of the right under the Corporations Act for the director of a subsidiary to act in the best interest of a holding company in the absence of any clear detail of what it was intended to achieve. We voiced similar reservations around the requirement for a member of the board to individually attest to the providers compliance with standards noting it was unlikely to achieve compliance as good providers would undertake this processes anyway and poor providers would ignore it.

The AICD did not support a proposal for providers to be required to comply with a “continuous disclosure” principle in the absence of details how it might apply. In particular, a requirement that a provider be required to disclose to the regulator when the provider becomes aware of material information that affects the provider’s ability to pay its debts as and when they become due and payable was very widely drafted and in practice may require disclosure of potentially any commercial decision. If a continuous disclosure regime is contemplated, our suggestion is that examination be made of systems used by other prudential regulators, such as the notification obligations that APRA applies to private health insurers.

The AICD also did not support a proposal to give a new regulator the power to make banning orders, in the absence of any information how it would be applied and whether, for example, it would be an administrative or judicial power.

The AICD already provides tools, support and education to members within the aged care sector including a specific Board governance in the aged care sector tool. We will shortly publish a specific tool to assist boards in establishing and monitoring a clinical governance committee. 

In summary the AICD broadly supports the recommendations and would encourage the Royal Commission to adopt them. We look forward to the final report being provided to government by 26 February 2021.