The AICD welcomes the report as an important contribution to uplifting standards in the sector. The Royal Commission heard deeply disturbing evidence of failures in Australia’s aged care sector, including with respect to the care and dignity of the elderly and vulnerable. All involved in the sector, including directors, must reflect on how sub-standard care has been allowed to occur and the actions required across providers, government and stakeholders in response.
The Royal Commission’s examination of the aged care sector has been timely and important, and the case for hard reforms, no matter how complex or difficult, cannot be ignored.
The AICD strongly supports the principles recommended by the Commissioners to underpin the aged care system including a universal right to high quality, safe and timely support and care to assist older people to live an active, self-determined and meaningful life.
We also recognise that funding reform is critical in addressing the systemic challenges across the sector and we note the Federal government has committed to increased funding for the sector. We also strongly support the emphasis in the report on empowering older people, Indigenous communities, young people, people with disability and on promoting cultural awareness.
Many of these recommendations such as those relating to funding, staffing as well as the creation of new standards and a new regulator, will have a significant impact on the organisations that directors govern. These will receive broad coverage in the media and by other stakeholders. This note concentrates on areas particularly relevant to governance.
Members should note that these are only recommendations from the Royal Commission, the Australian government is yet to say whether it will adopt them. The full response may not come until the federal budget. The AICD will continue to engage with stakeholders and the government around reform in this area.
The Commissioners sent a tough message and a stark challenge to boards of aged care providers on governance. The report states:
The aged care system needs highly committed and active leaders from within the system—Chairs, CEOs and Directors of Nursing who are prepared to accept that the aged care system is in crisis and who want to commit to implementing not only the reforms advocated by us in this report, but to driving further reforms. The recommendations from our Royal Commission give providers a once in a generation opportunity to make a fundamental difference to the quality and safety of aged care.
The key recommendations for directors are summarised here.
Board structure and composition
The Royal Commission has recommended changes to Board structure, composition and governance. This includes recommending a:
- majority of the board being independent, non-executive directors (unless an exemption is granted);
- mandatory care governance committee, chaired by a non-executive member with appropriate experience in care provision;
- fit and proper person test for key personnel including directors;
- 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; and
- nominated member of the board attesting annually on behalf of the board that they have satisfied themselves that the provider has in place the structures, systems and processes to deliver safe and high quality care.
While we generally support the recommendations, we believe that there may need to be some flexibility around the application of the standards, for example for some remote or community providers. This has been recognised by the Commissioners in their report. We have some reservations around the requirement for a member of the board to individually attest to the providers compliance with standards. In the AICD’s opinion this is unlikely to achieve compliance as good providers will undertake these processes anyway and poor providers will ignore it.
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, and a tool to help directors in clinical governance: Clinical governance for boards in the aged care sector.
Other board recommendations
The Royal Commission made other recommendations with respect to corporate governance that the AICD supports. This includes:
- governance standards requiring boards to establish systems for feedback and receiving complaints as well as proper risk management practice;
- an express obligation to notify the regulator of changes to key personnel, including directors; and
- enhanced mandatory annual reporting to governments by providers.
The Commissioners propose removing the right, under the Corporations Act, for the director of a subsidiary to act in the best interest of a holding company.
The report sends a clear message that boards and management teams must improve their handling of non-financial risk. The AICD has resources and training available to boards to help them manage risk and establish a risk framework. The Board governance in the aged care sector tool provides specific advice on risk frameworks appropriate to the aged care sector including red flags for directors such as chronic workforce vacancies and unresolved client complaints.
There was a split in the recommendations from the two Commissioners on provider culture. Commissioner Pagone regarded culture as important but that: “the values, attitudes and standards that leaders need to instil as the culture of an organisation are something for encouragement rather than imposition by obligation.”
Commissioner Briggs has recommended that, in order to be accredited, providers should:
- ensure their leaders have professional qualifications or experience in management roles;
- ensure that senior executives have performance appraisals linked to leadership, team development and support for organisational culture;
- have plans around staff training, professional development, continuous learning and staff feedback and team building.
The suggestions by Commissioner Briggs represent good governance practice that we would expect to be present inside most organisations. We have some concerns about their specificity and believe that the key points are already covered in other sections of the report.
The AICD has a practical tool to assist directors in governing organisational culture. We also recently published a report, co-authored by ACSI, into governing company culture containing insights from Australian directors and practical guidance on some of the key issues and questions boards should seek to explore.
New duties on providers
A key recommendation of the Royal Commission is the insertion of new duties in the Act for providers. While these are not director’s duties, they will be important for directors discharging their role in governance.
The first duty is a general, positive and non-delegable statutory duty on any approved provider to ensure that the personal care or nursing care they provide is of high quality and safe so far as is reasonable, having regard to:
a. the wishes of any person for whom the provider provides, or is engaged to provide, that care
b. any reasonably foreseeable risks to any person to whom the provider provides, or is engaged to provide, that care, and
c. any other relevant circumstances.
The AICD supports this new duty on the basis that it is “aspirational” and that consideration is given to the intersection of this proposed general duty with duties already applicable, including statutory duties on directors in s181 of the Corporations Act (the “best interests” duty) and its state-based equivalents.
The second new duty is that any entity that facilitates the provision of aged care services should have a duty to ensure that any worker whom it makes available to perform personal care work has the experience, qualifications, skills and training to perform the particular personal care or nursing care work the person is being asked to perform.
The Commissioner’s report has clarified that this is intended to apply to labour hire firms providing aged care workers rather than the direct employees of providers.
The Royal Commission has recommended the creation of a new civil penalty for breach of these duties. This may include personal liability by a director where there has been accessorial liability. The AICD accepts the need for a new civil penalty and the accessorial liability regime proposed. This is a common liability provision that exists in much Commonwealth and State legislation. Under it, individuals, including directors, should only be held liable under this approach where there is some level of actual involvement in the offence. For example, this would not include imputed or constructive knowledge, where a person’s knowledge is assumed because of their position or some duty to take reasonable care.
Where key personnel, including directors, have been knowingly concerned in a contravention then it is appropriate that they face sanction and that this act as a sufficient deterrent. This is consistent with principles of accountability and good governance.
The report does not mention defences. We believe consideration should be given to appropriate defences to accompany any new offences and penalties, including due diligence defences where applicable.
The Commissioners also recommend the creation of a private right for an individual to sue for breach of the new duties. We hold some concerns about this possibility and believe that this might be a power better confined to the regulator. We note this was the submission by the Australian government to the Royal Commission.
Prudential standards, financial reporting and continuous disclosure
The Royal Commission recommends a new prudential standard which includes increased oversight by the regulator. It also recommends increased financial reporting for prudential purposes by the regulator. Boards will need to have some oversight of that additional reporting, which may increase workload in monitoring, audit and compliance.
The Commissioners also recommend a continuous disclosure regime requiring providers to notify the prudential regulator where they become aware of material information that affects the provider’s ability to pay its debts as and when they become due and payable, or affects the ability of the provider or any contractor providing services on its behalf to continue to provide aged care that is safe and of high quality. There is a split recommendation in this area with a slightly different emphasis from each Commissioner.
The AICD has concerns about how practical this requirement is. The Commissioners acknowledge the additional burden involved and the potential uncertainty and trust that issues of materiality will be resolved in time.
The AICD welcomes the report from the Royal Commission and look forward to receiving the Government’s response to the recommendations. We note there will need to be a lengthy implementation period of reform and we look forward to working with government and the new regulator as they undertake this. We will continue to engage with members from aged care as we undertake this task.