In the ever-evolving landscape of Australia’s not-for-profit (NFP) sector, governance and accountability are under increasing scrutiny. One of the more debated governance practices is the idea of limiting director terms of office. While some argue that rotating directors is essential for maintaining a dynamic and effective board, others warn that it can lead to a loss of valuable experience and institutional knowledge.

According to the Australian Charities and Not-for-profits Commission (ACNC), there are over 60,000 registered charities in Australia, many of which are governed by volunteer boards. These boards play a critical role in ensuring organisational integrity, accountability, and strategic direction. As such, the structure and longevity of board leadership can significantly impact a charity’s performance.

So, what are the pros and cons of implementing term limits for NFP directors in the Australian context?

The Pros of Term Limits

1. Encouraging Fresh Perspectives

A key argument in favour of term limits is the injection of new ideas, skills, and perspectives. As organisations and sectors evolve and community needs shift, boards that periodically welcome new directors are more likely to remain relevant and responsive. Term limits help prevent stagnation and groupthink, ensuring that boards continue to challenge the status quo and adapt to changing environments.

2. Improved Board Diversity

Introducing limits on board tenure can be a practical tool to promote diversity in age, gender, cultural background, and professional expertise. Long-serving boards can unintentionally become homogenous over time, which may hinder inclusivity and innovation. With rotating members, there’s a better opportunity to align the board’s composition with the community it serves.

3. Promotes Good Governance

From a governance standpoint, term limits reflect a commitment to transparency and renewal. It demonstrates a proactive approach to succession planning and risk management. Regulators, funders, and stakeholders may view term limits as a sign of accountability and professionalism, improving an organisation’s reputation and trustworthiness.

4. Prevents Power Imbalances

In the absence of term limits, there’s a risk that certain individuals may accumulate disproportionate influence over time. While long-term commitment can be admirable, it may also lead to entrenched power dynamics that stifle debate or discourage dissenting views. Term limits help maintain a balanced, democratic board culture.

The Cons of Term Limits

1. Loss of Institutional Knowledge

One of the strongest arguments against term limits is the potential loss of experience and historical insight. Long-serving directors often possess deep knowledge of the organisation’s mission, strategic context, and past decisions. If too many directors are rotated out simultaneously, it can disrupt continuity and reduce the board’s overall effectiveness.

2. Challenges in Recruitment

Finding skilled and committed individuals to serve on NFP boards is already a challenge—particularly in regional or niche sectors. Imposing term limits may narrow the pipeline of experienced candidates, especially when combined with legal responsibilities and increasing governance expectations. For small organisations, this can create a revolving door of underprepared directors.

3. Reduced Stability in Times of Change

During periods of transition—such as leadership changes, financial uncertainty, or regulatory reform—a seasoned board can provide stability and continuity. Term limits may inadvertently remove key figures at critical times, placing additional stress on executive teams and new board members.

4. Arbitrary Timelines May Not Suit All Boards

Not all NFPs are the same. A rigid application of term limits may fail to reflect the unique context of certain organisations. For example, an arts-based charity may benefit from the long-term involvement of founding members, while a health-focused organisation might require frequent board refreshment to keep up with rapid innovation. One-size-fits-all policies risk being counterproductive.

Balancing the Debate: Best Practices in Australia

Rather than a blanket mandate, many governance experts advocate for flexible frameworks. For example, the Australian Institute of Company Directors (AICD) suggests a “comply or explain” approach. This allows organisations to define term limits in their constitution or governance policy, with the option to explain deviations when necessary.

Common practice in Australia is to allow for two to three terms of three years, often with a maximum cap of nine years. However, exceptions are sometimes made for particularly high-performing directors or those holding key roles, such as the Chair or Treasurer.

Boards may also consider staggered terms to maintain continuity while still allowing for periodic renewal. This approach ensures that not all directors exit at once, preserving knowledge while making space for fresh voices.

Another important aspect is succession planning. Term limits are most effective when combined with strategies to develop future leaders within an organisation. Mentoring, board shadowing, and ongoing training programs can all help build a pipeline of capable candidates ready to step up when needed.

Conclusion: Evolution Over Revolution

The debate over term limits for NFP directors in Australia is not about right or wrong—it’s about finding the right balance between stability and renewal. While term limits offer several clear benefits—fresh thinking, improved governance, and greater diversity—they also come with real risks, especially when poorly implemented.

For many organisations, the ideal solution lies in tailored governance models that reflect their size, mission, and stage of development. Term limits should not be a checkbox exercise, but a considered element of a broader governance strategy.

As Australia’s NFP sector continues to grow and face increasing uncertainty, board renewal will remain a critical issue. Done thoughtfully, term limits can help NFPs remain agile, accountable, and in touch with the communities they serve.

DISCLAIMER: This article is general only in nature and is not advice.