ACCA Strategic Professional · Strategic Business Leader

The board of directors: formula sheet

Full chapter guide

Key formulas

Four core board responsibilities: Strategy + Oversight of management + Risk and control + Accountability; Use as a checklist to structure any answer on the board's role. Always link each point to the scenario.
Board versus management: Board = direct, supervise and hold to account; Management = run operations and implement strategy; Use it to spot where the board has drifted into operations or has failed to challenge executives.
Agency link: Shareholders (principals) → Board (monitors) → Managers (agents); The board is the main mechanism to reduce agency problems. It monitors and sets incentives.
Directors' general duties: Good faith + Care and skill + Avoid conflicts + Act for the company's success; State these in plain words. Exact legal wording depends on the jurisdiction in the scenario.
Unitary board: One board = executive directors + non-executive directors, with shared collective responsibility; NEDs provide challenge from within the board. Roles of chair and chief executive should ideally be separate.
Two-tier board: Management board (executives) + Supervisory board (non-executives, often stakeholder representatives); The supervisory board monitors and appoints the management board. It does not run day-to-day operations.
Key contrast: Unitary = oversight inside the board; Two-tier = oversight in a separate board; Use this one line to open any comparison answer.
Executive director: Executive director = board member + employed in a senior management role; Runs the business day to day and implements strategy. Paid salary and performance-related pay.
Non-executive director: NED = board member + not employed in management + paid a fee; Roles to remember: strategy, scrutiny, risk, people. Same legal duties as executives.
Independence test: Independent NED = no relationship or circumstance likely to affect, or appear to affect, judgement; Judge by substance. Look at employment, business links, extra pay, family, shareholding, length of service and cross-directorships.
Chair/CEO split: Chair leads the board; CEO leads management; roles held by different people; Purpose: balance of power and no individual with unfettered decision-making power. Codes also say a CEO should not become chair of the same company.
Audit committee: core duties: Financial reporting integrity + internal control and risk systems + internal audit + external auditor (appointment, independence, fees); Use this as a checklist. Add whistleblowing arrangements and review of fraud procedures where the scenario suggests them.
Remuneration committee: core duties: Set policy for executive pay + decide individual packages + link reward to long-term performance; Members should be independent NEDs. No director should decide their own pay.
Nomination committee: core duties: Review board structure and skills + plan succession + lead the selection process + recommend appointments; Led by the chair or an independent NED. Aim for merit-based and diverse appointments.
Risk committee: core duties: Advise on risk appetite + review risk management framework + monitor the risk profile + report to the board; Often a mix of NEDs and senior executives. Some boards give this work to the audit committee.
Committee membership test: Independent? + Competent? + Right size? + Terms of reference? + Reports to board?; A quick way to assess whether any committee in a scenario is set up properly.
Balanced board: Balance = executives + independent NEDs + mix of skills + diversity, with no individual or small group dominating; Use it as a checklist, not a calculation. Codes set expectations on the proportion of independent NEDs; refer to the code given in the scenario.
Separation of roles: Chair ≠ Chief executive; Splitting the roles separates running the board from running the business. Say why: it limits concentration of power.
Appointment process: Skills audit → role specification → search → shortlist and interview → recommendation → board and shareholder approval → induction; Led by the nomination committee. Use it as the order of your answer.
Benefits of diversity: Wider perspectives → less groupthink → better decisions and stakeholder understanding; Always link the benefit to the scenario company's situation.
Alignment principle: Reward ↑ when shareholder value ↑ (and falls when it falls); Use this as the test of any package. Pay should depend on performance the director can influence.
Typical package structure: Total pay = fixed (salary, pension, benefits) + short-term variable (bonus) + long-term variable (LTIP, options); Name each element and say what behaviour it encourages.
Remuneration committee rule: Executive pay set by independent non-executive directors, and no director sets their own pay; Common code expectation. Say 'good practice' rather than quoting a specific country's rule unless the scenario gives it.
Non-executive pay rule: NED pay = fee only, no performance-related element; Protects independence. Generally recommended practice, not a universal law.
Levels of evaluation: Whole board + Committees + Individual directors; Cover all three levels when asked how a board should be evaluated.
Evaluation cycle: Set criteria → Collect evidence → Discuss findings → Act → Follow up; Use as a structure for any recommendation. The action step is where marks are often lost.
Who leads: Chair leads board review; senior independent director leads chair review; external facilitator adds objectivity; State this as typical good practice under governance codes, not as law.
Re-election principle: Appointment → election at first AGM → periodic re-election, linked to evaluation and independence; Exact intervals depend on the code in the scenario. Use the scenario's code if one is named.

Quick revision

The board sets strategy, oversees management, manages risk and is accountable to shareholders.
A unitary board has one body of executive and non-executive directors; a two-tier board separates a supervisory board from a management board.
Non-executives bring independent judgement, challenge and scrutiny of executives.
Separating the roles of chair and chief executive reduces the risk of one person dominating.
Audit, remuneration and nomination committees are the main board committees.
The audit committee oversees financial reporting, internal control, internal audit and the external auditor relationship.
The remuneration committee should be made up of independent non-executives and set pay for executives.
The nomination committee leads a formal, transparent appointment process.
Diversity in skills, experience and background can improve decisions and reduce groupthink.
Executive pay should link to long-term performance and avoid rewarding excessive risk.
Board evaluation should be regular, honest and lead to action, and may use an external facilitator.
In answers, apply each point to the scenario and end with a clear recommendation.

Common mistakes

Listing board duties from memory with no link to the case. Fix: After every duty, add a sentence starting with a scenario fact. Ask: how does this show up in this company?
Confusing the board's role with management's role. Fix: Say the board sets direction and supervises. Management implements and runs operations. Flag where the scenario blurs this.
Listing textbook points without linking them to the scenario. Fix: Tie every point to a case fact. Use phrases such as 'In Company X, where the chief executive is also chair...'.
Saying the supervisory board runs the company day to day. Fix: State that the management board runs operations and the supervisory board oversees, appoints and monitors it.
Saying NEDs have fewer legal duties than executive directors. Fix: State that all directors share the same legal duties and are collectively responsible. NEDs differ in role and involvement, not in legal status.
Listing NED roles from memory without applying them to the scenario. Fix: Choose the roles the scenario makes relevant and link each to a fact. Professional skills marks reward application.
Writing everything you know about a committee instead of answering the requirement. Fix: Choose only the duties and points that match the scenario and the verb in the requirement.
Mixing up the audit and remuneration committees, or giving the risk committee's job to the nomination committee. Fix: Learn one key phrase for each: audit is about reporting and controls, remuneration is about executive pay, nomination is about appointments, risk is about risk appetite and management.
Listing the benefits of diversity in general terms without using the scenario. Fix: Tie each benefit to the company's market, customers or decisions described in the scenario.
Treating diversity as only about gender. Fix: Include ethnicity, age, background, skills and thinking style, and mention gender as one part.

Exam tips

Always open your answer with the scenario, not the textbook. Examiners reward application.
Use the four responsibilities as a skeleton, but spend your words on the ones the case highlights.
Make recommendations specific and practical, and say who should act and how.
Show professional skills: write in the format requested, keep a balanced tone and give a clear conclusion.
When a case mentions a scandal or weak oversight, link the failure to a lack of independent challenge or a dominant individual.
Always open with a one-line contrast of the two structures, then move to the scenario. Examiners reward application over definitions.
Look for clues in the case: dominant chief executive, family control, employee representation or past scandals. These point to the structure you should discuss.
If asked to recommend, commit to a view and give conditions. A balanced answer with no conclusion loses professional skills marks.