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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

A company board is considering combining the roles of chairman and chief executive in one person. Which concern is most commonly raised against this arrangement in corporate governance codes?

The main concern is that combining the chairman and chief executive roles concentrates power in one person and weakens independent monitoring of management by the board. Separating the roles gives a balance between running the business and leading the board's oversight.

  1. AIt concentrates power in one individual and weakens the board's ability to monitor management independentlyCorrect
  2. BIt breaches the rule that a company may have only one director
  3. CIt prevents the company from forming an audit committee
  4. DIt makes the company ineligible to pay dividends
  5. It forces the company to appoint two auditors

Explanation

The chairman leads the board and oversees the executive, while the CEO runs the business. If one person holds both roles, there is no separation of board oversight from management, creating a risk of unchecked power. The other options have no connection to this issue.

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