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

A company's chairman has also been its chief executive for many years. Which governance concern is most directly raised by this combination of roles?

Combining chairman and chief executive concentrates power in one person, who then both runs the business and leads the board that is supposed to oversee it. This weakens challenge and monitoring of the executive. It does not remove shareholder voting rights or the need for committees.

  1. AToo many committees will be created, increasing costs
  2. BConcentration of power in one individual, weakening the board's ability to challenge and monitor the executiveCorrect
  3. CThe company cannot legally pay the individual any remuneration
  4. DShareholders lose the right to vote at the annual general meeting
  5. The audit committee becomes unnecessary

Explanation

The chairman leads and monitors the board, while the chief executive runs the business. Combining the roles puts one person in charge of both management and its oversight, reducing checks and balances. The other options are not consequences of the combination.

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