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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

A listed company's board is chaired by its chief executive officer, who also chairs the remuneration committee and the nomination committee. Which governance weakness does this MOST directly illustrate?

The situation shows a concentration of power in one individual, which weakens independent oversight. The CEO chairing the board and the pay and nomination committees can influence scrutiny of their own performance and reward, contrary to good practice of separating roles and using independent non-executives.

  1. AExcessive separation of the roles of chair and chief executive
  2. BConcentration of power in one individual, reducing independent oversightCorrect
  3. COver-reliance on non-executive directors for operational decisions
  4. DLack of an external auditor

Explanation

Combining chair and CEO roles, and letting that person lead committees on pay and board appointments, concentrates power and lets the person influence oversight of their own performance and reward. Best practice separates the roles and has independent non-executives lead those committees. The scenario describes no separation, so the first option is the opposite of the problem.

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