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ACCA Strategic Professional · Strategic Business Leader · The board of directors

An evaluation of Danube Logistics' board finds that the audit committee chair is an experienced former auditor, but two of the four non-executives were previously senior employees of the company and a third is a major supplier's owner. Directors report that debates are polite but rarely produce dissent. Which conclusion is best supported by the evaluation?

The evidence points to weak non-executive independence undermining objective challenge. Two directors are former senior employees and another has a material supplier relationship, which fits the absence of dissent. Financial expertise is already present on the audit committee, and board size or executive control would not solve the problem.

  1. AThe board's effectiveness is limited chiefly by a lack of technical financial expertise
  2. BThe board's effectiveness is limited chiefly by weak independence of the non-executives, which undermines objective challengeCorrect
  3. CThe board is too small to hold committees
  4. DThe board should replace the audit committee chair with an executive director

Explanation

Former senior employees and a significant supplier relationship compromise independence, which fits the pattern of polite debate with no dissent. Financial expertise is present in the audit committee chair, so option A is contradicted. Board size is not the issue. Replacing the chair with an executive would reduce independence further.

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