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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

At the board meeting of Lakshya Infra Ltd, directors disagree about whether the managing director should also chair the board. A governance-minded director argues for separating the roles. Which is the strongest governance rationale for separating the Chairperson and CEO or MD roles?

Separating the Chairperson and CEO roles prevents concentration of power in one individual, so the board can independently supervise and challenge management. This strengthens checks and balances and accountability, whereas daily operations remain the executive's responsibility.

  1. AIt lowers the number of board meetings required
  2. BIt removes the need for independent directors
  3. CIt ensures the board's oversight of management is not concentrated in one person, strengthening checks and balancesCorrect
  4. DIt allows the Chairperson to run daily operations

Explanation

Separation prevents one person from both leading the board and managing the company, so the board can objectively monitor management. It does not reduce meeting needs or replace independent directors, and the Chairperson leads the board, not daily operations, which stay with management.

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