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ACCA Strategic Professional · Strategic Business Leader · Governance scope and approaches

Brindle Engineering is a listed company whose shareholders do not manage it. Directors run the business and shareholders have complained that they cannot see whether directors act in shareholders' interests. Which feature of the corporate governance problem does this scenario most directly illustrate?

The scenario shows the separation of ownership and control. Shareholders as principals delegate management to directors as agents, whose interests may differ, so governance mechanisms such as disclosure, monitoring and independent oversight are needed to align behaviour.

  1. AThe separation of ownership and control, which creates an agency relationship needing governance mechanismsCorrect
  2. BA weakness in the firm's competitive forces analysis
  3. CA failure of the change management model used by the firm
  4. DOver-reliance on cost leadership as a generic strategy

Explanation

Owners (principals) delegate control to directors (agents), whose interests may diverge. Governance structures such as independent non-executives, disclosure and audit reduce this agency problem. The other options are unrelated to the ownership-control gap.

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