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

Dunmore Energy has a board of ten. Four are independent non-executives, including the senior independent director. The chief executive is a founder who holds 30% of the shares and has recently proposed a candidate for a vacant non-executive seat, a golf partner who is a supplier's owner. The nomination committee is chaired by the CEO. Which action best strengthens governance while respecting the need for independent judgement?

The best action is to have an independent non-executive chair a nomination committee with an independent majority and use objective, skills-based selection, treating the supplier-owner candidate as not independent. This removes CEO dominance over appointments, whereas other options evade the issue or leave the flawed process unchanged.

  1. AAllow the CEO to continue chairing the committee but require the golf partner to resign from the supplier
  2. BAppoint the candidate as an executive director instead, so that independence is not required
  3. CHave an independent non-executive chair the nomination committee, which should have a majority of independent members and use an objective, skills-based selection process, with the candidate assessed as not independentCorrect
  4. DDelay all appointments until the next annual general meeting without changing the process

Explanation

The CEO chairing the committee and nominating a person with a business relationship undermines independence. The best fix is an independent chair and majority, with objective criteria; a supplier's owner would not be independent. Making the candidate executive just avoids the issue, and delaying leaves the flawed process in place.

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