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

Halvorsen Marine plc has a board of eight directors. The chairman, a former chief executive, has just been appointed to lead the nomination committee. Investors complain that every recent board appointment came from the chairman's personal contacts and no job description was prepared. Which governance weakness does this primarily indicate?

The weakness is the lack of a formal, rigorous and transparent appointments process. Good governance expects an independent nomination committee to use role specifications and objective criteria, whereas appointments based on the chairman's personal contacts risk groupthink, reduced independence and poorly matched skills on the board.

  1. AA lack of a formal, rigorous and transparent appointments process led by an independent nomination committeeCorrect
  2. BExcessive use of non-executive directors on the audit committee
  3. CInsufficient executive remuneration linked to performance
  4. DA failure to separate the roles of internal and external auditor

Explanation

Good practice requires a formal, rigorous and transparent procedure for board appointments, usually through a nomination committee with a majority of independent non-executives and objective criteria such as a role specification. Here appointments rely on personal networks with no specification, which risks groupthink and weak independence. The other options concern remuneration and audit, which are not the problem described.

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