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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

In a listed company, which of the following is the main purpose of appointing independent non-executive directors to the board?

Independent non-executive directors are appointed to provide objective judgement and challenge to board decisions, free from management or major shareholder influence. They protect minority shareholders, but they do not run operations, perform the audit or guarantee share price performance.

  1. ATo bring objective judgement and scrutiny to board decisions, free from management or major shareholder influenceCorrect
  2. BTo handle the day-to-day operations of the company in place of the executive team
  3. CTo guarantee that the company's share price rises each year
  4. DTo act as the company's statutory auditors and sign the annual accounts
  5. To represent only the interests of the promoter group on the board

Explanation

Independent directors have no material link with management or controlling shareholders, so they can challenge decisions objectively and protect minority interests. They do not run daily operations, audit the accounts or represent promoters, and they cannot guarantee share price gains.

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