ACCA Strategic Professional · Strategic Business Leader · The board of directors
Kessler Group operates in a country with a two-tier system. Its shareholders are concerned that the management board has been withholding information about a risky acquisition from the supervisory board, which learns of major decisions only after they are made. Which governance implication is most relevant to this concern?
The supervisory board can only oversee effectively if the management board gives it timely and complete information. Withholding details of a major acquisition creates information asymmetry and undermines its monitoring role, so information rights and reporting requirements must be strengthened rather than blending the two tiers.
- AThe effectiveness of the supervisory board depends on timely, complete information from the management board, and its absence undermines the oversight roleCorrect
- BThe supervisory board should take over the day-to-day running of the acquisition to restore control
- CThe structure should be switched to a unitary board, since that eliminates information asymmetry entirely
- DShareholders have no remedy because the supervisory board is not accountable to them
Explanation
A recognised weakness of two-tier boards is information asymmetry: supervisors rely on managers for information. The remedy is information rights and reporting protocols, not direct management by supervisors. A unitary board does not remove information asymmetry entirely, and the supervisory board is accountable to shareholders, who typically elect it.
Did you get it right without looking?
One question tells you little. A timed set on The board of directors shows your real accuracy, how long you take and where you lose marks.
More The board of directors questions
- Zentara plc, a listed manufacturer, has a board of eight: the chief executive, the finance director, the operations director and five other …
- Karolis SA's audit committee has been asked by the board to strengthen the integrity of external reporting. Which of the following responsib…
- Elmstead Bank is reviewing the induction and development of new non-executive directors after two new appointees admitted they did not under…
- Borealis Energy's board spends most meetings reviewing monthly operational reports and approving routine purchases. Strategy, risk appetite …
- Brandt Holdings pays its executive directors a bonus that depends solely on this year's reported profit before tax. Over three years, direct…
- Ostrava Retail's board approved an aggressive expansion plan after hearing only from the CEO. Later, non-executives admitted they did not qu…