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

Meridian Holdings' chief executive also chairs the board. Over five years he has approved his own bonus, dismissed two dissenting directors and presented only favourable data to the board. Which governance weakness most directly explains the failure to challenge his decisions?

The key weakness is the concentration of power in one person who is both chair and chief executive. Without separation of roles, nobody independent controls board information or challenges decisions, so the individual can set his own bonus and remove dissenting directors unchecked.

  1. AConcentration of power through combined chair and chief executive rolesCorrect
  2. BExcessive use of non-executive directors on the audit committee
  3. COver-reliance on a principles-based code of governance
  4. DInsufficient disclosure of the company's dividend policy

Explanation

Combining the chair and chief executive roles removes the separation between running the business and overseeing it. This lets one individual dominate the board, control information and set his own pay. Governance codes recommend separate roles for this reason. The other options do not explain the lack of challenge.

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