Skip to content

CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Effectiveness and Building Better Boards

Meridian Pharma Ltd is a listed public company. Its board constitutes an Audit Committee of four directors, of whom two are independent directors. The board wants the committee to strengthen governance quality. Under section 177 of the Companies Act, 2013, what is the position of this composition?

The composition does not comply. Section 177(2) requires at least three directors with independent directors forming a majority. Two independent directors out of four is only half, not a majority, so the board must add an independent director or restructure the committee to support effective oversight.

  1. AIt complies, because the Audit Committee needs only three directors
  2. BIt complies, because equal numbers of independent and other directors are sufficient
  3. CIt does not comply, because independent directors must form a majority of the committeeCorrect
  4. DIt does not comply, because all members must be independent directors

Explanation

Section 177(2) requires a minimum of three directors with independent directors forming a majority. Two of four is not a majority, so the composition falls short even though the minimum size is met. The Act does not require all members to be independent.

Did you get it right without looking?

One question tells you little. A timed set on Board Effectiveness and Building Better Boards shows your real accuracy, how long you take and where you lose marks.

Practise Board Effectiveness and Building Better BoardsFree diagnostic mock

More Board Effectiveness and Building Better Boards questions