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

Ostrava Retail's board approved an aggressive expansion plan after hearing only from the CEO. Later, non-executives admitted they did not question the assumptions because they relied on the CEO's judgement and were all long-standing friends of the founder. Losses followed. Which analysis best explains the failure and its implication for board composition?

The failure stems from non-executives lacking independence and not challenging the CEO. The remedy is a board with genuinely independent, diverse non-executives supported by proper induction and evaluation, so strategy is robustly scrutinised rather than accepted through friendship or deference.

  1. ANon-executives lacked independence and failed to provide objective challenge, so the board needs genuinely independent members with diverse skills and a rigorous induction and evaluation processCorrect
  2. BThe board had too many executive directors, so the answer is to remove all executives from the board
  3. CThe failure shows non-executives should never review strategy, which should be left to the CEO
  4. DThe expansion failed because the board was too small to hold committees

Explanation

The key problem is weak independence and absence of challenge, a typical groupthink and cronyism issue. The remedy is independent, diverse non-executives and board evaluation. Removing all executives or excluding non-executives from strategy is wrong, since non-executives are expected to contribute to strategy.

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