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

Taravale plc has a fully compliant board on paper: a majority of independent non-executives, an audit committee and a code of ethics. Yet after a fraud, a review found that the non-executives were all long-standing friends of the chief executive, met only quarterly, and received information solely prepared by management. Which conclusion is best supported?

Formal compliance is not enough. Non-executives who are close friends of the chief executive and rely only on management information lack real independence and insight, so the structures existed but oversight failed. Effective governance needs independence in substance and reliable, independent information.

  1. AFormal compliance with structures does not ensure effective governance if independence in substance and information flows are lackingCorrect
  2. BThe fraud proves that a rules-based approach would have been ineffective
  3. CIndependent directors should be removed in favour of executive directors
  4. DThe audit committee should be abolished as it added no value

Explanation

The structures existed but the non-executives lacked true independence of mind and had no independent information, so oversight was ineffective. This shows box-ticking compliance is insufficient. The case does not show that rules-based approaches fail or that executives should replace non-executives.

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