ACCA Strategic Professional · Strategic Business Leader · Audit and compliance
Tarvick Group has a unitary board where the chief executive is also chair. The audit committee has two non-executive directors, one of whom was Tarvick's finance director until two years ago. Shareholders have raised concerns. Applying a principles-based approach to governance, what is the most appropriate implication?
Under a principles-based, comply-or-explain approach, Tarvick may depart from code provisions but must disclose the departures and justify why its governance still meets the code's objectives. The combined CEO/chair role and a recently employed former finance director on the committee will face shareholder challenge.
- ATarvick must comply with every code provision or face automatic legal penalties
- BTarvick may depart from provisions but must explain the departure and justify why its governance still achieves the code's aimsCorrect
- CTarvick need take no action because the committee has non-executives
- DTarvick should adopt rules-based legislation that prohibits all non-executive directors with prior employment
Explanation
A principles-based approach, such as comply or explain, allows flexibility but requires disclosure and justification for departures. Here the CEO/chair combination and a recently employed former finance director on the committee are departures from good practice that shareholders will challenge. Automatic penalties describe a rules-based approach, and the presence of non-executives alone does not ensure independence.
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