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CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

Which feature of a board is most likely to strengthen its ability to act in shareholders' interests?

A majority of independent directors with no material ties to management most likely strengthens the board's ability to act for shareholders. Such directors can challenge and monitor management objectively, whereas former executives or close friends of the CEO may lack that objectivity.

  1. AA majority of directors who are former executives of the company
  2. BA majority of independent directors with no material ties to managementCorrect
  3. CDirectors who are all long-standing friends of the CEO

Explanation

Independent directors with no material ties to management can monitor and challenge managers objectively. Former executives and personal friends of the CEO are likely to be less objective.

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