Board Structure
Purpose and composition
A board provides direction, oversight and accountability. Candidates must understand composition variables: size, independence, diversity, tenure, executive vs non-executive balance, and whether roles of chair and CEO are combined or separated.
Independence and its tests
Independence is a state of mind supported by objective tests - no material relationship with the company, no recent employment, no significant fees, no close family ties to executives. Independence is not the same as non-executiveness: a non-executive director may still be non-independent. Questions frequently test this distinction.
Committees
Typical committees are audit, risk, remuneration and nomination. Key principles: audit and remuneration committees should be composed of independent directors; the audit committee usually oversees external audit, internal audit and financial reporting integrity; the nomination committee leads board and senior appointment and succession. Committee delegation does not transfer ultimate board accountability.
Chair and CEO
Separating chair and CEO supports independent oversight; where combined, a senior independent director or lead independent director is a common mitigant. The chair sets the board agenda and promotes constructive challenge.
Traps
- Assuming a larger board is always better; beyond a point, coordination costs rise.
- Confusing committee recommendation with board decision.
- Treating diversity as only demographic; cognitive diversity and skills matrices also matter.
- Forgetting that board evaluation is a board responsibility, even if externally facilitated.
Worked example
A director has served 11 years but holds no shares or contracts. Is she independent? Long tenure is commonly cited as a factor that may compromise independence; the answer depends on the code's threshold, so apply the stated test rather than intuition. Rule of thumb: independence is tested objectively against defined criteria, not by demeanour.