Corporate Governance and Organizational Structure
What the domain tests
This domain tests board accountability, independence, committee design, senior-management responsibility, the three lines of defence, segregation of duties, outsourcing oversight and change-in-control governance.
Core rules and concepts
- The board carries ultimate responsibility for strategy, risk appetite and control culture; it cannot delegate that accountability to management.
- Independence means independence of judgement and character, not merely the absence of shares. Former executives and material fee-earners need a cooling-off period before being treated as independent.
- Separating the chair and chief executive roles prevents concentration of power. Audit, risk and remuneration committees should have defined membership, authority and access to information.
- The first line owns risk, the second provides oversight and challenge, and internal audit provides independent assurance.
- Outsourcing does not transfer regulatory responsibility; the firm remains accountable for the outsourced function and must retain oversight, exit and audit rights.
Worked example
A seven-director board has three independent directors, and the chair is the former chief executive who retired eight months ago. The exam asks whether the structure is acceptable. The answer should note two defects: the chair is not independent because the cooling-off period has not elapsed, and the board lacks an independent majority if the rules require one. The remedy is to appoint an independent chair or delay the appointment and strengthen independent representation.
Traps that cost marks
Conflating board oversight with executive management; counting any non-executive as independent; ignoring committee composition; and assuming an outsourced control function removes accountability.