Board Structure, Composition and Effectiveness
This domain tests how a board should be built - size, mix, independence, chair and CEO roles, meetings, evaluation - and whether you can distinguish structural compliance from real effectiveness.
What the board is for
Setting direction and approving strategy; monitoring management and performance; accountability to shareholders; setting risk appetite; appointing, remunerating and succeeding the CEO.
Composition rules
- A mix of executive, non-executive and independent non-executive directors. Non-executive is not the same as independent.
- Independence criteria typically include: no material business or contractual relationship, no recent employment by the company or its advisers, no close family ties to executives, no cross-directorships, no controlling shareholding, and a tenure limit because long service can blunt challenge. The board should disclose its determination.
- Separation of chair and CEO, with an independent chair; where the chair is not independent, explain and designate a senior independent director.
- Board size large enough to staff committees but small enough for genuine debate; regular meetings and disclosed attendance.
Effectiveness
Board charter, induction and continuing training, timely and high-quality board papers, annual board and director evaluation (self-assessment or externally facilitated), succession planning, conflict-of-interest registers, and committees that actually test management rather than rubber-stamp.
Worked example
A director's consulting firm earned fees from the company until fourteen months ago. Is he non-executive? Yes. Independent? No - a recent material business relationship - so the board must disclose its determination and keep him off the audit and remuneration committees until the cooling-off period is satisfied.
Traps that cost marks
Equating non-executive with independent. Counting a former CEO as independent. Failing to disclose the basis for an independence determination. Assuming a bigger board is automatically stronger. Answering only with structure and ignoring behaviour such as challenge, information flow and evaluation.