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ICSAN Board Dynamics practice questions

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Question 1Board Roles, Responsibilities and Legal Duties

Under the Companies and Allied Matters Act 2020, which of the following best describes the fiduciary position of a director of a Nigerian company?

  1. The director owes duties primarily to the regulator that licensed the company
  2. The director is a trustee holding company assets on trust for the creditors
  3. The director acts as an agent of the shareholders and must follow their instructions at all times
  4. The director owes duties of good faith and loyalty to the company and must act in its best interests Correct answer.

Explanation

CAMA 2020 codifies directors' duties as owed to the company itself, not to individual shareholders or creditors. The core fiduciary obligation is to act in good faith and in the best interests of the company as a whole. Shareholder instructions do not override this duty.

Question 2Board Roles, Responsibilities and Legal Duties

The Code of Conduct for directors and key management personnel issued by the Nigerian Exchange (SEC Code) requires a director to avoid conflicts of interest primarily by doing what?

  1. Disclosing the conflict and recusing from deliberation and voting on the matter Correct answer.
  2. Transferring the conflicted shares to a family member
  3. Resigning from any other board on which the director serves
  4. Referring the matter to the external auditor for a binding decision

Explanation

Conflict-of-interest rules require disclosure to the board and abstention from discussion and voting where a director has a personal interest. Recusal protects the integrity of board decision-making. Resignation or share transfers are not the prescribed remedy.

Question 3Board Roles, Responsibilities and Legal Duties

A board is deciding whether a proposed acquisition requires shareholder approval. Which source should the company secretary first consult to confirm the statutory threshold for a major transaction?

  1. The Companies and Allied Matters Act 2020 together with the articles of association Correct answer.
  2. The board's own informal precedent from prior transactions
  3. The Nigerian Exchange trading rules alone
  4. The company's staff handbook

Explanation

Reserved matters and shareholder approval thresholds are governed by CAMA 2020 and the company's constitutional documents. The articles may set additional or higher thresholds. Informal precedent and staff policies carry no legal authority on this point.

Question 4Board Roles, Responsibilities and Legal Duties

Which statement correctly captures the distinction between the board's oversight role and management's executive role?

  1. The board and management share identical operational duties
  2. The board executes daily operations while management sets strategy
  3. The board sets strategy and monitors performance while management executes day-to-day operations Correct answer.
  4. The board delegates all strategy to management and retains only audit functions

Explanation

Governance separates direction from execution: the board provides strategic direction, oversight and accountability, while management runs the business. Blurring these roles undermines accountability. The board retains strategy-setting responsibility even when it delegates implementation.

Question 5Board Roles, Responsibilities and Legal Duties

A non-executive director of a Nigerian bank learns of a fraud allegation two weeks before it becomes public and sells her shares in the bank. What duty has she most likely breached?

  1. The duty to avoid misuse of company information and insider dealing Correct answer.
  2. The duty to declare a material interest in a proposed transaction
  3. The duty to promote the success of the company
  4. The duty to attend board meetings regularly

Explanation

Trading on confidential price-sensitive information obtained in the director's capacity breaches the duty not to misuse company information and constitutes insider dealing under securities law. The timing before public disclosure is the key indicator. Attendance and declaration duties are separate obligations.

Question 6Board Roles, Responsibilities and Legal Duties

In board dynamics terms, what does 'groupthink' most accurately describe?

  1. A disagreement between executive and non-executive directors
  2. A board's tendency to defer to external consultants
  3. The suppression of dissent in favour of apparent consensus, reducing critical challenge Correct answer.
  4. The practice of rotating board committee chairpersons

Explanation

Groupthink occurs when cohesion and pressure for unanimity suppress alternative views, weakening the board's challenge function. It is a behavioural risk, not a structural or procedural arrangement. Healthy boards counter it through independent challenge and devil's advocacy.

Question 7Board Roles, Responsibilities and Legal Duties

A director chairs the audit committee and also serves as chief executive of the same company. Which governance principle is most directly compromised?

  1. Board diversity and inclusion
  2. Independence and separation of oversight from executive management Correct answer.
  3. Dividend policy consistency
  4. Stakeholder engagement frequency

Explanation

Audit committee oversight requires independence from the executive being reviewed. A CEO chairing the audit committee creates a self-review threat and undermines the committee's challenge function. Diversity, engagement and dividend policies are unrelated to this structural conflict.

Question 8Board Roles, Responsibilities and Legal Duties

Which of the following is the most appropriate way for a board chair to handle a dominant chief executive who routinely presents decisions as already made?

  1. Ask the company secretary to record the CEO's decisions without debate
  2. Set a board agenda that requires proposals to be presented with options and independent challenge before decision Correct answer.
  3. Allow the practice to continue because the CEO has operational expertise
  4. Refer every operational decision to shareholders for ratification

Explanation

The chair shapes board process and must ensure decisions are genuinely deliberated, with alternatives and challenge before approval. Rubber-stamping entrenches executive dominance. Shareholder ratification of routine operations is neither practical nor required.

Question 9Board Roles, Responsibilities and Legal Duties

Under CAMA 2020, a director who has a personal interest in a contract proposed to the company must do what?

  1. Resign from the board before the contract is considered
  2. Disclose the interest only in the annual report after the contract is signed
  3. Obtain the prior written consent of the external auditor
  4. Declare the interest to the board and refrain from voting on the matter Correct answer.

Explanation

CAMA requires a director with a personal interest in a proposed contract to declare that interest to the board and abstain from voting. Disclosure enables the board to manage the conflict. Post-hoc reporting or auditor consent does not satisfy the duty.

Question 10Board Roles, Responsibilities and Legal Duties

A board committee is established to review the company's risk appetite and internal control framework. Which committee is this most likely to be?

  1. The finance and general purposes committee
  2. The nomination and governance committee
  3. The remuneration committee
  4. The audit and risk committee Correct answer.

Explanation

Audit and risk committees oversee financial reporting integrity, internal control and risk management. Remuneration committees set executive pay, and nomination committees handle board appointments. A general purposes committee typically handles routine or delegated matters.

Question 11Board Roles, Responsibilities and Legal Duties

A director of a subsidiary is nominated by the parent company. To whom does that director's fiduciary duty run?

  1. To the subsidiary on whose board she sits Correct answer.
  2. To the subsidiary's employees as a class
  3. To the minority shareholders of the parent only
  4. To the parent company that nominated her

Explanation

A director's fiduciary duty runs to the company on whose board she serves, even if nominated by a shareholder or parent. Nomination does not convert the director into a delegate of the nominator. Acting on the parent's instructions against the subsidiary's interest can breach that duty.

Question 12Board Roles, Responsibilities and Legal Duties

Which practice best supports effective board evaluation?

  1. Relying solely on a self-assessment completed by the chair
  2. Evaluating only financial performance against budget
  3. Restricting evaluation to executive directors' individual targets
  4. Combining self-assessment with independent external facilitation periodically Correct answer.

Explanation

Credible board evaluation blends internal self-assessment with periodic independent review to test effectiveness objectively. Evaluating only financial results ignores board process, dynamics and composition. Restricting review to executives leaves the board itself untested.

Question 13Board Roles, Responsibilities and Legal Duties

In the context of board dynamics, what is the principal purpose of a board charter?

  1. To replace the company's articles of association
  2. To set individual employees' performance targets
  3. To document the company's marketing strategy
  4. To define the board's role, authority, composition and operating procedures Correct answer.

Explanation

A board charter codifies how the board operates: its mandate, reserved powers, composition and procedures. It complements rather than replaces the articles. Strategy documents and employee targets are separate instruments.

Question 14Board Roles, Responsibilities and Legal Duties

A board is considering a related-party transaction involving the chair's private company. Which process best protects the integrity of the decision?

  1. The conflicted director is excluded from discussions and the independent directors assess the terms Correct answer.
  2. The transaction proceeds and is disclosed in the next annual report
  3. The company secretary approves the transaction on the board's behalf
  4. The chair presents the proposal and the board votes immediately

Explanation

Related-party transactions require the conflicted director to step aside and independent directors to scrutinise the terms at arm's length. Immediate voting with the chair present compromises the process. Disclosure after the fact is not a substitute for proper approval.

Question 15Board Roles, Responsibilities and Legal Duties

Which of the following best describes the duty of care and skill expected of a Nigerian director?

  1. The director must exercise the degree of care, diligence and skill reasonably expected of a person of that knowledge and experience Correct answer.
  2. The director must attend every committee meeting regardless of relevance
  3. The director must guarantee that the company never suffers a loss
  4. The director must personally audit the company's financial statements

Explanation

CAMA imposes an objective and partly subjective standard: the care, diligence and skill a reasonably diligent person with the director's knowledge and experience would exercise. Directors are not insurers of the company's fortunes. Personal auditing and blanket attendance are not legal duties.

Question 16Board Roles, Responsibilities and Legal Duties

A board delegates authority to a management committee but fails to set spending limits or reporting requirements. What is the primary governance risk?

  1. The delegation becomes invalid because delegation is prohibited
  2. The company secretary becomes personally liable for committee decisions
  3. The board loses effective oversight and accountability for the delegated decisions Correct answer.
  4. The committee automatically becomes a statutory board committee

Explanation

Delegation is permitted, but the board must define scope, limits and reporting so it retains oversight. Open-ended delegation blurs accountability without making the delegation void. It does not shift personal liability to the secretary or create a statutory committee.

Question 17Board Roles, Responsibilities and Legal Duties

Which behaviour most clearly demonstrates a healthy 'challenge culture' on a board?

  1. Directors abstain from voting to avoid conflict
  2. Directors publicly contradict the chair to demonstrate independence
  3. Directors defer to the longest-serving member on technical matters
  4. Directors ask probing questions and test assumptions before approving proposals Correct answer.

Explanation

Challenge culture means constructive, evidence-based questioning that tests assumptions before decisions. Independence is shown through scrutiny, not public confrontation. Routine abstention or deference to seniority weakens collective decision-making.

Question 18Board Roles, Responsibilities and Legal Duties

A director is appointed to fill a casual vacancy. What is the typical consequence under Nigerian company law and governance practice?

  1. The appointment is permanent and cannot be reviewed
  2. The appointment holds until the next general meeting, when the director retires and may stand for election Correct answer.
  3. The appointment automatically makes the director managing director
  4. The appointment requires the consent of every existing shareholder

Explanation

Casual vacancy appointments typically last until the next general meeting, at which the director retires and may seek election by shareholders. This preserves shareholder control over board composition. The appointment does not confer executive office or require unanimous shareholder consent.

Question 19Board Roles, Responsibilities and Legal Duties

A board is reviewing a takeover proposal. One director has a close family relationship with the bidder's chief executive. Which action is most consistent with good governance?

  1. The director participates fully because the relationship is personal, not financial
  2. The director resigns immediately without explanation
  3. The director lobbies shareholders to support the bid
  4. The director discloses the relationship and is excluded from board deliberations and voting on the bid Correct answer.

Explanation

Close personal or family ties to a counterparty create a conflict that must be disclosed, followed by recusal from deliberation and voting. Personal relationships can influence judgement as much as financial interests. Immediate resignation and lobbying are not appropriate responses.

Question 20Board Roles, Responsibilities and Legal Duties

How does the 'comply or explain' approach operate in Nigerian corporate governance codes for listed companies?

  1. Companies must obtain regulatory approval before departing from any provision
  2. Companies must comply with every provision or face automatic delisting
  3. Companies either comply with a provision or explain in their report why they have not Correct answer.
  4. Companies may choose which provisions to obey without any disclosure

Explanation

Comply or explain requires companies to apply code provisions or disclose and justify any departure in their governance report. It preserves flexibility while maintaining transparency for investors. It does not permit silent non-compliance or trigger automatic delisting.

Question 21Board Roles, Responsibilities and Legal Duties

A board's succession plan identifies no internal candidate for the chief executive role. What is the most significant governance weakness this reveals?

  1. The board has improperly delegated strategy to management
  2. The board has failed to plan for continuity of leadership and key-person risk Correct answer.
  3. The board has breached its dividend policy obligations
  4. The board has exceeded its delegated authority

Explanation

Succession planning is a core board responsibility that mitigates key-person and continuity risk. An empty pipeline signals reactive rather than proactive talent oversight. Dividend policy, delegation limits and strategy authority are separate governance matters.

Question 22Board Roles, Responsibilities and Legal Duties

Which of the following best explains why board minutes are important to directors' legal protection?

  1. They replace the need for directors' and officers' liability insurance
  2. They transfer liability from directors to the company secretary
  3. They are confidential and cannot be used in legal proceedings
  4. They provide contemporaneous evidence that directors considered relevant factors and acted diligently Correct answer.

Explanation

Contemporaneous minutes evidence the board's deliberation and the factors considered, supporting a defence that directors acted with care and in good faith. They do not transfer liability or replace insurance. Minutes can be disclosable in litigation.

Question 23Board Roles, Responsibilities and Legal Duties

A director consistently misses board meetings without explanation. Which duty is most directly implicated?

  1. The duty to promote the success of the company
  2. The duty not to accept benefits from third parties
  3. The duty to exercise care, diligence and skill in the discharge of board responsibilities Correct answer.
  4. The duty to declare interests in contracts

Explanation

Regular attendance and preparation are components of the duty of care, diligence and skill. Persistent unexplained absence undermines the director's ability to discharge oversight responsibilities. The other duties concern conflicts, benefits and strategic promotion respectively.

Question 24Board Roles, Responsibilities and Legal Duties

What is the primary governance rationale for separating the roles of board chair and chief executive?

  1. To prevent concentration of power and preserve independent oversight of management Correct answer.
  2. To satisfy the requirement that the chair be an executive director
  3. To ensure the chair can direct daily operations
  4. To reduce the company's tax exposure

Explanation

Separating chair and CEO prevents one individual from both running the business and leading its oversight. This division supports independent challenge and accountability. The rationale is governance, not tax or operational control.

Question 25Board Roles, Responsibilities and Legal Duties

A board receives a whistleblower report alleging that a senior executive manipulated revenue figures. Which response best reflects the board's oversight duty?

  1. Wait for the external auditor to raise it at year-end
  2. Refer the matter to the executive concerned for internal resolution
  3. Commission an independent investigation with audit committee oversight and protect the whistleblower Correct answer.
  4. Dismiss the report as unsubstantiated without inquiry

Explanation

The board, through its audit committee, should ensure independent investigation and protect the reporter from retaliation. Referring the allegation to the subject of the complaint compromises independence. Delay or dismissal exposes the board to oversight failure.

Question 26Board Roles, Responsibilities and Legal Duties

Under the Companies and Allied Matters Act 2020, which statement best captures a Nigerian director's fiduciary position in relation to the company?

  1. The director owes duties to the company as a separate legal person and must act in its best interests. Correct answer.
  2. The director acts as an agent of the shareholders who elected them and must follow their instructions.
  3. The director's duties run primarily to the creditors whenever the company is profitable.
  4. The director holds a personal beneficial interest in company assets until dividends are declared.

Explanation

CAMA 2020 codifies directors as fiduciaries of the company itself, which is a distinct legal person from its members. Duties of good faith and loyalty are therefore owed to the company, not to any individual shareholder or faction.

Question 27Board Roles, Responsibilities and Legal Duties

A newly appointed non-executive director wants to understand the practical meaning of the duty of care and skill. Which standard best describes the expectation?

  1. The director must apply the degree of care, diligence and skill a reasonably diligent person would exercise in comparable circumstances. Correct answer.
  2. The director must defer entirely to executive directors on technical matters.
  3. The director must guarantee that board decisions produce profit.
  4. The director must attend every meeting in person without exception.

Explanation

The statutory and common law standard is objective with a subjective overlay: the care, diligence and skill reasonably expected of a person with that director's knowledge and experience in comparable circumstances. It is a standard of conduct, not a guarantee of outcomes.

Question 28Board Roles, Responsibilities and Legal Duties

A director of a Nigerian public company is invited to a board meeting at which a contract between the company and a firm owned by her brother will be considered. What is the most appropriate course of action under CAMA 2020?

  1. Attend and vote in favour because the transaction is at arm's length.
  2. Disclose the interest to the board, refrain from voting on the matter, and ensure the disclosure is recorded in the minutes. Correct answer.
  3. Resign from the board before the meeting begins.
  4. Say nothing, since the interest belongs to a relative rather than to the director personally.

Explanation

CAMA 2020 requires a director with a direct or indirect interest in a proposed contract to declare that interest to the board. The director must not vote on the matter, and the disclosure should be captured in the minutes to protect the transaction's integrity.

Question 29Board Roles, Responsibilities and Legal Duties

A board has an independent non-executive chair and a separate chief executive officer. A shareholder asks why these roles are not combined. Which rationale is most consistent with good governance practice?

  1. It transfers legal responsibility for the company's results to the chair.
  2. It reduces the payroll cost of senior management.
  3. It ensures the chair can also supervise daily operations directly.
  4. It separates oversight of the board from execution of strategy, preserving independent challenge of management. Correct answer.

Explanation

Separating the chair and CEO roles prevents one individual from both running the business and leading its oversight, which strengthens independent challenge and accountability. Many governance codes recommend this split precisely to avoid concentration of power.

Question 30Board Roles, Responsibilities and Legal Duties

A board is dominated by a long-serving chair who controls the agenda, limits debate and selects committee members personally. Which intervention most directly addresses this dynamic?

  1. Reducing the number of board meetings to limit conflict.
  2. Allowing the chair to chair all board committees for consistency.
  3. Appointing a senior independent director and strengthening the role of independent non-executive directors in setting the agenda and committee composition. Correct answer.
  4. Increasing the frequency of board dinners.

Explanation

A senior independent director and empowered independent non-executives provide a counterweight to an over-mighty chair by ensuring agenda-setting and committee composition are not solely controlled by one person. This is a structural remedy for concentrated board power.

Question 31Board Roles, Responsibilities and Legal Duties

A director who also sits on the board of a competitor is asked to join a strategy session on pricing. What is the most appropriate governance response?

  1. Require the director to resign from the competitor board immediately as a condition of attendance.
  2. Exclude the director from the relevant discussion and record the conflict and recusal in the minutes. Correct answer.
  3. Ask the director to sign a confidentiality undertaking and proceed as normal.
  4. Allow participation because pricing is commercially routine.

Explanation

A competing directorship creates a conflict that should be managed by recusal from the affected deliberations, with the recusal documented. Confidentiality undertakings do not cure the conflict because the director's loyalty is divided.

Question 32Board Roles, Responsibilities and Legal Duties

A board wants to establish a committee to oversee the integrity of financial reporting and the relationship with the external auditor. Which committee is appropriate and what is its core mandate?

  1. An ad hoc strategy committee responsible for acquisitions.
  2. A remuneration committee focused on executive pay benchmarking.
  3. A nominations committee responsible for board appointments.
  4. An audit committee responsible for overseeing financial reporting, internal controls and the external audit relationship. Correct answer.

Explanation

The audit committee is the body charged with oversight of financial reporting integrity, internal control and the independence and performance of the external auditor. In Nigeria its composition and responsibilities are shaped by CAMA 2020 and applicable governance codes.

Question 33Board Roles, Responsibilities and Legal Duties

During a board meeting, an executive director presents a proposal that a non-executive director believes rests on weak assumptions. Which behaviour best exemplifies constructive challenge?

  1. Requesting that the item be removed from the agenda permanently.
  2. Remaining silent and raising concerns privately after the decision is minuted.
  3. Supporting the proposal to preserve board harmony and avoid delay.
  4. Asking specific questions about the assumptions and requesting supporting evidence before the vote. Correct answer.

Explanation

Constructive challenge means testing the reasoning and evidence behind a proposal before a decision is taken, using specific questions rather than personal criticism. This improves decision quality while preserving working relationships.

Question 34Board Roles, Responsibilities and Legal Duties

A board is reviewing a major acquisition. One non-executive director has a shareholding in the target company. What is the most defensible process?

  1. The director participates but abstains from the final vote only.
  2. The chair decides informally whether the director should stay in the room.
  3. The director participates fully because the shareholding is small.
  4. The director declares the interest, is excluded from deliberations and voting, and the board records the recusal. Correct answer.

Explanation

Where a director has a material interest in a transaction, the safe course is full disclosure, exclusion from both discussion and voting, and a written record of the recusal. This protects the decision from later challenge and preserves board credibility.

Question 35Board Roles, Responsibilities and Legal Duties

A director is appointed mid-year to fill a casual vacancy on the board. Which description of the appointment is most accurate in governance terms?

  1. The director typically holds office only until the next general meeting, when shareholders may confirm or replace the appointment. Correct answer.
  2. The director serves a full fixed term from the date of the next annual general meeting regardless of the original cycle.
  3. The director automatically becomes chair of the board.
  4. The director cannot vote at board meetings until confirmed by shareholders.

Explanation

A casual vacancy appointment is generally interim: the new director holds office until the next general meeting, at which shareholders can confirm or replace the appointment under the company's articles and CAMA 2020. This preserves shareholder control over board composition.

Question 36Board Roles, Responsibilities and Legal Duties

A board's risk committee reports that a key business line is exposed to a regulatory change that could halve its margin. How should the board respond to discharge its oversight role?

  1. Defer the matter to management and request no further reporting.
  2. Note the risk and continue without changes to strategy or monitoring.
  3. Assess the risk against the board's approved risk appetite, require a mitigation plan and set monitoring milestones. Correct answer.
  4. Immediately announce a public profit warning without further analysis.

Explanation

Board risk oversight involves measuring exposures against the approved risk appetite, directing mitigation and monitoring progress through defined milestones. This keeps the board engaged without usurping management's execution role.

Question 37Board Roles, Responsibilities and Legal Duties

A chief executive has led the company for twelve years and the board has no documented succession plan. Which governance consequence is most significant?

  1. The board faces unmanaged key-person risk and potential loss of strategic continuity if the CEO departs unexpectedly. Correct answer.
  2. The CEO's remuneration will be capped by statute.
  3. The company will automatically lose its listing status.
  4. The board must appoint an external auditor immediately.

Explanation

Absence of succession planning concentrates risk in one individual and leaves the board unprepared for an unexpected departure, threatening continuity and stakeholder confidence. Succession oversight is a core board responsibility, not a management courtesy.

Question 38Board Roles, Responsibilities and Legal Duties

A board is evaluating its own performance. Which design feature most strengthens the credibility of the exercise?

  1. The review relies solely on a self-assessment questionnaire completed by executives.
  2. The review is conducted once at the end of the company's life.
  3. An independent facilitator gathers director input, benchmarks against objectives and reports findings to the board for action. Correct answer.
  4. The chair conducts the review alone and reports only conclusions.

Explanation

Independent facilitation, clear objectives and benchmarking, followed by board-owned action plans, make evaluation credible and useful. Independence reduces the risk that the review merely confirms existing views.

Question 39Board Roles, Responsibilities and Legal Duties

A board receives an anonymous whistleblower report alleging that a finance executive has manipulated revenue recognition. Which sequence of actions best reflects sound governance?

  1. Ignore the report because it is anonymous.
  2. Refer the matter to the audit committee for a protected, independent investigation with preserved evidence and no retaliation against the reporter. Correct answer.
  3. Forward the report to the accused executive for comment before any other step.
  4. Discuss the allegation in an open board session with the executive present.

Explanation

Serious financial-integrity allegations should be routed to the audit committee, investigated independently with evidence preserved, and handled under a whistleblowing policy that protects reporters from retaliation. This preserves both the investigation's integrity and the company's legal position.

Question 40Board Roles, Responsibilities and Legal Duties

A board delegates authority to a management committee but sets no spending limits, reporting cadence or reserved matters. Which governance failure is most directly implicated?

  1. A failure of remuneration, because committee members must be paid separately.
  2. A failure of delegation design, because authority must be bounded by clear limits, reserved matters and reporting obligations. Correct answer.
  3. A failure of disclosure, because delegation must be announced to the regulator.
  4. A failure of quorum, because committees cannot validly meet without the full board.

Explanation

Valid delegation requires defined scope, financial limits, reserved matters retained by the board and regular reporting back. Without these boundaries the board cannot oversee the exercise of delegated authority and accountability becomes diffuse.

Question 41Board Composition, Structure and Independence

Under the UK Corporate Governance Code, which board role is responsible for leading the board and ensuring its effectiveness on all aspects of its role?

  1. The company secretary
  2. The chair Correct answer.
  3. The chief executive officer
  4. The senior independent director

Explanation

The chair leads the board, sets its agenda and style, and is accountable for the board's overall effectiveness. The CEO runs the executive side of the business, while the senior independent director provides a sounding board for the chair and leads chair appraisal. The company secretary supports governance processes but does not lead the board.

Question 42Board Composition, Structure and Independence

A Nigerian listed company wants to strengthen board independence. Which arrangement best reflects the principle that independent non-executive directors should be free from relationships that could affect objective judgement?

  1. A director whose only link is a modest shareholding below the disclosure threshold Correct answer.
  2. A director who previously served as the company's finance director until two years ago
  3. A director whose firm provides legal advisory services to the company
  4. A director whose sibling is a senior manager in the company

Explanation

Independence requires the absence of material relationships with the company, its management or significant shareholders. A modest shareholding below the disclosure threshold is not normally treated as compromising independence, whereas recent executive office, professional fees and close family employment are commonly identified as threats. Boards should assess these relationships in substance, not merely in form.

Question 43Board Composition, Structure and Independence

What is the primary governance purpose of separating the roles of chair and chief executive officer?

  1. To comply with stock exchange listing rules on board size
  2. To ensure a clear division of responsibility so that no one person has unfettered decision-making power Correct answer.
  3. To guarantee that the board never disagrees with management
  4. To reduce the remuneration paid to the two office holders

Explanation

Role separation prevents concentration of power in one individual and supports effective oversight of management by the board. The chair runs the board, while the CEO runs the business, creating a check within the governance structure. It is not primarily a cost measure nor a guarantee of unanimity, and it is not a rule about board size.

Question 44Board Composition, Structure and Independence

A board has eight directors, three of whom are independent non-executive directors. Under a typical governance code expectation for a board of this size, what is the main concern this composition raises?

  1. The chair must resign immediately
  2. Independent directors are in a minority, weakening the board's ability to challenge management Correct answer.
  3. The board is too small to form any committees
  4. Executive directors should not attend board meetings

Explanation

Codes generally expect at least half the board, excluding the chair, to be independent non-executive directors for larger listed companies. With only three independents out of eight, the executive and affiliated directors could dominate decision-making. The concern is balance and challenge, not the absolute size or immediate resignation of the chair.

Question 45Board Composition, Structure and Independence

Which committee is typically responsible for leading the process for board appointments and making recommendations on new directors?

  1. The remuneration committee
  2. The nomination committee Correct answer.
  3. The risk committee
  4. The audit committee

Explanation

The nomination committee leads the process for board appointments, identifies candidates and recommends them to the board. It also considers succession planning and board diversity. Audit and remuneration committees have distinct oversight roles, and risk committees focus on risk appetite and controls.

Question 46Board Composition, Structure and Independence

An independent director has served on the board for eleven years. Which governance concern is most directly raised by such tenure?

  1. The director must be appointed as chair
  2. The director may lack sufficient knowledge of the company
  3. The director's long association may compromise independence and freshness of perspective Correct answer.
  4. The director is automatically disqualified from committee membership

Explanation

Long tenure can create familiarity and entrenchment, which codes often treat as a factor that may impair independence. Many codes require particular scrutiny or annual review after nine years. Lengthy service does not imply lack of knowledge, automatic elevation to chair, or disqualification from committees.

Question 47Board Composition, Structure and Independence

What does the term 'board diversity' primarily refer to in governance discussions?

  1. Rotating directors between board committees each year
  2. A mix of backgrounds, skills, experience, gender and perspectives among directors Correct answer.
  3. Appointing only directors from the same industry as the company
  4. Ensuring every director holds the same professional qualification

Explanation

Board diversity concerns the range of skills, experience, backgrounds and perspectives represented on the board, including gender and other characteristics. Diversity is valued because it improves debate and decision quality. It is not about uniform qualifications, mechanical rotation, or narrow industry homogeneity.

Question 48Board Composition, Structure and Independence

A company wishes to appoint a director who will be free from any relationship that could impair judgement. Which step best supports a robust independence determination?

  1. Conducting a structured review of material relationships and disclosing the conclusion to the board Correct answer.
  2. Relying solely on the candidate's own declaration of independence
  3. Assuming independence because the candidate has never worked in the company
  4. Asking the chief executive to decide on the appointment

Explanation

Independence should be assessed through a structured review of relationships, including financial, family and professional links, with the conclusion disclosed. Self-declaration alone is insufficient, and assumptions based on one factor are unreliable. The CEO should not be the arbiter of an independent appointment.

Question 49Board Composition, Structure and Independence

Which statement best describes the role of the senior independent director?

  1. To provide a sounding board for the chair and lead the evaluation of the chair Correct answer.
  2. To manage the company's day-to-day operations
  3. To chair every board committee
  4. To represent the company in investor litigation

Explanation

The senior independent director acts as a sounding board for the chair, leads the chair's appraisal and is available to shareholders if normal channels fail. The role is not about chairing all committees, running operations or handling litigation. It exists to strengthen independent oversight of leadership.

Question 50Board Composition, Structure and Independence

A board is deciding whether to appoint a former partner of its external audit firm, who retired from that firm three years ago, as an independent director. What is the most appropriate governance response?

  1. Appoint immediately because the individual has audit expertise
  2. Treat the former audit firm relationship as a potential threat to independence and assess it carefully Correct answer.
  3. Reject the appointment automatically in all circumstances
  4. Refer the decision to the external auditor for approval

Explanation

Former association with the external auditor can create a familiarity or self-interest threat to independence, so it should be carefully assessed rather than assumed acceptable or automatically barred. Many codes require a cooling-off period and disclosure. The external auditor should not decide board appointments.