Board Composition, Structure and Independence
What the exam tests
Composition questions ask you to build a board that can actually govern: the right size, the right mix of executive and non-executive members, genuine independence, and a structure that prevents one person dominating.
Structural rules
- Separate the roles of chairman and CEO; the NCCG 2018 treats this as a governance principle, and a company that departs from it must explain and disclose.
- Public companies should have a majority of non-executive directors and at least one independent director under the NCCG 2018; CAMA 2020 imposes its own minimum number of independent directors on public companies. Where the instruments differ, the stricter applicable requirement governs.
- The board should be small enough for genuine debate and large enough to staff its committees.
- Detailed audit, risk and remuneration work should sit with committees, not the full board.
What independence really means
Independence is the absence of relationships that could influence judgement: no recent employment by the company or its advisers, no material supplier or customer relationship, no close family tie to an executive, no cross-directorship, no fee beyond director's fees, and no excessive tenure. A former auditor or the founder's relative is non-executive but not independent. Require a dated independence declaration each year.
Skills and diversity
Maintain a skills matrix covering sector, finance, risk, technology, legal, ESG and capital markets. Use it to fill gaps, not to justify the existing board.
Worked example
A newly listed family firm appoints the founder as chairman, his brother-in-law, the former external auditor, and a banker whose firm advises the company - all labelled non-executive. Only the banker could even be argued to be independent, and the advisory fees make that doubtful. The independent designation is unsustainable; at least two genuinely unconnected directors are required.
Traps
- Treating non-executive and independent as synonyms.
- Counting shareholder representatives as independent.
- Confusing a CV list with a skills matrix.
- Ignoring long tenure as an independence risk.