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ICSAN Sector Governance study materials
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ICSAN Sector Governance practice questions

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Question 1Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which body issued the Nigerian Code of Corporate Governance 2018?

  1. Corporate Affairs Commission
  2. Securities and Exchange Commission
  3. Financial Reporting Council of Nigeria Correct answer.
  4. Central Bank of Nigeria

Explanation

The Nigerian Code of Corporate Governance 2018 was issued by the Financial Reporting Council of Nigeria under its mandate to promote good corporate governance and financial reporting. It is a national code rather than a sector code, and it superseded the SEC's 2011 code as the principal governance code for public companies.

Question 2Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which regulatory approach does the Nigerian Code of Corporate Governance 2018 adopt?

  1. Comply or explain
  2. Apply and explain Correct answer.
  3. Prescriptive safe harbour
  4. Comply or else

Explanation

The NCCG 2018 is principles-based and requires entities to apply its principles and explain how they applied them, including the reasons for any non-application. This differs from the earlier SEC code's comply-or-explain model and from rule-based tick-box approaches.

Question 3Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, how should the roles of chairman and chief executive officer be allocated?

  1. The chairman should be an executive director with operational duties.
  2. The chairman should also serve as CEO to ensure unified leadership.
  3. The roles should be separate and held by different individuals. Correct answer.
  4. The CEO should chair board meetings whenever the chairman is absent.

Explanation

The NCCG 2018 requires separation of the roles of chairman and CEO to preserve board independence and prevent concentration of power. The chairman leads the board and should be non-executive, while the CEO manages the day-to-day business of the company.

Question 4Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

To which entities does the Nigerian Code of Corporate Governance 2018 primarily apply?

  1. Only banks and discount houses licensed by the Central Bank
  2. All public companies and private companies that are public interest entities Correct answer.
  3. Only companies with foreign shareholders
  4. Only companies listed on the Nigerian Exchange

Explanation

The NCCG 2018 applies to all public companies, whether listed or unlisted, and to private companies that qualify as public interest entities because of their size or sector. Sector regulators may issue additional codes for entities they regulate, but the NCCG remains the national baseline.

Question 5Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which board committee is principally responsible for oversight of financial reporting, external audit and the effectiveness of internal controls?

  1. Nomination and governance committee
  2. Risk management committee
  3. Remuneration committee
  4. Audit committee Correct answer.

Explanation

The audit committee oversees the integrity of financial reporting, the external audit process and the effectiveness of internal control and risk management systems. It provides a key check on management and supports the board's accountability to shareholders.

Question 6Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, what is the composition of the statutory audit committee of a Nigerian public company?

  1. Four shareholder representatives and two directors
  2. Two shareholder representatives and three directors
  3. Three shareholder representatives and two directors Correct answer.
  4. Three shareholder representatives and three directors

Explanation

CAMA 2020 provides that the statutory audit committee of a public company has five members, made up of three shareholder representatives and two directors. The chair is elected by the members and must be a shareholder representative.

Question 7Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which circumstance most directly undermines a director's status as an independent non-executive director under the NCCG 2018?

  1. The director receives consultancy fees from the company. Correct answer.
  2. The director has attended all board meetings in the year.
  3. The director holds no shares in the company.
  4. The director has no family relationship with any executive.

Explanation

Independence requires freedom from business, financial or other relationships that could impair objective judgement. Consultancy fees create a continuing commercial relationship with the company, which compromises that independence.

Question 8Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the NCCG 2018, how frequently should an external evaluation of the board's performance be conducted?

  1. Every year
  2. Only when the regulator directs
  3. Every two years
  4. At least once every three years Correct answer.

Explanation

The board should evaluate its performance annually, but the NCCG 2018 also requires an independent external evaluation at least once every three years. The external review provides a fresh perspective that internal self-assessment may not deliver.

Question 9Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

How does the NCCG 2018 relate to sector-specific corporate governance codes issued by regulators such as the CBN and NAICOM?

  1. Companies may choose to comply with either the NCCG or their sector code.
  2. The NCCG automatically repeals all sector codes.
  3. A sector code applies only if the FRCN approves each of its provisions.
  4. Sector codes operate alongside the NCCG and address sector-specific matters, with the NCCG as the national baseline. Correct answer.

Explanation

The NCCG 2018 is the national baseline, while sector regulators retain authority to issue codes that address the peculiarities of their industries. Those sector codes supplement the NCCG and should be consistent with it, rather than replacing it or creating a free choice for companies.

Question 10Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, who chairs the statutory audit committee of a public company?

  1. The chief executive officer
  2. The board chairman
  3. A director appointed by the board
  4. A shareholder representative elected by the committee members Correct answer.

Explanation

CAMA 2020 requires the audit committee to elect its chairman from among its members, and the chairman must be one of the shareholder representatives. This preserves shareholder oversight of the audit function and prevents management from controlling the committee.

Question 11Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which regulator issued the Code of Corporate Governance for Banks and Discount Houses in Nigeria (2014)?

  1. The Central Bank of Nigeria Correct answer.
  2. The National Insurance Commission
  3. The Securities and Exchange Commission
  4. The Financial Reporting Council of Nigeria

Explanation

The Central Bank of Nigeria issued the Code of Corporate Governance for Banks and Discount Houses in 2014, and it applies to banks and discount houses licensed by the CBN. It is a sector code that operates alongside, and supplements, national governance instruments, and the CBN enforces it through its supervisory and licensing powers.

Question 12Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, what is the minimum number of independent directors that a public company must have?

  1. Four
  2. One
  3. Two
  4. Three Correct answer.

Explanation

Section 275 of CAMA 2020 requires every public company to have at least three independent directors, whose independence is tested against the statutory criteria. This is a statutory minimum that the articles of association cannot reduce, and it sits alongside the additional independence expectations in the Nigerian Code of Corporate Governance 2018.

Question 13Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

How frequently does the Nigerian Code of Corporate Governance 2018 expect the board of a public interest entity to meet?

  1. At least once every month
  2. At least once every year
  3. At least once every quarter Correct answer.
  4. At least once every six months

Explanation

The NCCG 2018 expects the board to meet at least once every quarter, so that oversight of strategy, risk and performance is continuous rather than episodic. The Code also expects a formal schedule of matters reserved for the board and proper records of deliberations and decisions.

Question 14Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the CBN Code of Corporate Governance for Banks and Discount Houses (2014), what is the maximum cumulative tenure of a bank's managing director/chief executive officer?

  1. Eight years in cumulative tenure
  2. Twelve years in cumulative tenure
  3. Ten years in cumulative tenure Correct answer.
  4. Fifteen years in cumulative tenure

Explanation

The CBN Code caps the cumulative tenure of a bank's MD/CEO at ten years, typically structured as an initial term of four years, a second term of four years and a final term of two years. The cap applies regardless of how the renewals are approved, and it is a key succession-planning constraint for bank boards.

Question 15Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the CBN Code of Corporate Governance for Banks and Discount Houses (2014), what is the minimum number of independent non-executive directors required on a bank's board?

  1. Two Correct answer.
  2. Four
  3. Three
  4. One

Explanation

The CBN Code requires the board of a bank or discount house to include at least two independent non-executive directors, in addition to the other non-executive directors. The requirement is designed to ensure independent judgement is brought to bear on board deliberations and to strengthen the board's oversight of management.

Question 16Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

CAMA 2020 requires the company secretary of a public company to hold a recognised professional qualification. Which of the following satisfies that requirement?

  1. Serving as a director of the company
  2. Holding any university degree
  3. Being a member of the Institute of Chartered Accountants of Nigeria Correct answer.
  4. Holding at least ten per cent of the company's shares

Explanation

CAMA 2020 provides that the company secretary of a public company must be a member of a recognised professional body, such as ICAN, ANAN, ICSAN, or a legal practitioner. A degree alone, a seat on the board or a shareholding does not meet the statutory qualification, because the office requires demonstrable professional competence in company law and administration.

Question 17Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, to which body should the head of internal audit report functionally?

  1. The finance director
  2. The managing director
  3. The audit committee Correct answer.
  4. The external auditor

Explanation

The NCCG 2018 positions internal audit so that it reports functionally to the audit committee, which approves its plan, receives its reports and assesses its performance, while administrative reporting usually runs to the MD/CEO. This dual reporting line protects the independence and objectivity of internal audit within the organisation.

Question 18Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, how are the fees of non-executive directors of a public company fixed?

  1. By the managing director under delegated authority
  2. By the external auditor as part of the audit engagement
  3. By the members in general meeting Correct answer.
  4. By the board at its own discretion

Explanation

CAMA 2020 places the fixing of non-executive directors' fees in the hands of the members in general meeting, which preserves shareholder control over board pay. Executive directors' remuneration is generally determined through their service contracts and the board's remuneration arrangements, which is why the two categories are treated differently.

Question 19Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

A non-executive director of a Nigerian commercial bank has completed three terms of four years each on the board, and the board wishes to re-appoint her for a further term. What is the correct position under the CBN Code of Corporate Governance for Banks and Discount Houses (2014)?

  1. She may be re-appointed if reclassified as an independent director.
  2. She may be re-appointed only with a CBN waiver.
  3. She is ineligible; the limit is twelve years. Correct answer.
  4. She may be re-appointed with shareholder approval.

Explanation

The CBN Code limits a non-executive director's service on the same bank's board to a maximum of three terms of four years, that is twelve years in total. Once that ceiling is reached the director cannot be re-appointed to the same board, and neither shareholder approval, a reclassification nor a waiver cures the breach, because the limit protects the freshness of board judgement.

Question 20Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

A provision of the Nigerian Code of Corporate Governance 2018 appears inconsistent with a mandatory requirement of CAMA 2020 on board composition. Which statement best reflects the correct legal position?

  1. CAMA 2020 prevails, because a statute overrides a code. Correct answer.
  2. The company may elect which instrument to follow and disclose that election.
  3. The Code prevails because it is the more recent governance instrument.
  4. The FRC decides on a case-by-case basis which instrument prevails.

Explanation

The NCCG 2018 operates on an apply-and-explain basis within the framework of Nigerian law, so where it conflicts with a mandatory statutory provision the statute prevails and the Code must be read subject to it. Compliance with the Code cannot excuse a breach of CAMA 2020, and the board's disclosure should make clear how the statutory requirement has been met.

Question 21Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which regulator issued the Code of Corporate Governance for Insurance Institutions in Nigeria?

  1. National Pension Commission (PENCOM)
  2. Securities and Exchange Commission (SEC)
  3. Central Bank of Nigeria (CBN)
  4. National Insurance Commission (NAICOM) Correct answer.

Explanation

The National Insurance Commission (NAICOM) issued the Code of Corporate Governance for Insurance Institutions in Nigeria. It applies to insurance and reinsurance companies and sets sector-specific governance expectations. The CBN, SEC and PENCOM issue codes for banking, capital markets and pensions respectively.

Question 22Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, which policy should the board establish to provide a safe channel for employees and stakeholders to report unethical or illegal conduct?

  1. Board charter
  2. Procurement policy
  3. Whistleblowing policy Correct answer.
  4. Dividend policy

Explanation

The NCCG 2018 requires the board to establish a whistleblowing policy and procedures that allow employees, directors and other stakeholders to report unethical or illegal conduct through protected channels. The policy should include confidentiality and protection against retaliation. A board charter defines the board's role rather than reporting channels.

Question 23Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, what is the minimum number of directors that a public company must have?

  1. 4
  2. 5
  3. 2
  4. 3 Correct answer.

Explanation

CAMA 2020 requires every public company to have at least three directors. A private company may have a lower minimum, but the public-company threshold is three. This is separate from the requirement for independent directors.

Question 24Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the CBN Code of Corporate Governance for Banks and Discount Houses 2014, what is the maximum cumulative tenure of a bank's managing director/chief executive officer?

  1. 10 years Correct answer.
  2. 12 years
  3. 20 years
  4. 15 years

Explanation

Section 2.4.5 of the CBN Code of Corporate Governance for Banks and Discount Houses 2014 limits a bank CEO's tenure to ten years, in periods of no more than five years each. Renewals cannot extend tenure beyond that ten-year maximum.

Question 25Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, which function belongs to the board's nomination and governance committee?

  1. Recommending candidates for board and committee appointments Correct answer.
  2. Managing the company's enterprise risk
  3. Determining the remuneration of senior executives
  4. Overseeing the external audit function

Explanation

Under the NCCG 2018, the nomination and governance committee leads the process for board and committee appointments, including identifying and recommending candidates. It also oversees board composition, succession planning and governance practices. External audit oversight belongs to the audit committee, remuneration to the remuneration committee, and enterprise risk to the risk management committee.

Question 26Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under CAMA 2020, who appoints the company secretary of a public company?

  1. The shareholders at the annual general meeting
  2. The chief executive officer
  3. The board of directors Correct answer.
  4. The statutory audit committee

Explanation

CAMA 2020 provides that the directors of a company appoint the company secretary. For a public company, the person appointed must also meet the statutory qualification requirements. Shareholders do not appoint the secretary at the AGM, and the CEO or audit committee has no statutory appointment power.

Question 27Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, how often should the board conduct an internal evaluation of its performance?

  1. Annually Correct answer.
  2. Every quarter
  3. Every two years
  4. Every three years

Explanation

The NCCG 2018 expects the board to conduct a formal internal evaluation of its performance, its committees and individual directors at least annually. An external evaluation is required less frequently, generally every three years. Internal evaluation supports continuous improvement between external reviews.

Question 28Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Which document should a board adopt to formally set out its roles, responsibilities, powers and relationship with management under the Nigerian Code of Corporate Governance 2018?

  1. Memorandum of association
  2. Internal audit charter
  3. Shareholders' agreement
  4. Board charter Correct answer.

Explanation

A board charter is the formal document in which the board sets out its roles, responsibilities, powers, composition and relationship with management. It provides a benchmark for board evaluation and helps distinguish board oversight from executive management. The memorandum of association and shareholders' agreement do not serve this governance purpose.

Question 29Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

Under the Nigerian Code of Corporate Governance 2018, which statement best describes the board's responsibility for risk management?

  1. Risk management may be delegated entirely to management without board oversight
  2. Risk management is solely the responsibility of the external auditor
  3. The board retains ultimate responsibility and may delegate oversight to a risk management committee Correct answer.
  4. Risk management is limited to financial reporting risks

Explanation

Under the NCCG 2018, the board remains ultimately accountable for risk management and should approve the enterprise risk management framework and risk appetite. It may delegate day-to-day oversight to a risk management committee, but it cannot transfer its accountability to management or the external auditor. Risk management covers strategic, operational, compliance and financial risks, not only financial reporting.

Question 30Governance frameworks, codes and regulation (including the Nigerian Code of Corporate Governance and sector regulators)

A Nigerian bank currently has 19 directors. Its board proposes to appoint two additional non-executive directors. Under the CBN Code of Corporate Governance for Banks and Discount Houses 2014, what is the correct position?

  1. The board may proceed, because the CBN Code sets no maximum board size
  2. The board may proceed, because independent directors are excluded from the count
  3. The board must first obtain shareholder approval to exceed 20 directors
  4. The board may appoint only one additional director, because the maximum is 20 Correct answer.

Explanation

The CBN Code 2014 sets a maximum board size of 20 directors for banks and discount houses. A board with 19 directors can therefore add only one more director without exceeding the limit. Shareholder approval does not override the regulatory cap, and independent directors are counted in the total.

Question 31Board composition, roles, committees and board effectiveness

In a regulated sector entity, which board leadership arrangement best preserves the board's capacity to hold management to account?

  1. The chairman and the chief executive officer roles are held by different people. Correct answer.
  2. A single executive director chairs both board and management meetings.
  3. The chief executive officer also serves as board chairman to ensure consistent leadership.
  4. The board chairman reports to the chief executive officer on strategy implementation.

Explanation

Concentrating the chairmanship and the chief executive role in one person blurs the boundary between oversight and management, so the board cannot objectively review the performance of the person leading it. Governance codes, including Nigeria's national code, therefore expect the two roles to be separated, with the chairman leading the board and the chief executive leading management. Separation also lets the chairman set the board agenda and run meetings without an inherent self-review conflict.

Question 32Board composition, roles, committees and board effectiveness

Which responsibility properly belongs to the board's nomination and governance committee rather than to another committee or to management?

  1. Setting the external auditor's fee and appointing the auditor.
  2. Reviewing the effectiveness of internal control over financial reporting.
  3. Approving the annual financial statements before they are published.
  4. Recommending board candidates and overseeing succession planning for the board. Correct answer.

Explanation

The nomination and governance committee leads the process of identifying, assessing and recommending candidates for board appointment, and it keeps board and senior leadership succession under review. Financial reporting matters, including approving accounts, overseeing internal control and dealing with the external auditor, sit with the full board or the audit committee. Keeping the appointment process in a committee with no executives controlling it reduces management capture of board composition.

Question 33Board composition, roles, committees and board effectiveness

A non-executive director of a licensed financial institution also sits on the board of a technology vendor bidding for a major contract with the institution. What is the appropriate governance response when the board considers the award?

  1. The director resigns from the vendor's board only after the contract is signed.
  2. The director participates fully because non-executive directors have no executive stake in the outcome.
  3. The director discloses the interest, withdraws from the discussion and abstains from voting. Correct answer.
  4. The director chairs the meeting to demonstrate transparency while colleagues vote.

Explanation

A director with a personal or business interest in a transaction must disclose it promptly, leave the deliberation and abstain from the decision, and the disclosure and recusal must be recorded in the minutes. This protects the integrity of the decision and reflects the statutory duty on directors to avoid and disclose conflicts. Remaining involved, chairing the item, or exiting the vendor only after signature does not cure the conflict.

Question 34Board composition, roles, committees and board effectiveness

Which circumstance is most consistent with a non-executive director being treated as independent?

  1. A director whose spouse heads the company's internal audit function.
  2. A former finance employee of the company who left the company three years ago.
  3. A director with no commercial, employment or family link to the company. Correct answer.
  4. A partner in a law firm that provides advisory services to the company.

Explanation

Independence means the director has no relationship, whether employment, commercial, family or otherwise, that could sway judgement toward management or a dominant shareholder. Recent employment, supplier relationships and close family ties to executives are classic disqualifiers because they create loyalty or economic dependence. The candidate without any such link presents the strongest independence claim, though tenure limits still apply.

Question 35Board composition, roles, committees and board effectiveness

A board delegates oversight of cyber-risk to a risk committee. A significant breach occurs and the committee had not escalated it. How should accountability be described?

  1. The board remains accountable, since committee delegation does not discharge collective oversight. Correct answer.
  2. The company secretary is accountable because he or she schedules committee meetings.
  3. Only the risk committee members are accountable, because the board transferred the function.
  4. The external auditor is accountable, since the breach should have been detected.

Explanation

Boards may delegate detailed oversight to committees, but delegation does not transfer the board's collective accountability to shareholders and regulators. The committee's terms of reference should require escalation of material risks, and the board must satisfy itself that escalation actually works. Accountability cannot be parked with the committee alone, the secretary or the auditor.

Question 36Board composition, roles, committees and board effectiveness

A sector entity is designing its annual board effectiveness review. Which approach best reflects a credible evaluation?

  1. The company secretary tabulates meeting attendance as the sole measure of effectiveness.
  2. The chief executive officer scores the board and reports the result to shareholders.
  3. Each director privately completes a self-assessment questionnaire that is filed and never discussed.
  4. Board, committee, chairman and individual director performance are all assessed and discussed. Correct answer.

Explanation

A credible evaluation examines how the board as a whole, its committees, the chairman and each individual director are performing, and the findings must be debated and acted upon by the board. Self-assessment filed without discussion, attendance tallies or a chief executive's rating of the board do not test effectiveness. Many codes also expect periodic externally facilitated reviews to counter insularity.

Question 37Board composition, roles, committees and board effectiveness

A first-time non-executive director joins a company operating in a heavily regulated sector. What does sound governance require for that director?

  1. Structured induction on the business, its risks and regulation, plus ongoing development. Correct answer.
  2. Attendance at the annual general meeting as the sole orientation activity.
  3. Reliance on the director's general commercial experience, with training deferred until a crisis arises.
  4. A briefing confined to the company's published financial statements.

Explanation

New directors need a structured induction covering strategy, risk appetite, sector regulation and the board's ways of working, followed by continuing professional development as the business and regulatory environment change. Leaving learning to general commercial experience, the annual general meeting or the financial statements alone leaves the director unable to contribute meaningfully in early meetings and increases reliance on management.

Question 38Board composition, roles, committees and board effectiveness

Why do well-governed boards schedule private sessions for non-executive directors without executive management present?

  1. To prepare the audit report in place of the external auditor.
  2. To satisfy a legal requirement that executives leave every board meeting.
  3. To allow non-executive directors to set their own fees without any input.
  4. To allow candid discussion of management performance and sensitive concerns. Correct answer.

Explanation

Private sessions give non-executive directors a forum to discuss management performance, board dynamics and sensitive concerns without executive pressure, and their conclusions should feed back into the board's work. They are good practice rather than a rule excluding executives from all meetings, and they do not replace the audit committee's work or determine directors' own remuneration.

Question 39Board composition, roles, committees and board effectiveness

A regulator reviews a subsidiary in which the group chief executive chairs the board and six of eight directors are group executives or retired group executives. Which safeguard would most directly address the composition weakness?

  1. Reserving all subsidiary board seats for parent-company executives so accountability is clear.
  2. Independent non-executives, a separate chairman and independent scrutiny of related-party deals. Correct answer.
  3. Appointing the group chief executive as chairman of the subsidiary to align strategy.
  4. Removing the company secretary from board meetings to encourage frankness.

Explanation

Where a parent controls the board, checks are needed to prevent group interests from overriding the regulated entity's own safety and soundness. Independent non-executive directors, a chairman separate from group executives and independent scrutiny of related-party transactions provide challenge and protect minority and sector stakeholders. Stacking the board with group executives removes the very check the regulator is looking for.

Question 40Board composition, roles, committees and board effectiveness

Which board practice best protects a regulated entity if the chief executive is suddenly incapacitated?

  1. Deferring the matter to the next annual general meeting for shareholder direction.
  2. Relying on the company secretary to act as chief executive until a permanent appointment is made.
  3. Delegating the choice of successor to the outgoing chief executive's preferred deputy.
  4. A board-owned succession plan with identified internal candidates and an interim arrangement. Correct answer.

Explanation

Chief executive succession is a board responsibility, usually prepared through the nomination committee, with a plan kept current and an interim arrangement ready for sudden vacancy. Delegating the choice to the outgoing chief executive, assuming the company secretary can run the company, or postponing action leaves the entity without lawful leadership and invites regulatory intervention. Planning also lets the board test internal candidates against future strategy.

Question 41Board composition, roles, committees and board effectiveness

A board receives its meeting pack two days before the meeting, and most papers consist of a management recommendation with little supporting analysis. Which change would most improve the board's ability to challenge management?

  1. Allow directors to send written questions to management after the meeting has closed
  2. Cut the number of agenda items so that directors can spend longer on each paper
  3. Ask management to talk the board through each recommendation at the meeting
  4. Fix a minimum circulation period and require papers to set out the options and risks Correct answer.

Explanation

Timely, analytical papers are a precondition for meaningful challenge, because directors cannot test a recommendation they receive days before the meeting with no supporting analysis. Sound practice fixes a minimum circulation period and requires each paper to identify the issue, the options considered and the principal risks. An oral walk-through or post-meeting questions cannot substitute for written evidence on which the board can act.

Question 42Board composition, roles, committees and board effectiveness

In a well-governed sector entity, who should normally settle the agenda for a board meeting?

  1. The chief executive, because the agenda should follow the operating priorities of the business
  2. The chair, with the company secretary, taking account of items proposed by other directors Correct answer.
  3. The company secretary, as the officer responsible for board procedures and records
  4. The senior independent director, acting alone and without consulting the chair

Explanation

The chair leads the board and, with the company secretary, controls the flow of its business, so agenda-setting sits with them rather than with management. Directors must be able to have matters placed before the board, which means the chair settles the agenda in consultation rather than unilaterally. Handing the agenda to the chief executive reverses the accountability of board to management.

Question 43Board composition, roles, committees and board effectiveness

Which composition is most consistent with a properly constituted remuneration committee in a listed sector entity?

  1. The full board sitting as the committee, chaired by the chair of the board
  2. A majority of independent non-executive directors, chaired by an independent non-executive director Correct answer.
  3. A majority of executive directors, chaired by the chief executive officer of the entity
  4. An equal number of executive and non-executive directors, chaired by the finance director

Explanation

Pay decisions engage a direct conflict for executives, so the committee must be constituted so that management does not set its own remuneration. Good practice requires a majority of independent non-executive directors and an independent chair, with the chief executive excluded when his or her own pay is discussed. Where the full board acts as the committee, the chair of the board should not preside over decisions affecting his or her own remuneration.

Question 44Board composition, roles, committees and board effectiveness

The external auditor of a licensed entity has also supplied tax advisory services to the entity for three consecutive years. Which action best reflects the audit committee's role?

  1. Note the fees in the annual report and take no further action, since advisory work is permitted
  2. Terminate the audit engagement at once without appointing a replacement firm
  3. Review the scale and fees of the non-audit work and assess the auditor's independence Correct answer.
  4. Leave the matter to management, since the shareholders appoint the external auditor

Explanation

Non-audit services can compromise auditor independence, particularly where the fees become significant relative to the audit fee. The audit committee, as the body that oversees the external audit, should review the nature and scale of such work, assess the safeguards applied and consider whether the audit should be tendered. Immediate termination without a replacement would leave the entity without an auditor.

Question 45Board composition, roles, committees and board effectiveness

A board completes a skills matrix and finds that it has no director with experience of digital technology or prudential risk. What is the most appropriate use of that finding?

  1. Reduce the number of board meetings so directors can study the missing subjects
  2. File it with the annual board evaluation and repeat the exercise next year
  3. Use it to shape board succession planning and the specification for the next appointment Correct answer.
  4. Ask executives to attend more board meetings so that the gaps are covered

Explanation

A skills matrix is a tool for composition decisions, not a record-keeping exercise. Its value lies in connecting identified gaps to succession planning and to a recruitment specification agreed with the nomination committee. Filling gaps through greater executive attendance does not give the board the independent expertise it lacks.

Question 46Board composition, roles, committees and board effectiveness

A director declares a material interest in a transaction before the board. Which handling best meets governance expectations?

  1. The director is excluded from the discussion and vote and is not counted in the quorum Correct answer.
  2. The director may stay and vote if the chair judges the interest to be immaterial in practice
  3. The director may vote but must leave the room while the votes are counted by the secretary
  4. The director takes part fully provided the interest is recorded in the minutes of the meeting

Explanation

Directors owe a duty to avoid conflicts, and a decision must be seen to be taken free of interested influence. A director with a material interest should withdraw from both discussion and voting and should not be counted in the quorum for that item, with the declaration minuted and entered in the register of interests. Merely recording the interest does not cure the conflict.

Question 47Board composition, roles, committees and board effectiveness

Which decision should remain with the full board rather than be delegated to a committee or to management?

  1. Approval of the entity's strategy and its annual budget Correct answer.
  2. Approval of the minutes of the previous risk committee meeting
  3. Approval of the fees paid to the external auditor for the statutory audit
  4. Approval of the internal audit plan and the internal audit budget

Explanation

A schedule of matters reserved for the board protects collective accountability by identifying decisions that cannot be pushed down to a committee or to management. Strategy, the annual budget, major transactions and capital structure belong in that schedule. Detailed oversight tasks, such as the internal audit plan or the audit fee, are properly delegated to the relevant committee.

Question 48Board composition, roles, committees and board effectiveness

A board adopts a diversity policy but sets no objectives and does not report on progress. Which improvement best reflects good governance?

  1. Set measurable objectives for board diversity and disclose progress against them each year Correct answer.
  2. Ask an external consultant to monitor diversity without reporting to the board
  3. Publish the policy on the website and treat the matter as complete
  4. Reserve one board seat for a woman indefinitely, irrespective of the skills required

Explanation

A diversity policy without objectives or reporting is largely symbolic. Good practice requires measurable objectives, board-level ownership and disclosure of progress so that shareholders and regulators can judge whether the policy is working. Quotas that ignore the skills needed, or monitoring outsourced without board oversight, do not meet that standard.

Question 49Board composition, roles, committees and board effectiveness

A former chief executive who left the board two years ago still attends board meetings at the chair's invitation, receives every board paper and speaks regularly on strategy, although he holds no appointment. What is the sound governance response?

  1. Formalise his position through proper appointment, or end his attendance and access to board papers Correct answer.
  2. Allow the arrangement to continue, since he holds no formal office and therefore carries no duties
  3. Restrict his attendance to strategy sessions, where his operational experience is most valuable
  4. Let him attend as an observer and minute his contributions so that the record is transparent

Explanation

A person who regularly takes part in directing the affairs of the entity, even without formal appointment, may be treated as a de facto director and attracts the duties and liabilities that go with the office. Informal influence also obscures who is accountable for board decisions and can undermine the authority of the incumbent chief executive. The board should either make the appointment through the proper process or stop the attendance and the circulation of papers.

Question 50Board composition, roles, committees and board effectiveness

Which reporting arrangement best preserves the independence of the chief audit executive in a licensed entity?

  1. The chief audit executive reports functionally to the audit committee, administratively to the CEO Correct answer.
  2. The chief audit executive reports to the chief executive and gives the board an annual summary
  3. The chief audit executive reports jointly to the external auditor and to the chief executive
  4. The chief audit executive reports to the finance director, who also chairs the risk committee

Explanation

Internal audit must be able to examine any part of the business, including the finance function and executive management, without fear of consequences. The standard arrangement is a functional reporting line to the audit committee, which approves the audit plan and receives findings, combined with an administrative line to the chief executive for day-to-day matters such as budget and personnel. Reporting primarily to an executive whose area is subject to audit fatally compromises the function.