ExpertEasy2 marksMultiple Choice
ACCA · Question 08 · Syllabus B: Organisational structure, culture, governance
[Section A] A publicly listed water utility company is restructuring its board of directors to comply with corporate governance best practices. They are appointing several Non-Executive Directors (NEDs). Which of the following individuals would be considered an INDEPENDENT Non-Executive Director?
[Section A] A publicly listed water utility company is restructuring its board of directors to comply with corporate governance best practices. They are appointing several Non-Executive Directors (NEDs). Which of the following individuals would be considered an INDEPENDENT Non-Executive Director?
Answer options:
A.
The former Chief Financial Officer of the utility company who retired two years ago.
B.
A major shareholder who owns 15% of the utility company's voting stock.
C.
A retired academic who has never worked for the utility company and holds no shares in it.
D.
The brother-in-law of the current Chief Executive Officer.
How to approach this question
Look for the candidate with absolutely no material, financial, or familial ties to the company or its executives.
Full Answer
C.A retired academic who has never worked for the utility company and holds no shares in it.✓ Correct
Corporate governance codes require independent NEDs to be free from conflicts of interest. Former employees (within recent years), major shareholders, and close family members of executives are not considered independent because their judgment may be biased.
Common mistakes
Assuming a former executive is independent just because they are retired. Governance codes usually require a cooling-off period (e.g., 5 years) before a former executive can be considered independent.
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