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Basic Question 2 of 8
Select the warning sign(s) that a board may not be independent.
II. The current CEO of the company serves as the board chair.
III. A board member retires as CEO and is elected as the board chair.
IV. Several board members are representatives from suppliers, big clients, and the union.
I. The board reports on their activities to shareholders every six months.
II. The current CEO of the company serves as the board chair.
III. A board member retires as CEO and is elected as the board chair.
IV. Several board members are representatives from suppliers, big clients, and the union.
User Contributed Comments 11
| User | Comment |
|---|---|
| todolist | difference between the "board" being independent and an independent "board member" |
| epizi | I don't think III is right.He still has some connection with the management of the company.He may want to continue settling scores or promoting his failing policies. |
| kutta2102 | epizi - the question is asking "not independent", so you answered your own question |
| boddunah | majority of board members independent is board independence. if board member is not Executive board member and Non executive board member, he is independent board member. |
| dipu617 | Father is the board member and daughter is the cleaner of the company!!! Very unlikely........ ;-) |
| viruss | I would have say IV is a warning sign on its own ... a warning sign doesn't mean a breach of independance :) |
| johntan1979 | For I, I can't comprehend how the frequency of the company's report to shareholders has anything to do with independence. So the correct reasoning that I should not be a correct answer is because it is unrelated to Board independence. Whether the report is monthly or longer than every year don't show any warning on Board independence/non-independence. |
| gill15 | IV should be false as well. Unions are Non-executive members which are not independent. |
| ascruggs92 | IV definitely sounds like a warning sign to me. "several" members implies enough for influence (not control), and getting too cozy with big clients and suppliers could lead to business decisions that aren't beneficial for all shareholders |
| epfrndz | Agreed, IV is a warning sign. This could limit the bargaining power of the company with respect to its business partners. I would think twice about investing in a company with this kind of board composition. |
| Dabuya | @epfrndz: I understand your concern but note the "majority" in explanation. If there are 30 members and 3 are from these related parties I would not be concerned. |
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Craig Baugh
Learning Outcome Statements
describe potential risks of poor corporate governance and stakeholder management and benefits of effective corporate governance and stakeholder management
CFA® 2024 Level I Curriculum, Volume 2, Module 3.