ACCA Audit and Assurance (F8) Practice Exam

What is the role of the Chairman in an effective corporate governance structure?

1. Combine the roles of CEO and Chair

2. Ensure financial growth is prioritized

3. Separate the roles of CEO and Chair

4. Limit board membership to one year

The correct answer is: Separate the roles of CEO and Chair

The role of the Chairman in an effective corporate governance structure is fundamentally about ensuring a clear division of responsibilities, which is accomplished by separating the roles of the CEO and the Chairman. This separation promotes a system of checks and balances within the organization. When the roles of CEO and Chairman are distinct, it allows for more effective oversight of the executive management by the board. The Chairman leads the board of directors and is responsible for facilitating meetings and guiding the board’s agenda, ensuring that it drives the company’s strategic directions while holding the management accountable. This structure can enhance objectivity in decision-making processes and strengthen the quality of corporate governance. Additionally, having a Chairman who is independent of the management team further enhances accountability and can reduce the risk of conflicts of interest. This is especially important in fostering trust among stakeholders, including shareholders, employees, and the broader community. Combining the roles of the CEO and Chairman can lead to difficulties in governance, with potential for reduced accountability and oversight. Moreover, prioritizing financial growth alone can detract from the overall accountability and strategic objectives that come with effective governance. Limiting board membership to one year does not directly relate to the responsibilities of the Chairman and can also be counterproductive for board continuity and stability. Thus,