ACCA Strategic Business Leader (SBL) Practice Exam

How does the UK corporate governance code generally recommend committees be composed?

1. All should have internal members

2. Committees led by external members

3. Committees consist mostly of non-executive directors

4. Equal representation of internal and external members

The correct answer is: Committees consist mostly of non-executive directors

The recommendation that committees consist mostly of non-executive directors aligns with the UK corporate governance code's emphasis on promoting independence and objectivity in the decision-making processes of corporate bodies. Non-executive directors, who are not involved in the day-to-day management of the company, provide valuable oversight that can enhance the board's accountability and transparency. This structure ensures that decisions are made with impartiality, as non-executive directors are less likely to have conflicts of interest that may arise from personal connections to the company's operations. As such, they can contribute a level of scrutiny needed for effective governance, especially in key areas such as audit, remuneration, and nomination committees, where independent judgment is crucial. The emphasis on a non-executive dominant composition helps mitigate risks associated with groupthink, facilitates diverse perspectives, and fosters a culture of challenge within the boardroom, which is vital for sound corporate governance and strategic decision-making.