CFA Level II ExamCorporate IssuersHard
A corporate governance analyst is evaluating a company's board of directors. The board consists of a majority of independent directors, but the CEO also serves as the Chairman of the Board. Shareholders have recently expressed concerns about potential conflicts of interest and lack of independent oversight. Which committee's primary role is to mitigate this specific concern about potential conflicts arising from the CEO also being Chairman?
- ACompensation Committee.
- BRisk Committee.
- CNominating and Governance Committee.
- DAudit Committee.
Show answer & explanationAnswer & explanation
Correct answer: C. Nominating and Governance Committee.
The Nominating and Governance Committee is primarily responsible for ensuring the board's independence and effectiveness, including addressing issues like the CEO also serving as Chairman. It focuses on board structure, director selection, and overall governance practices to mitigate conflicts of interest and ensure proper oversight.
Why the other options are wrong
- A. The Compensation Committee focuses on executive pay, not the structure of board leadership.
- B. The Risk Committee oversees the company's risk management framework, which is different from board independence and leadership structure.
- D. The Audit Committee focuses on financial reporting integrity and internal controls, not the CEO/Chairman conflict directly.
Nominating & Governance Committee
This board committee oversees board composition, director independence, succession planning for directors, and overall corporate governance practices.
- Ensures board effectiveness and independence.
- Identifies and recommends new directors.
- Addresses issues like CEO/Chairman duality and conflicts of interest.
Memory trick: Committees Keep Companies Clean.