corporate governance

Question 1

Purpose of the audit committee

Answer 1

Oversees financial reporting, risk management, and internal/external audit integrity.

Question 2

Audit committee Pros:

Answer 2

• Enhances transparency and investor confidence in financial statements.
• Provides objective scrutiny of the company’s audit processes and risk management.
• Ensures independent oversight of internal controls and auditor independence.
• Required to include members with relevant financial expertise and sector competence.

Question 3

Audit committee cons:

Answer 3

• Risk of becoming overly reliant on external auditors.
• May struggle with resource and expertise limitations, especially in smaller firms.
• The requirement for independence may limit diversity of views if the pool of eligible members is small.

Question 4

Define the nomination committee:

Answer 4

Handles board appointments, succession planning, and diversity strategy.

Question 5

Pros of the nomination committee:

Answer 5

• Encourages structured and merit-based appointments.
• Supports long-term succession planning, reducing risk of leadership gaps.
• Promotes board diversity and inclusion which may enhance decision-making and representation.

Question 6

Cons of the nomination committee:

Answer 6

• Potential bias if the committee lacks diversity or is overly influenced by the chair or executives.
• Succession planning can become a box-ticking exercise if not strategically aligned.
• Risk of limited transparency in selection if external search processes aren’t clearly reported.

Question 7

Define remuneration committee:

Answer 7

Sets pay for executive directors and senior management, aligns incentives with performance

Question 8

Pros of the remuneration committee:

Answer 8

• Promotes pay transparency and links compensation to company performance and culture.
• Prevents conflicts of interest by excluding executives from setting their own pay.
• Enables malus and clawback mechanisms to recover performance-based pay if needed.

Question 9

Cons of the remuneration committee:

Answer 9

• Risks public backlash if pay outcomes appear excessive despite poor company performance.
• Hard to balance incentives and shareholder expectations, especially in volatile markets.
• May face challenges aligning pay with long-term strategy if short-term metrics dominate.

Question 10

Define Risk Committee:

Answer 10

Sometimes split from Audit to focus purely on risk oversight.

Question 11

Pros of the risk committee:

Answer 11

• Frees up the audit committee to focus more deeply on audit and financial reporting.
• Enables deeper review of emerging and principal risks.
• Ensures better alignment with strategic risk tolerance.

Question 12

Cons of the risk committee:

Answer 12

• Not mandatory—may lead to overlapping responsibilities or inconsistent implementation.
• Smaller firms may lack the resources for a standalone committee.
• Can create duplication of governance efforts without clear demarcation.