Page 11 - CIMA SCS Workbook August 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

Under corporate governance guidelines a Board should be balanced in terms of the number of
Executive and NED roles. There should be the same number of NEDs as Executives (excluding the
Chair), that is Executive Directors should not outnumber the NEDs. In addition, in order to ensure
the NEDs represent the interests of the shareholders they should be independent. A smaller
company should have at least two independent NEDs.

FNG only has three NEDs versus the seven directors (this excludes the chair) therefore the main
criteria is not met. The NEDs may not be independent (again we have no information on this) but
they will hopefully be able to provide sound business advice to aid the running of the company.

CEO and Chair roles

These roles have been split at FNG which is compliant with most countries’ Corporate Governance
guidance.

The Chair’s role is to run the Board; the CEO’s role is to run the company. Placing both in one
person’s hands may give them too much power. Given that FNG would not have sufficient NEDs
to keep such power ‘in check’ it is important that it is not in one person’s hands.

If they were to list on the Borland stock market, the Chair would be expected to be the
representative of the shareholders – they should be able to communicate any matters of concern
to the Chair. If the Chair is not independent the Board should appoint a senior
Independent NED to perform this role. The Chair at FNG is Alan Finch, a member of the founding
family, so would likely represent 60% of the shareholders well.

Committees

There is currently no mention of committees at FNG although that does not meant they do not
exist.

All committees make use of NEDs under most Corporate Governance Codes. The compulsory
committees are: Remuneration, Nominations and Audit committee.

The Audit committee should have at least three, or in the case of smaller companies two,
independent non-executive directors. In smaller companies the company chair may be a member
of, but not chair, the committee in addition to the independent non-executive directors, provided
he or she was considered independent on appointment as Chair. At least one member of the
audit committee should have recent and relevant financial experience. FNG could satisfy most of
the criteria regardless of whether they were considered small or not, the main issue would be the
uncertainty about whether any of the NEDs have any recent and relevant financial experience.

The Remuneration committee should have at least three, or in the case of smaller companies two,
independent non-executive directors. In addition the company chair may also be a member of,
but not chair, the committee if he or she was considered independent on appointment as chair.
For FNG either criteria could be met, so in theory it could exist.

The Nomination committee is usually expected to have a majority of NEDs, so again could feasibly
be in existence at FNG.

As there are only three NEDs they are likely to be on all the committees, which would give them
significant power and a significant workload.

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