Question

      QUESTION 2

Laa Bumba Bhd has recently undertaken a board effectiveness review and, as a result, the CEO, Anang, is questioning the effectiveness of the non-executive directors (NEDs). The current board has been long-standing and the company’s activities and its industry have changed and developed quite significantly over recent years. Anang is concerned that many of the NEDs do not have specific industry experience and may not understand the full scope of the company’s currentoperations. One of the NEDs is also due to retire and a new NED will be joining the board shortly. Anang has approached you, for assistance.

Required

(a) Analyse the criticisms which are made regarding the effectiveness of NEDs.

                                                                                                                                   

(b) Discuss how Laa Bumba can maximise the effectiveness of its NEDs, particularly in

view of Anang’s concerns.

                                                                                                                  

(c) Advise on the type and range of enquiries that an individual should make when considering an appointment as a NED.

Answer 1

(a)	The board effectiveness review conducted revealed the following performance evaluation of the NEDs.
	The criticisms made against the existing NEDs are as follows :
	They do not possess the relevant industry knowledge and / or experience.
	The company as well as the industry have significantly grown over the years.
	As a result, they might not conceptuallize the entire company's current goals.
(b)	Anang, the CEO of Laa Bumba Bhd is not very satisfied about the perfomance of the present NEDs.
	As the office of an NED has to to newly appointed, the following points is to be kept in mind to solve the matter.
	Set up an effective and robust BOD.
	They must possess the right combination of the experience and expertise with the relevant qualifications as it may deem needed.
	They must also possess an independent mind set up, plus strong ethical integrity and objectivity.
	Effective corporate governance mechanisms have to be evolved to check the loopholes.
(c.)	NEDs are not the employees of the company. But they influence for the long term success of the company.
	There are various attributes an individual must possess to be considered to be a NED.
	1. independent thinking
	2. special personal trait
	3. be an all-rounder (ie., financial expert, legal advicer, takes risks and challenges, possess practical wisdom etc)
	4. Possess desirable academic qualifications apart from relevant industry experience and foresee future.