Chartered Financial Analyst Level 2

Explanation

Characteristic 2 best reflects effective corporate governance because:

• Majority of independent members on key board committees (such as audit, compensation, and nominating committees) is a fundamental principle of good governance
• Independent committees provide objective oversight of management and protect shareholder interests
• This structure helps prevent conflicts of interest and ensures proper checks and balances

Why the other characteristics are NOT effective:

• Characteristic 1: Having more executive directors than independent directors weakens board independence and oversight capabilities. Effective governance requires a majority of independent directors.

• Characteristic 3: CEO duality (CEO also serving as board chair) concentrates too much power in one individual and reduces board independence. Best practice calls for separating these roles to maintain proper oversight.

Key Governance Principles:

• Board independence is crucial for effective oversight
• Independent committees ensure objective decision-making
• Separation of CEO and chair roles maintains checks and balances
• Majority independent directors on key committees is a recognized best practice in corporate governance

Therefore, Characteristic 2 represents the most effective governance practice among the three options.