Governance Influencers: formula sheet

Key formulas

Basic classification

Governance influencers = Internal influencers + External influencers

Internal: board, management, promoters, committees, employees, company secretary. External: regulators, investors, proxy advisors, auditors, rating agencies, analysts, lenders, media, civil society.

Answer chain

Influencer → Channel of influence → Effect on board or management behaviour

Use this chain for every influencer you name. It turns a list into analysis.

Nature of influence

Mandatory (law, regulation) vs Voluntary (codes, ratings, market and public pressure)

State which type applies to each influencer. Many influencers use both.

Regulator versus standard setter

Regulator = legal power to make rules, inspect and penalise; Standard setter = issues standards or guidance

A standard becomes binding only if law or a regulator makes it so. Secretarial Standards are binding because the Companies Act requires compliance with them.

Layering for a listed company

Companies Act, 2013 (MCA) + SEBI LODR Regulations, 2015 + sector rules (e.g. RBI for banks)

Where two laws apply, the company must meet both. Do not treat them as alternatives.

Answer chain

Body → source of power → tool used → effect on governance

Use this chain for every regulator in an answer.

Who covers what

MCA: all companies | SEBI: listed entities and market intermediaries | RBI: banks, NBFCs | ICSI: Secretarial Standards and professional guidance | IFRS Foundation: global reporting standards

Learn the scope of each body. Many marks are lost by mixing scope.

Core stewardship principles

Policy → Monitor → Engage → Manage conflicts → Vote → Report

A memory chain for the elements of a stewardship code. Use it to structure any answer on investor responsibilities.

Proxy advisor safeguards

Registration + Conflict disclosure + Disclosed methodology + Company right to correct facts

The four regulatory themes for proxy advisors. Do not attach section or regulation numbers unless you are certain.

Influence chain

Proxy advisor recommendation → Institutional vote → Resolution outcome → Board accountability

Shows how advice reaches the board. Useful for case-based analysis.

Ordinary vs special resolution

Ordinary resolution: more than 50% of votes cast. Special resolution: at least 75% of votes cast.

Institutional votes matter most when the resolution needs a special majority or when promoters are excluded from voting.

Gatekeeper test

Gatekeeper = independent + verifies or assesses + outsiders rely on the opinion

Use this to define the term in one line before you discuss each type.

Conditions for effectiveness

Independence + Competence + Accountability

Use as a framework to judge any gatekeeper and to structure the conclusion.

Statutory vs secretarial auditor

Statutory auditor: financial statements and internal financial controls. Secretarial auditor: compliance with applicable laws.

Core contrast for the commonly asked comparison question. Secretarial audit is under Section 204 of the Companies Act, 2013.

Rating focus

Credit rating = ability to repay debt. ESG rating = performance and risk on environmental, social and governance factors.

Do not mix the two. Credit ratings are about default risk; ESG ratings are about sustainability and governance quality.

Influence chain

Influencer → Channel → Pressure on the company → Governance or sustainability change

Use this to structure any answer. Name who acts, how they act, what pressure results and what the board changes.

Stakeholder mapping (power and interest)

High power + high interest = manage closely; high power + low interest = keep satisfied; low power + high interest = keep informed; low power + low interest = monitor

A common tool for prioritising engagement. It is a framework, not a legal rule.

Typical channels by group

Employees: vigil mechanism, unions, attrition | Customers: purchase choice, complaints | Communities: protest, litigation | NGOs: reports, campaigns, complaints | Media: investigation, exposure | Activist shareholders: votes, resolutions, public campaigns

Learn one or two channels per group so you can give specific examples.

Board response cycle

Identify → Engage → Assess materiality → Act → Disclose

Use this to finish answers with the board's expected response.

Five-point recall for any framework

Issuer + Purpose + Users + Content + Legal status

Use this skeleton for every code or framework you describe in an answer.

Who each framework addresses

OECD → policymakers and boards | UN PRI → investors | UNGC → companies | GRI → reporters | BRSR → Indian listed companies

Matching the framework to its audience is a frequent exam point.

Legal status rule

OECD Principles = non-binding; UN PRI, UNGC, GRI = voluntary; BRSR = mandatory for the top 1,000 listed companies by market capitalisation specified by SEBI; voluntary for others

Say non-binding or voluntary does not mean unimportant.

UN PRI

6 principles for investors

Remember the order: (1) incorporate ESG in analysis and decision-making, (2) active ownership, (3) seek appropriate disclosure, (4) promote acceptance and implementation, (5) work together to enhance effectiveness, (6) report on activities and progress.

UNGC

10 principles under 4 heads: human rights, labour, environment, anti-corruption

Know the heads even if you cannot list all ten.

OECD Principles

6 chapters (2023 edition): framework, shareholder rights and ownership functions, investors and markets, disclosure and transparency, board responsibilities, sustainability and resilience

The 2015 edition had a separate stakeholder chapter and no sustainability and resilience chapter. Check the order against the edition in your study material.

Quick revision

• Influencers shape governance from outside and inside the company; some bind, some only pressure.
• Regulators make and enforce binding rules; standard setters set the technical norms companies follow.
• Institutional investors influence through voting, engagement and their choice to buy or sell.
• Proxy advisors give voting recommendations; the final voting decision stays with the investor.
• Auditors give independent assurance on financial statements; independence is the core of their value.
• Rating agencies and analysts shape how the market judges a company's risk and prospects.
• Stakeholders include employees, customers, lenders, communities and suppliers, not only shareholders.
• Media and civil society act by exposing issues and shaping reputation.
• Codes and frameworks give a common benchmark; check whether each is mandatory or voluntary.
• Global initiatives push convergence of governance and ESG practice across countries.
• In answers, always link the influencer to a specific effect on the board or on disclosure.

Common mistakes

• Listing influencers without explaining how they influence behaviour. Fix: Attach a channel and an effect to every name using the chain: influencer, channel, effect.
• Placing influencers in the wrong category, such as calling the statutory auditor an internal influencer. Fix: Treat auditors, rating agencies and analysts as external gatekeepers. They are independent of management and the board.
• Saying SEBI regulates all companies. Fix: SEBI's LODR norms bind listed entities. Unlisted companies are under the Companies Act, 2013 and MCA.
• Treating ICSI standards as optional advice. Fix: Secretarial Standards are binding because the Companies Act requires companies to observe them. Guidance notes and recommendations are persuasive only.
• Treating proxy advisors as decision makers who can vote the shares. Fix: State that the advisor only researches and recommends. The institutional investor decides and casts the vote.
• Saying stewardship codes are the same as the Companies Act duties of directors. Fix: Stewardship codes apply to investors, not to directors. They are principle-based and address how owners monitor and engage.
• Treating the statutory auditor and secretarial auditor as the same. Fix: Say that the statutory auditor gives an opinion on financial statements and internal financial controls, while the secretarial auditor reports on compliance with applicable laws.
• Mixing credit ratings with ESG ratings. Fix: Credit rating is about the ability to repay a debt instrument. ESG rating is about environmental, social and governance performance. State the purpose of each in the first line.
• Treating stakeholders as shareholders only. Fix: Say clearly that stakeholders include employees, customers, communities and others, and that they influence the company without voting rights.
• Writing a list of influencers with no channels. Fix: For every group, write the channel and the result. Use the influence chain.

Exam tips

• Open with a one-line definition and a clear internal versus external split. Examiners look for classification first.
• Use the chain influencer, channel, effect in every answer. It earns analysis marks, not just recall marks.
• In case questions, name the influencers from the facts and link each to a specific action by the board.
• Do not forget promoters, independent directors and the company secretary among internal influencers, or gatekeepers among external ones.
• Keep the overview answer balanced. Save detailed discussion of regulators, investors and civil society for the topics that cover them.
• Write the regulator's scope in the first line. Examiners check that you do not mix MCA, SEBI and RBI.
• In case questions, tie each regulator to a fact before concluding.
• Distinguish binding from persuasive instruments clearly. This earns easy marks.