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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

A listed Indian company's board includes several directors who are friends of the promoter and who rarely challenge his proposals. Which feature of good governance is most directly weakened in this situation?

The independence of non-executive directors is weakened. Their role is to give objective oversight and challenge management or the promoter. Directors who are personal friends and rarely question proposals cannot provide that check, so the board's monitoring function becomes ineffective.

  1. AIndependence of non-executive directors in providing objective oversightCorrect
  2. BThe statutory requirement to hold an annual general meeting
  3. CThe accuracy of the depreciation method chosen
  4. DThe company's ability to raise debt from banks
  5. The par value of the equity shares

Explanation

Non-executive directors are meant to provide independent, objective scrutiny of executive and promoter decisions. When they are close friends of the promoter and do not challenge him, that independence is compromised. The other options concern unrelated matters such as meetings, accounting policy, borrowing and share par value.

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