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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Concept of Governance in Professional Managed Company and Promoters Driven Company

Aarav Technologies Ltd is professionally managed: no shareholder holds more than 3%, and the CEO, Ms. Iyer, was hired by the board. Shareholders are widely dispersed and individually passive. Which governance issue is most typical of this structure?

The typical issue is the agency problem between managers and shareholders. Because ownership is dispersed and no dominant owner monitors management closely, professional managers may act in their own interest rather than shareholders' interest, so strong boards, incentives alignment and disclosures are needed.

  1. APromoters can pass resolutions without support from other shareholders
  2. BManagers may pursue their own interests because no dominant owner monitors them closely (agency problem)Correct
  3. CThe board cannot appoint independent directors
  4. DMinority shareholders are always oppressed by a controlling family

Explanation

With dispersed ownership, no single shareholder has enough stake or incentive to monitor management, producing the classic manager-shareholder agency problem. Options A and D describe promoter-controlled firms. Option C is false, as independent directors can be appointed in any listed company.

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