Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

An analyst assessing corporate governance at an Indian listed company wants to judge board independence. Which observation would be the strongest red flag?

The strongest red flag is independent directors who are relatives or long-standing business associates of the promoter, because such ties undermine objective oversight of management. Chairing the audit committee independently, rotating auditors and ensuring quorum are all signs of good governance.

  1. AThe audit committee is chaired by an independent director
  2. BThe statutory auditor has been rotated after the permitted tenure
  3. CIndependent directors are relatives or long-standing business associates of the promoterCorrect
  4. DThe company holds board meetings with a quorum present in every meeting

Explanation

Independence requires that directors have no material pecuniary or family ties to the promoter or company. Independent directors who are relatives or close associates cannot be expected to challenge management objectively, which weakens oversight. The other observations reflect sound governance practice.

Did you get it right without looking?

One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.

Practise Company Analysis - Business and GovernanceFree diagnostic mock

More Company Analysis - Business and Governance questions