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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers

Anand Auto Ltd is criticised in the financial press and by a rating agency for weak board independence, though it meets every statutory minimum. Within two quarters its share price falls and it reconstitutes its board. Which conclusion best explains the sequence?

Market reaction, media scrutiny and rating agencies act as informal governance influencers. Even though Anand Auto met all statutory minimums, reputational and share price pressure led it to reconstitute the board, showing that influence on governance is not confined to legal compulsion.

  1. AMarket, media and ratings pressure can act as informal governance influencers even where legal compliance is completeCorrect
  2. BThe company must have breached the law, since only breaches cause governance changes
  3. COnly the Registrar of Companies can compel board reconstitution
  4. DThe share price fall is legally irrelevant and cannot influence any board decision

Explanation

The facts state statutory minimums are met, so the first option is correct: informal influencers like media, rating agencies and market reaction can drive change. The second contradicts the facts, the third wrongly limits influence to the Registrar, and the fourth ignores market discipline.

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