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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

Arjun Motors Ltd is a professionally managed listed company. Its board argues that governance means only maximising profit for shareholders, so employee and community concerns are outside its remit. A director proposes the enlightened view that the board should balance shareholder interests with those of other stakeholders. Which statement is correct under the Indian company law approach?

Directors must act in good faith to promote the company's objects for the benefit of members as a whole, while also having regard to employees, shareholders, the community and the environment. This stakeholder-sensitive duty rejects a purely profit-for-shareholders approach and favouring any single shareholder.

  1. ADirectors must act in good faith to promote the company's objects for members' benefit and also regard employees, shareholders, community and environmentCorrect
  2. BDirectors owe duties only to the largest shareholder
  3. CDirectors owe duties only to creditors
  4. DDirectors may ignore environment since only shareholders appoint them

Explanation

The Companies Act, 2013 duty of directors requires acting in good faith to promote the company's objects for the benefit of members as a whole, and in the best interests of the company, its employees, shareholders, community and environment. This rejects a pure shareholder-only view and a largest-shareholder-only view.

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