CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Concept of Governance in Professional Managed Company and Promoters Driven Company
Founder-promoter Anand Rao of Rao Infra Ltd is retiring, and the family has no capable successor. The board is considering hiring an external CEO while the family retains its shareholding. Which statement best describes the governance outcome of this move?
The company moves towards professional management of operations while staying promoter-owned. Since the family retains its shareholding and board influence, the board must still safeguard the CEO's independence and minority interests. Promoter status and voting rights do not end merely because a hired CEO is appointed.
- AThe company shifts toward professional management of operations while remaining promoter-owned, so the board must still guard against promoter interferenceCorrect
- BThe company ceases to have any promoters under the law
- CThe promoter family automatically loses voting rights
- DThe board no longer needs independent directors
Explanation
Hiring a professional CEO separates management from ownership in day-to-day operations, but the family still holds shares and influences the board. Promoter status depends on control and shareholding, not on who runs operations, and voting rights are unaffected. Independent directors remain essential to balance promoter influence.
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