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

In assessing a listed company's corporate governance, which of the following is most directly a feature of an independent director as understood in governance analysis?

An independent director is a non-executive director with no material pecuniary or other relationship with the company, its promoters or its management. This lack of ties lets the director judge board matters objectively and protect minority shareholders, unlike promoter relatives or executives.

  1. AA person who is a relative of the promoter and attends board meetings regularly
  2. BA non-executive director with no material pecuniary relationship with the company, its promoters or managementCorrect
  3. CA full-time executive who heads the finance function
  4. DA nominee of a lender who is also a senior employee of the company

Explanation

Independence rests on the absence of material pecuniary or other relationships with the company, promoters and management, which lets the director judge objectively. Promoter relatives, whole-time executives and employee nominees are not independent because of their ties to the company or its promoters.

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