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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

In Desai Steels Ltd, a promoter-driven company, the Chairman is also the Managing Director and the board is dominated by his relatives. Which governance weakness is most evident from this structure?

The key weakness is concentration of power with weak independent checks. When one promoter is both Chairman and MD and relatives dominate the board, decisions go largely unchallenged, increasing the risk that minority shareholder interests are overlooked.

  1. AConcentration of power with weak independent checks on the boardCorrect
  2. BExcessive separation of ownership from control
  3. COver-reliance on professional managers
  4. DLack of promoter commitment to the business

Explanation

Combining the Chairman and MD roles with a family-dominated board removes the checks that separate leadership and independent directors provide. The risk is unchecked decision-making, not separation of ownership and control, which is characteristic of professionally managed firms.

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