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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 Kalinga Pharma Ltd, a professionally managed company, the CEO has been steadily raising his own pay and favouring projects that enlarge the empire, while shareholders are scattered and passive. Which governance concern is primarily illustrated?

The main concern is the agency problem between shareholders and management. Dispersed, passive owners cannot monitor effectively, so hired managers may pursue pay and empire-building at shareholders' expense. Promoter oppression and tunnelling belong to promoter-driven companies with a controlling shareholder.

  1. AAgency problem between dispersed shareholders and entrenched managementCorrect
  2. BOppression of minority shareholders by a controlling promoter
  3. CTunnelling of funds through related-party loans to promoters
  4. DLack of a promoter succession plan

Explanation

With scattered, passive owners, managers may pursue their own interests, which is the classic principal-agent (shareholder-manager) conflict in professionally managed firms. Promoter oppression and tunnelling are typical of promoter-driven companies, where a controlling holder exists.

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