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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Kaveri Pharma Ltd's board says its governance is sound because it earned record profits this year, even though two independent directors resigned citing inadequate disclosures. Which statement best explains why profit alone does not prove good governance?

Governance is assessed by the quality of board processes, independence, disclosure and accountability to stakeholders, not by profit alone. Record profits can coexist with weak oversight, and independent directors resigning over inadequate disclosure signals a genuine governance concern that the board should address.

  1. AGovernance is judged by processes such as board independence, disclosure and accountability, not only financial resultsCorrect
  2. BProfit is irrelevant to any company
  3. CGovernance applies only to loss-making companies
  4. DIndependent directors' resignation has no governance significance

Explanation

Good governance rests on sound processes: independent oversight, transparent disclosure and accountability to stakeholders. Strong profits can coexist with weak governance, and resignations over disclosure concerns are a warning signal, so the other statements are wrong.

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