Skip to content

CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Concept of Governance in Professional Managed Company and Promoters Driven Company

Kaveri Textiles Ltd, with no identified promoter, has a board of 8 directors. The Chairperson, a non-executive director, wants shareholders to be able to remove underperforming management. Which feature of a professionally managed company most directly supports this objective?

Shareholders can vote directors out, but because holdings are widely dispersed each has little incentive to monitor management. Active engagement by institutional investors and stewardship therefore becomes the practical mechanism for holding management accountable in a professionally managed company.

  1. AWidely held shares allow shareholders to vote out directors, but dispersed holders face collective action difficulty, so institutional investors' engagement becomes importantCorrect
  2. BA promoter family can veto any board change through a blocking shareholding
  3. CManagement is permanently entrenched since no one owns the company
  4. DShareholders have no voting rights on director appointments

Explanation

Shareholders can appoint and remove directors by voting, but with dispersed holdings individual shareholders lack incentive to monitor, creating a collective action problem. Institutional investors and stewardship engagement help overcome this. A promoter veto exists only in promoter-driven firms.

Did you get it right without looking?

One question tells you little. A timed set on Concept of Governance in Professional Managed Company and Promoters Driven Company shows your real accuracy, how long you take and where you lose marks.

Practise Concept of Governance in Professional Managed Company and Promoters Driven CompanyFree diagnostic mock

More Concept of Governance in Professional Managed Company and Promoters Driven Company questions