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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

Meridian Steel Ltd is promoter-controlled. The promoter, who is Chairman and Managing Director, proposes that the board's nomination committee be chaired by himself. Minority investors object. Which view is correct from a good governance standpoint?

The proposal weakens governance. The nomination committee is expected to be led by an independent director and be mostly independent, so that board appointments are assessed objectively. An executive promoter chairing it concentrates power, and ownership or cost savings do not override the independence requirement.

  1. AThe proposal is fine because promoters own the company and may chair any committee
  2. BThe proposal weakens board independence, since the nomination committee is expected to be independent-led and free from executive dominanceCorrect
  3. CThe proposal is required by the principle of one share one vote
  4. DThe proposal is good since combining roles reduces cost

Explanation

Under the listed company framework, the nomination and remuneration committee must have an independent director as chair and be mainly independent. An executive promoter chairing it concentrates power and weakens objective oversight of board appointments. Ownership does not remove this requirement, and cost savings do not justify it.

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