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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

Orchid Foods Ltd has a professional CEO but the founder retains 30% and sits as a non-executive director. Analysts call it a hybrid. Which statement about governance in such a company is most accurate?

In a hybrid company, governance risks come from both sources: professional managers may pursue their own interests, and a significant shareholder like the founder may exert influence. The board therefore needs checks such as independent directors and committees. A non-executive role does not remove the need for governance.

  1. AGovernance risks can arise from both management agency conflicts and influence of a significant shareholder, so both need board checksCorrect
  2. BGovernance is not needed because the founder is non-executive
  3. COnly the SEBI regulations on promoters apply, not the board processes
  4. DIndependent directors are not allowed

Explanation

A hybrid structure carries both the manager-owner agency issue and the risk of a significant shareholder influencing decisions. Board checks such as independent directors and committees address both. A non-executive role does not remove influence, and board processes still apply.

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