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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 Pharma Ltd was promoter-run for 25 years. The promoter family has now reduced its holding to 8%, the board has appointed an external CEO, and the promoters remain only as non-executive directors. A director argues the company is now exactly the same as before because the family name still appears on the board. Which view is most accurate?

The company is shifting toward professionally managed governance because an external CEO runs operations and the promoter stake has fallen to 8%. Promoter influence may still persist through residual shareholding and board seats, so it is a transition rather than an identical promoter-driven structure.

  1. AThe company remains purely promoter-driven because any promoter on the board means control
  2. BThe company is moving towards professionally managed governance, where management is by hired executives accountable to the board, though promoter influence may persist through the residual holding and board seatsCorrect
  3. CThe company has become a government company
  4. DThe company is now exempt from independent director requirements

Explanation

Day-to-day management by an external CEO and a sharply reduced holding shift the model towards professional management, though residual influence can persist. Mere presence on the board does not mean control, so A is wrong. C and D have no basis in these facts.

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