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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

Rao Chemicals Ltd is promoter-driven and its founder is both Chairman and Managing Director. An institutional investor wants to strengthen board independence without changing ownership. Which step best serves this aim?

Separating the roles of Chairman and Managing Director, together with strengthening independent directors, best improves board independence. It reduces concentration of power in the founder and allows balanced oversight without altering ownership, which suits a promoter-driven company.

  1. ASeparating the roles of Chairman and Managing Director and strengthening independent directors' roleCorrect
  2. BIncreasing the promoter's executive directors on the board
  3. CRemoving the audit committee to speed decisions
  4. DAppointing the promoter's relatives as independent directors

Explanation

Separating the chair from the executive head and empowering independent directors improves checks on a dominant promoter. More promoter executives reduce independence, removing committees weakens oversight, and relatives cannot qualify as independent directors.

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