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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

Ravi Textiles Ltd is a listed company in which the founding Mehta family holds 58% of the shares, and the Managing Director and two other Executive Directors are all family members. Which governance feature most typically characterises this company as promoter-driven rather than professionally managed?

The defining feature is that ownership and management control sit with the same promoter family. The Mehta family holds 58% and occupies the executive posts, so they own and run the company, unlike a professionally managed company with dispersed ownership and hired managers.

  1. AOwnership and management control are concentrated in the same familyCorrect
  2. BManagement is entrusted to hired executives with no shareholding
  3. CShareholding is widely dispersed among many small investors
  4. DThe board consists entirely of independent directors

Explanation

A promoter-driven company is one where the promoters hold a significant stake and also control management and the board. Here the family holds 58% and fills the key executive posts, so ownership and control coincide. The other options describe professionally managed or widely held companies.

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