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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

Sharma Motors Ltd, a listed promoter-driven company, wants to strengthen protection of minority shareholders without changing promoter ownership. Which measure best fits this objective?

Independent-dominated audit committee review of related party transactions best protects minorities. It introduces objective scrutiny over dealings in which promoters are interested, without altering ownership. The alternatives remove oversight, allow interested voting or concentrate power, which would worsen minority protection.

  1. AHaving the audit committee, with independent directors forming the majority, review related party transactionsCorrect
  2. BRemoving all non-executive directors from the board
  3. CAllowing promoters to vote on transactions in which they are interested
  4. DMerging the posts of Chairman and Managing Director in the promoter

Explanation

Independent oversight of related party dealings checks the promoters' ability to favour themselves. The other options either remove independent oversight, permit conflicted voting or concentrate power further, all of which weaken minority protection.

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