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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 Textiles Ltd is a listed company in which the Sharma family holds 62% of the shares, and the Managing Director and Chairman are both family members. Which governance risk is most characteristic of this kind of promoter-driven company?

The characteristic risk is promoter dominance over the board. When a family holds a controlling stake and top posts, independent oversight weakens and related party transactions or minority shareholder oppression become more likely, unlike widely held professionally managed firms with frequent management change.

  1. AFrequent takeover threats causing short-term decision making
  2. BDominance of promoters over the board, leading to weak independent oversight and possible related party abuseCorrect
  3. CComplete absence of any controlling shareholder accountability
  4. DLack of long-term vision because management changes every few years

Explanation

In promoter-driven companies, concentrated ownership and family control of top posts can weaken board independence and enable tilted related party dealings or minority oppression. Takeover threats and frequent management turnover are typical of professionally managed, widely held companies, so options A and D are wrong. Option C is incorrect because promoters remain accountable under law.

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