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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Shree Anand Textiles Ltd's promoters also manage the company and hold the majority of shares. Minority shareholders complain that related-party deals are priced in the promoters' favour. Which classical corporate governance problem does this most directly illustrate?

This illustrates the conflict between controlling (promoter) shareholders and minority shareholders. Because promoters control the board and management, they can push related-party deals on terms favourable to themselves, harming minorities. Good governance aims to curb this through disclosure, independent directors and approval safeguards.

  1. AConflict between controlling shareholders and minority shareholdersCorrect
  2. BConflict between lenders and statutory auditors
  3. CConflict between employees and the trade union
  4. DConflict between the company and its competitors

Explanation

Where promoters control the company, the main governance risk is expropriation of minority shareholders through self-serving transactions. This is the principal-principal conflict, typical of Indian promoter-driven firms. The other options describe relationships that are not the issue in the facts.

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