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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers

Veda Textiles Ltd, a listed company, finds that its board has begun adopting practices recommended by a stock exchange-linked proxy advisory firm and an institutional investor stewardship body, although no law compels them. Which description best fits these bodies in the corporate governance framework?

Proxy advisory firms and investor stewardship bodies are governance influencers. They shape board conduct through research, voting recommendations and engagement, not through statutory enforcement powers. They are neither regulators, Tribunals nor board committees, so the board adopts their recommendations voluntarily.

  1. AThey are governance influencers that shape board behaviour through opinion, research and engagement rather than statutory powerCorrect
  2. BThey are statutory regulators with power to prosecute directors
  3. CThey are Tribunals that adjudicate shareholder disputes
  4. DThey are internal committees of the board constituted under the Companies Act, 2013

Explanation

Proxy advisors and stewardship bodies influence governance through research, voting recommendations and engagement. They do not hold statutory enforcement powers, are not Tribunals, and are external to the board. Hence the first option is correct.

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