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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

Vikram Pharma Ltd was promoter-led for decades. The promoters sold most of their stake to institutions and now hold 4%, and the board has appointed a professional CEO. The board chair asks what governance shift to expect. Which expectation is most accurate?

The company should expect governance to rely more on board oversight, independent directors and performance-linked incentives. With the promoter holding only 4%, no owner controls decisions, so the agency risk shifts from minority expropriation to management accountability to dispersed shareholders.

  1. ADecision-making authority becomes more reliant on board oversight, independent directors and performance-linked incentives, since no owner controls the companyCorrect
  2. BMinority shareholders lose all voting rights
  3. CThe company no longer needs a nomination and remuneration committee
  4. DThe promoter's family automatically retains veto powers on all resolutions

Explanation

With ownership dispersed, control no longer rests with a promoter, so monitoring depends on the board, independent directors, committees and aligned incentives. Option B is false as voting rights stay. Option C is wrong since committees remain required for listed companies. Option D has no basis after dilution.

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