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NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

While evaluating a company's governance, an analyst notices that the same person is both Chairman and Managing Director, and that the promoter family holds 3 of 8 board seats. Which governance concern is most directly raised by the combined Chairman-MD role?

The main concern is weaker separation between oversight and execution. If one person is both Chairman and Managing Director, the board's role of independently monitoring management is compromised, since the same individual leads both the supervising body and the executive function.

  1. AExcess dividend payout to minority shareholders
  2. BWeaker separation between board oversight and management executionCorrect
  3. CLower disclosure of quarterly results by regulation
  4. DAutomatic disqualification of the company from listing

Explanation

When one person leads both the board and management, the board's ability to independently oversee management weakens because the overseer and the overseen are the same person. Dividends, quarterly disclosure and listing eligibility are not directly affected by this role combination.

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