Allgood Ltd, a listed company, announced the appointment of Sumer, as the Company's executive director. Despite opposition by few shareholders, the management offered justifications for the new structure to be more indep

CS Professional · Environmental, Social and Governance (ESG) Principles and Practice · PYQS · December 2024
Allgood Ltd, a listed company, announced the appointment of Sumer, as the Company's executive director. Despite opposition by few shareholders, the management offered justifications for the new structure to be more independent and investor friendly. It indicated that foreign investors were optimistic about the future of the Company and expected better financial results. The Company has been actually witnessing and struggling to address certain corporate governance challenges. A small shareholder filed a law suit against the Board of Directors' misuse of corporate funds. Rishi, the present Chairman and CEO, was working with the Company since last sixteen years and was a close family friend of Promoters. His leadership style being democratic, he was liked and praised by everyone. He was often found meeting people at all levels within the organisation and called for trying new things. His philosophy diminished conflicts and tensions in pursuit of goal setting and achieving. He believes that as long as dividend is paid to shareholders and earnings per share increases, the market values the stock. To address the changing business situations and the perception of the various stakeholders, Rishi had a detailed discussion with Sumer, to identify the further course of action, as Sumer had experience in managing crisis. Both of them evaluated various aspects threadbare and concluded that they should appoint some professional firm, who would do a detailed review and suggest the way forward to address these issues. In consultation with other directors and senior management, they appointed Mangal & Co., a consulting firm, to evaluate the present situation and suggest the best practices to mitigate these issues. The consultants were provided with the following shareholding pattern as on March, 31, 2024: Type of Shareholder Holding % Promoters 51.60 Mutual funds 7.25 Domestic financial institutions and Banks 24.75 Foreign institutional investors 10.40 Corporate bodies 4.60 Individuals 1.40 Total 100.00 Mangal & Co., performed a detailed evaluation of the Company's process and procedures, including its corporate governance practices and suggested that the Company should strengthen the role and position of a Company Secretary, who would not only be a focal point for the governance aspects, but also assist in the risk management process. Develop a robust system of internal controls and internal audit, which would support the management and also have a crisis management plan, which would help the Company to prepare a strategy in identifying and responding to threats. In the background of the above facts, answer the following: Explain the risks associated with governance in case of such corporates

Answer & Explanation:

Governance defines how the organization should perform, describing through policies what is acceptable and unacceptable. Compliance is that part of Governance responsible for inspecting and proving that they are adequately implement Governance is also responsible for risk and compliance oversight, as well as evaluating performance against enterprise objectives. The board acts as an active monitor for shareholders' and stakeholders' benefit, with the goal of Board oversight to make management accountable, and thus more effective. Properly implemented compliance oversight is proactive and regularly monitors and evaluates the organizatiun's Content Management System with the emerging regulatory landscape. Accordingly, governance should be able to understand and foresee the organization's vulnerabilities and, hence make decisions to reduce them. Also, governance should distribute power to provide insight and intelligence, at the right time, so that the right people in the management can make risk-aware decisions in accordance with key business objectives. Risk-awareness is possible through the close proximity that governance should have with risk management, which may provide very useful information in strategy setting and decision making. Governance needs to touch every part of the organization. It needs to be at the heart of corporate culture when in today's complex global ecosystems, risks are becoming more interconnected. Although most investors are aware of strong governance principles, no one solution works for all. Finding out where and how best practices might impact corporate performance can be challenging. Risks associated with governance include: Corporate morals and ethics Conduct and practices that are anti-competitive ESG regulation compliance (including emerging regulations) ESG transparency Open communications Grievance policies and processes Preventing fraud and corruption Compensation for executives Diversity of the Board of Directors Corruption and extortion Standards and regulations Paying taxes

Topics: Corporate Governance, Risk Management

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