GC Atindra Nath Basu writes that a quiet transformation in corporate governance can occur at promoter-led and unlisted enterprises if systems of accountability are set up to ensure it
Promoter or founder-controlled enterprises, whether in India, South Korea, Europe or the US, continue to sit at the heart of global commerce. Family businesses, business houses, chaebols, technology founders and private equity backed platforms collectively account for a substantial share of employment, innovation and capital formation worldwide, according to the OECD.
Despite this centrality, conventional governance thinking has often equated dispersed shareholding with “good governance” and concentrated ownership with risk. Contemporary experience complicates this. Empirical and anecdotal evidence shows that concentrated ownership can coexist with robust governance where regulators, boards, auditors, proxy advisers and long-term institutional investors create a dense web of accountability.
At the same time, promoter dominance presents vulnerabilities: information asymmetry, related-party mispricing, succession opacity and social proximity between promoters and independent directors. This article explores how regulatory reform, proxy advisers and board culture have reshaped governance in promoter-led entities.
Why promoter control endures
Promoter ownership brings long-term vision, strategic agility and high alignment between ownership and management. Promoters internalise downside risk and upside reward, enabling patient decisions that professional managers in widely held companies may avoid.
However, the same concentration of power creates governance challenges:
- Related-party governance gaps – tunnelling through opaque intra-group transactions;
- Weak board independence – directors hesitant to challenge the owner–manager;
- Succession opacity – unclear or familial succession pathways;
- Information asymmetry – promoters hold superior information; and
- Cultural reluctance to challenge – deference to founding families weakens dissent.
These vulnerabilities drove structural reforms globally and in India.
India’s governance evolution
First wave: 1992-2004. India’s governance reforms began after the Harshad Mehta securities scam in 1992, with the Securities and Exchange Board of India (SEBI) gaining statutory powers. Clause 49 of the Listing Agreement (2000) was transformative, mandating independent directors, audit committees and CEO/CFO certification. This marked India’s initial shift towards structured oversight.
Second wave: 2004-2014. Following the Satyam scandal (2009), reforms akin to the US Sarbanes-Oxley Act emerged. The Companies Act, 2013, strengthened auditor rotation, vigil mechanisms, director duties and related-party transactions (RPT) governance. This shifted India from box-ticking to duty-based governance.
Third wave: 2015-present. SEBI’s LODR Regulations (2015) consolidated governance rules. The Kotak Committee Report (2017) introduced:
- Minimum board size;
- Mandatory independent woman director;
- Minority approval for material RPTs; and
- Stronger audit, nomination and remuneration committees (NRC), and risk committees.
Stewardship codes, SEBI’s Business Responsibility and Sustainability Reporting and ESG assurance expectations further raised governance standards.
Global governance evolution
Governance reforms in promoter-led or family-controlled structures vary significantly across jurisdictions, but common themes emerge: stronger disclosures, enhanced board independence and institutional investor engagement.
East Asia. South Korea’s chaebol reforms followed high-profile corruption and tunnelling scandals. Regulatory measures introduced tougher RPT scrutiny, cumulative voting, disclosure norms and stewardship codes. Yet, family control remains entrenched.
Japan’s Corporate Governance Code (2015, revised 2021) pushed listed companies to appoint multiple independent directors, disclose board skill matrices and improve investor engagement. The reforms nudged Japanese companies towards global governance standards.
Europe. Countries in Europe offer mature but diverse governance models. The German dual board system separates management and supervisory boards, ensuring structured oversight. The guidelines from the French AMF securities regulator emphasise board independence and shareholder engagement.
However, failures like the Volkswagen Dieselgate scandal show that even sophisticated structures can fail when culture, transparency and ethics lag behind.
United States. US founder-controlled technology giants (Meta, Alphabet, Snap) frequently use dual class structures to retain voting power. Counterbalance comes from: activist hedge funds; class-action litigation; proxy contests; and aggressive shareholder engagement.
The Council of Institutional Investors (CII) has repeatedly flagged dual-class risks and credibility gaps for long-term investors.
Latin America. Brazil’s Novo Mercado (a listing segment on the country’s stock exchange B3) offers a voluntary high-governance segment: one-share-one-vote, enhanced disclosure and arbitration. Companies opt in to signal governance credibility and attract global capital.
Proxy advisers as gatekeepers
Proxy advisory firms have become central to the modern governance ecosystem – shaping voting decisions, improving transparency and enabling institutional investors to exercise stewardship duties.
The ISS and Glass Lewis dominate the Western proxy advisory landscape. Their recommendations influence AGM/EGM (annual/ extraordinary general meeting) outcomes, especially where institutional shareholding is significant. Their frameworks align with: the UK Stewardship Code; the EU Shareholder Rights Directive II (SRD II); and US institutional stewardship norms.
They review board elections, executive pay, ESG resolutions and RPT structures, shaping institutional voting behaviour.
India’s younger proxy advisory ecosystem includes the Institutional Investor Advisory Services (IiAS), Stakeholders Empowerment Services (SES) and InGovern. They: (1) analyse resolutions of listed companies; (2) evaluate independence and tenure of directors; (3) scrutinise RPTs, royalty agreements and ESOPs; and (4) guide institutional investors on vote rationales.
Institutional investors must now disclose their voting rationale under SEBI’s stewardship norms, making proxy recommendations a key input.
Regulatory oversight
SEBI’s 2020 framework introduced (1) transparent methodologies; (2) company review of draft recommendations; and (3) conflict of interest disclosures.
Improvements still needed: (1) sector nuance – avoiding one-size-fits-all templates; (2) deeper engagements between proxy advisers and management; and (3) ESG contextualisation suited to Indian realities.
The SES and IiAS continue to refine voting guidelines; for instance, the IiAS issued clarifications on RPT voting frameworks in 2022.
Independence of IDs
Legal independence does not automatically translate into substantive independence. Independent directors (IDs) in promoter-led boards often face structural and cultural constraints that weaken their ability to challenge management.
Common constraints include:
- Promoter-influenced NRCs limiting neutral board refreshment;
- Information asymmetry where key decisions are pre-negotiated before board presentation;
- Long social proximity between promoters and “independent” directors;
- Limited access to external advice unless board policy expressly permits it; and
- Infrequent executive sessions restricting candid discussions.
Global best practices – independent board chairs, lead independent directors, staggered tenures, executive sessions – are still evolving in India and much of Asia.
Legal architecture in India
The Companies Act, 2013, and the SEBI LODR Regulations impose the following:
- Minimum ID thresholds;
- Tenure caps and cooling-off periods;
- Mandatory ID presence on audit, NRC, risk and stakeholder committees; and
- Codified duties in schedule IV.
However, enforcement remains largely reactive, usually surfacing after governance failures rather than via continuous board effectiveness mechanisms.
Substantive independence
Promoter-led companies seeking institutionalisation must adopt:
- Transparent nomination processes with constrained promoter veto;
- Externally facilitated board evaluations, with high-level disclosures;
- Independent access to external experts; and
- Mandatory ID-only sessions at each board meeting.
Proxy advisers now assess substantive independence, questioning long tenures, prior executive roles and repeated reappointments. The SES has repeatedly flagged director independence concerns in large promoter-led firms.
India’s proxy advisers
Proxy advisers operate in a complex environment where promoter holdings often exceed 50%, but their influence is growing.
Key impacts:
- Raising governance costs: Highlighting excessive royalties, opaque RPTs, conflicted appointments;
- Dissent on compliant but questionable resolutions: Voting against long-tenured IDs, disproportionate pay, or weak board composition;
- Shaping institutional stewardship: Their detailed rationales help mutual funds justify votes under stewardship norms; and
- Elevating market expectations: Public dissent – even if resolutions pass – creates reputational pressure.
Constraints include accusations of one-size-fits-all thinking and insufficient company engagement. Still, proxy advisers significantly influence investor dialogue and the behaviour of independent directors.
Tata-Mistry case study
The Tata-Mistry governance episode revealed tensions between promoter influence, board independence and institutional expectations. The 2016 removal of Cyrus Mistry as chairman of Tata Sons triggered a major governance conflict spilling into listed Tata companies. Independent directors at companies such as Tata Motors publicly questioned the process – a rare sight in promoter-influenced India.
Proxy adviser intervention
InGovern wrote directly to Tata Motors’ independent directors urging: (1) the fulfilment of fiduciary duties; (2) transparent communication; and (3) protection of long-term shareholder interests.
This reframed the dispute as a governance issue, strengthening the IDs’ standing.
Key insights:
- Formal vs real independence diverged sharply;
- Board confidentiality vs market expectations created tension; and
- Promoter control ultimately shaped outcomes, but IDs showed unprecedented assertiveness.
The episode reset expectations of IDs’ behaviour in India.
Zee-Sony case study
The proposed USD10 billion Zee-Sony merger (2021–2024) collapsed over governance, regulatory overhang and promoter influence.
Regulatory overhang. SEBI’s interim order (June 2023) barred promoter CEO Punit Goenka and Subhash Chandra for alleged fund diversion. Although the Securities Appellate Tribunal (SAT) later set aside the bar, the governance cloud remained – problematic for a Japanese multinational such as Sony.
Leadership dispute. Sony insisted on professional management, not promoter leadership. Zee insisted that Goenka head the merged entity. The disagreement became a proxy for promoter influence vs professional governance.
Sony terminated the merger in January 2024; later, both parties withdrew claims in August 2024.
Shareholder discipline. Guided by proxy advisers, shareholders rejected:
- Goenka’s reappointment (November 2024); and
- A promoter-linked preferential allotment aimed at increasing the promoter stake (July 2025).
Proxy advisers criticised Zee’s revolving-door board pattern, calling for professionalisation.
Governance lessons:
- Regulatory alignment is non-negotiable;
- Professional management is now expected by global capital;
- Public shareholders can rebalance power even in historically promoter-dominated firms; and
- IDs face heightened scrutiny during transitions.
Other illustrative contests
Fortis Healthcare, Vedanta’s delisting attempt and several large-cap board disputes saw proxy advisers:
- Flagging RPT irregularities;
- Questioning valuation methodologies; and
- Recommending board changes.
Even when resolutions passed due to promoter holdings, dissent affected reputation, valuations and future capital raising.
Unlisted enterprises
Large unlisted enterprises – family conglomerates, private equity-backed platforms, unicorns, non-banking financial companies and global supply-chain anchors – often match or exceed listed companies in economic significance.
Yet they operate with far fewer public disclosure obligations.
Unlisted entities may be systemically important due to employment scale, financing requirements and ecosystem influence. Their governance quality directly impacts creditors, investors, regulators and supply-chain partners.
India. Governance quality varies widely among large unlisted Indian enterprises. Better-governed unlisted firms incorporate the following type of attributes:
- Voluntary independent directors;
- Functioning audit and risk committees;
- Family constitutions detailing roles and succession;
- Private equity-driven governance frameworks (information rights, negative covenants, board representation); and
- Robust internal audit and compliance systems.
Common vulnerabilities include:
- A high concentration of decision-making in a patriarch or sibling group,
- Opaque RPTs with promoter investment vehicles;
- Limited board challenges; and
- Intra-family disputes spilling into operations.
United States. Large private companies – Cargill, Koch Industries and major technology unicorns – maintain public-company level internal controls due to litigation, creditor scrutiny and reputational constraints.
Europe. European family giants such as IKEA, Bosch and Aldi employ:
- Dual-board or foundation structures;
- Formal family charters; and
- Independent supervisory boards.
These mechanisms balance family control with institutionalisation.
East Asia, Middle East and China. Across East Asia, stewardship codes, relationship banking and government oversight temper family dominance. In the Middle East, sovereign-backed conglomerates have professional boards and strong compliance systems.
Chinese giants (such as Huawei and ByteDance) combine founder influence with party committee oversight, forming hybrid governance models.
Cross-jurisdictional trends
Five converging global governance trends are visible:
- Separation of ownership and management through professional CEOs;
- Formal family governance via constitutions and councils;
- Investor-driven oversight spurred by private equity/venture capital covenants;
- Strengthened internal audit and risk systems under audit committee supervision; and
- ESG and supply-chain pressures pushing higher transparency.
Conclusion
Global evidence shows that concentrated ownership neither guarantees nor undermines governance. Failures stem from opacity, lack of challenges, misaligned incentives and permissive cultures.
Promoter-led firms that embed transparent structures, empower independent directors, treat proxy advisers as governance partners, and invest in internal audit, risk and compliance, outperform peers in resilience and long-term value creation.
For India – where promoter-led and unlisted enterprises will dominate for decades– the quiet governance revolution will be judged not by promoter dilution but by accountability architectures surrounding ownership.
ATINDRA NATH BASU is group general counsel and company secretary at Greaves Cotton Ltd
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