Along with the considerable
enhancement in the duties and responsibilities of boards of directors of Indian
companies that was occasioned due to the Companies Act, 2013 and the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, there has been a
considerable emphasis on board evaluation
as a measure of not only enhancing corporate governance in general, but also as
a means of making boards more accountable to various corporate constituencies.
Although the legislation and regulation mentioned above carried references to
the requirement for board evaluation, they do not contain much details thereof,
and it is left to individual companies to implement the same in the manner that
is most suitable to them. While some of the leading companies did carry out
stringent board evaluations even in the absence of a legal requirement, there
tends to be considerable lack of uniformity in the standards and processes for
board evaluation across all listed companies, thereby depriving investors and
other stakeholders of the ability to compare amongst companies. Moreover, the
issues of board responsibility and the performance of directors have been
called into question in a recent high-profile episode, which may have had some
role in reigniting the discussion surrounding board evaluation.
enhancement in the duties and responsibilities of boards of directors of Indian
companies that was occasioned due to the Companies Act, 2013 and the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, there has been a
considerable emphasis on board evaluation
as a measure of not only enhancing corporate governance in general, but also as
a means of making boards more accountable to various corporate constituencies.
Although the legislation and regulation mentioned above carried references to
the requirement for board evaluation, they do not contain much details thereof,
and it is left to individual companies to implement the same in the manner that
is most suitable to them. While some of the leading companies did carry out
stringent board evaluations even in the absence of a legal requirement, there
tends to be considerable lack of uniformity in the standards and processes for
board evaluation across all listed companies, thereby depriving investors and
other stakeholders of the ability to compare amongst companies. Moreover, the
issues of board responsibility and the performance of directors have been
called into question in a recent high-profile episode, which may have had some
role in reigniting the discussion surrounding board evaluation.
In this background, the issue
by SEBI of what is termed as a “Guidance
Note on Board Evaluation” assumes importance. In a lengthy set of
parameters and processes, SEBI lays down detailed guidance on how companies may
carry out board evaluation. This includes the evaluation of the board as a
whole, that of various committees of the board, and also that of individual
directors, including inside directors as well as independent directors. Companies
that are required to carry out board evaluation may do well to rely upon the
guidance note, given its comprehensive nature.
by SEBI of what is termed as a “Guidance
Note on Board Evaluation” assumes importance. In a lengthy set of
parameters and processes, SEBI lays down detailed guidance on how companies may
carry out board evaluation. This includes the evaluation of the board as a
whole, that of various committees of the board, and also that of individual
directors, including inside directors as well as independent directors. Companies
that are required to carry out board evaluation may do well to rely upon the
guidance note, given its comprehensive nature.
The use of a guidance note approach
is interesting, in that it is not intended to operate as a mandatory
regulation, but rather “to educate the listed entities and their board of
directors about various aspects involved in the board evaluation process and
improve their overall performance as well as corporate governance standards to
benefit all stakeholders”. Hence, it is merely exhortatory in nature.
Nevertheless, it signifies the importance of board evaluation from the
regulator’s perspective, which has also received the attention of SEBI’s
international advisory board at its recent
meeting.
is interesting, in that it is not intended to operate as a mandatory
regulation, but rather “to educate the listed entities and their board of
directors about various aspects involved in the board evaluation process and
improve their overall performance as well as corporate governance standards to
benefit all stakeholders”. Hence, it is merely exhortatory in nature.
Nevertheless, it signifies the importance of board evaluation from the
regulator’s perspective, which has also received the attention of SEBI’s
international advisory board at its recent
meeting.
While the above guidance note is an
important step in enhancing corporate governance in general and board
responsibility in particular, it remains to be seen how seriously Indian listed
companies take this guidance. As observed in this quarterly briefing,
there continue to be several challenges that befall boarding evaluation in the
Indian context. Hopefully, the elaborateness of SEBI’s guidance note will help
address at least some of those.
important step in enhancing corporate governance in general and board
responsibility in particular, it remains to be seen how seriously Indian listed
companies take this guidance. As observed in this quarterly briefing,
there continue to be several challenges that befall boarding evaluation in the
Indian context. Hopefully, the elaborateness of SEBI’s guidance note will help
address at least some of those.
