SEBI issues guidance on evaluating board of directors

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The Securities and Exchange Board of India (SEBI) released a guidance note dated 5 January on the evaluation of the board of directors of a listed company. The note aims to help companies evaluate their board, improve its effectiveness and enhance corporate governance standards.

The guidance note divides the evaluation process into three parts: pre-evaluation, evaluation and post-evaluation.

PRE-EVALUATION

The guidance note prescribes the following: (1) identifying the objectives of evaluation, which may be general (standard objectives in terms of board evaluations) and specific (objectives specific to the board evaluation based on issues of concern, recent events, etc.); and (2) developing criteria for evaluation at every level of the board of directors depending on the functions of the board in terms of responsibilities, competencies required, nature of business, etc.

The criteria for different directors/groups are as follows:

Board of directors (as a whole)

A board of directors should be evaluated in core areas such as structure, board meetings, functions, management and professional development.

The guidance note also suggests that the board take on the additional functions below:

  • Documentation of the role and responsibilities of the board of directors (including the bifurcation of the roles of chairman and CEO, if any);
  • Performance and strategy evaluation (in terms of strategic issues, plans of action and risks relating to the listed entity and the implementation process);
  • Governance and compliance of the board (in relation to disclosures, reporting requirements and the governance practices of the board);
  • Evaluation of risk (review of high-risk issues, recognition and assessment of risks);
  • Grievance redressal for investors;
  • Monitoring of conflicts of interests in relation to the management, board of directors and shareholders, stakeholder values, corporate culture; and
  • Facilitating of the efficiency of independent directors.

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The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.

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