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Last Updated : Apr 01, 2020 09:17 PM IST | Source: Moneycontrol.com

The need for mandatory board evaluation in India

A board's evaluation is essential for every listed company. Hence, at least once a year, the board is expected to file a report stating how the evaluation of its own self, its committees and individual directors was undertaken.

Shalini Dagar
Representative image
Representative image

In the last decade, there has been an inordinate emphasis on the quality and the functioning of boards as a means of driving corporate governance.

Board evaluation is at the centre of this movement towards greater Board effectiveness.

In India, board evaluation made a formal appearance in the wake of the Companies Act, 2013.

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Under this law, a formal annual evaluation of the Board, its committees and the individual directors has become mandatory.

Earlier, the Corporate Governance Voluntary Guidelines, 2009 compiled by the Ministry of Corporate Affairs had suggested such an evaluation, but it was not de rigeur.

Similarly, Clause 49 of the Listing Agreement required that listed companies undertake an objective assessment of the performance of non-executive directors by a peer group.

This, however, was not mandatorily required. With the overhaul of the law governing companies in 2013, board evaluation became a legal necessity. Section 134 of the Companies Act, 2013 not only laid down the firm legal requirements for such an evaluation, but also defined the universe to which such requirements would apply.

Board evaluation is essential for every listed company. Hence, at least once a year, the board is expected to file a report stating how the evaluation of its own self, its committees and individual directors was undertaken.

In the unlisted space, the requirement of such an assessment is confined to public companies with a paid-up share capital beyond the defined limit.Under Section 178, it is the Nominations and Remuneration Committee which is responsible for the entire exercise.

Though the law does not prescribe the method of evaluation, it does expect an outcome by way of a statement by the board the relevant companies to file a statement which indicates the manner in which the evaluation was conducted.

And, that statement is presented to the shareholders at the general meeting.

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First Published on Apr 1, 2020 08:58 pm
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