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India Inc is far behind the best global corporations when it comes to evaluating the board of directors, according to a new study.
None of the 100 companies that make up the Nifty 50 and Nifty Next 50 disclose improvement areas or provide an action plan to improve the performance of their boards. Five companies provide only positive findings on board performance.
The study, conducted by CimplyFive Corporate Secretarial Services Pvt Ltd in partnership with proxy advisory firm InGovern Research Services, rates companies on the level of disclosure they provide while evaluating their respective boards.
No high fivesNone of the companies secured five- or four-star rating; only five companies –– Ambuja Cements, Concor, Federal Bank, HDFC and Hero MotoCorp –– qualified for a three-star rating.
PSUs are exempt from reporting on board evaluation, but three of them voluntarily underwent the exercise. Two of them secured a one-star rating; only Concor got three stars.
The Companies Act, 2013, made it mandatory for companies to have a framework to evaluate the performance of their boards, board members and sub-committees annually, and to take remedial action as needed.
Similarly, SEBI’s listing obligations and disclosure requirements regulations of 2015 require corporates to draw up criteria for the evaluation of their board of directors. The criteria are framed by the nomination and remuneration committee, and the report of the performance evaluation of independent directors forms the basis for deciding on the extension of their terms.
The study was based on various parameters, including processes, attributes, positives, areas of improvement and the action plan for addressing shortfalls.
Globally, board evaluation started in the 1990s. International best practices put the nature of disclosure of board evaluation under three levels: when companies only disclose positive conclusions; when they disclose both positive findings and areas requiring improvement; and when they also disclose the action plan to rectify flaws.
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