TaxTMI 
TaxTMI 
TaxTMI 
Guidance Note on Board Evaluation
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....s in India. An analysis has also been done of the global practices in various jurisdictions like regulatory requirements, best practices, internal versus external evaluation, disclosure requirements etc. The matter was further discussed with the industry associations, stock exchanges, market participants and international bodies and experts to obtain their views on this subject. 4. Based on the aforesaid analysis, a guidance note in this matter has been prepared in order to guide listed entities by elaborating various aspects of Board evaluation that may help them to improve the evaluation process, derive the best possible benefit and achieve the objective of the entire process. 5. The guidance note covers all major aspects of Board Evaluation including the following: a. Subject of Evaluation i.e. who is to be evaluated; b. Process of Evaluation including laying down of objectives and criteria to be adopted for evaluation of different persons; c. Feedback to the persons being evaluated; d. Action Plan based on the results of the evaluation process; e. Disclosure to stakeholders on various aspects; f. Frequency of Board Evaluation; g. Responsibility of Board Evaluati....
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....ch directors shall: i. review the performance of non-independent directors and the Board as a whole. ii. review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors. iii. assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties. b. The independent directors shall bring an objective view in the evaluation of the performance of board and management. 3. Evaluation of independent directors: The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. 4. Disclosure requirements: a. A statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors shall be included in the report by Board of Directors placed in the general meeting. b. The performance evaluation criteria for independent directors shall be disclosed in the section on the corporate governance of the annual report. B. S....
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....the Board on the aforesaid parameters. v. Appointment to the Board: Whether the process of appointment to the board of directors is clear and transparent and includes provisions to consider diversity of thought, experience, knowledge, perspective and gender in the board of directors. b. Meetings of the Board: i. Regularity of meetings: Whether meetings are being held on a regular basis ii. Frequency: 1. Whether the Board meets frequently 2. Whether the frequency of such meetings is enough for the Board to undertake its duties properly iii. Logistics: Whether the logistics for the meeting is being handled properly- venue, format, timing, etc. iv. Agenda: 1. Whether the agenda is circulated well before the meeting 2. Whether the agenda has all relevant information to take decision on the matter 3. Whether the agenda is up to date, regularly reviewed and involves major substantial decisions 4. Whether the quality of agenda and Board papers is up to the mark (explains issues properly, not overly lengthy, etc.) 5. Whether outstanding items of previous meetings are followed-up and taken up in subsequent agendas 6. Whether the time allotted for the every item (especi....
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....ions and divestments. iii. Governance and compliance: 1. Whether adequate time of the Board is being devoted to analyse and examine governance and compliance issues 2. Whether the Board monitors the effectiveness of its governance practices and makes changes as needed 3. Whether the Board ensures the integrity of the entity's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. 4. Whether the Board oversees the process of disclosure and communications. 5. Whether the Board evaluates and analyses the compliance certificate from the auditors / practicing company secretaries regarding compliance of conditions of corporate governance. iv. Evaluation of Risks: 1. Whether Board undertakes a review of the high risk issues impacting the organization regularly 2. In assessment of risks, whether it is ensured that, while rightly encouraging positive thinking, these do not result in over-optimism that either leads to significant risks not being recognised or exposes the entity t....
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....dustry peers 4. Whether remuneration of the management is in line with its performance and with industry peers 5. Whether remuneration of the Board and the management is aligned with the longer term interests of the entity and its shareholders. 6. Whether the Board selects, compensates, monitors and, when necessary, replaces key managerial personnel based on such evaluation. 7. Whether the Board 'steps back' to assist executive management by challenging the assumptions underlying strategy, strategic initiatives (such as acquisitions), risk appetite, exposures and the key areas of the entity's focus. ii. Independence of the management from the Board: Whether the level of independence of the management from the Board is adequate iii. Access of the management to the Board and Board access to the management: Whether the Board and the management are able to actively access each other and exchange information iv. Secretarial support: Whether adequate secretarial and logistical support is available for conducting Board meetings v. Fund availability: Whether sufficient funds are made available to the Board for conducting its meeting effectively, seeking expert advice E.g. Legal, ac....
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.... actively takes initiative with respect to various areas g. Availability and attendance: Whether the person is available for meetings of the Board and attends the meeting regularly and timely, without delay. h. Commitment: Whether the person is adequately committed to the Board and the entity i. Contribution: Whether the person contributed effectively to the entity and in the Board meetings j. Integrity: Whether the person demonstrates highest level of integrity (including conflict of interest disclosures, maintenance of confidentiality, etc.) Additional criteria for Independent director: a. Independence: Whether person is independent from the entity and the other directors and there if no conflict of interest b. Independent views and judgement: Whether the person exercises his/ her own judgement and voices opinion freely Additional criteria for Chairperson: a. Effectiveness of leadership and ability to steer the meetings: Whether the Chairperson displays efficient leadership, is open-minded, decisive, courteous, displays professionalism, able to coordinate the discussion, etc. and is overall able to steer the meeting effectively b. Impartiality: Whether the Chairperson i....
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.... the feedback may be provided in one or more of the following ways: a. Orally given by Chairman/ external assessor or any other suitable person to i. Each Member separately ii. To the entire Board iii. To the Committees b. A written assessment to every member, Board and Committee The active role of the Chairperson is desirable in providing feedback to the members. If members are not comfortable to open individual assessments, provision for confidentiality may be made where possible. For effectiveness of the evaluation, it is essential that the feedback be given honestly and without bias. E. Action Plan Based on the analysis of the responses, the Board may prepare an action plan on: * Areas of improvement including training, skill building, etc. as may be required for Board members * List of actions required detailing: o Nature of actions o Timeline o Person responsible for implementation o Resources required, etc. * Review of the actions within a specific time period The action plan may be prepared by the Board in a comprehensive manner. Suggestions under the external assessment, individual member feedback, etc. may be taken into account while drafting t....
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....k of the members to improve the process is being taken into account Such review may be done based on feedback from management, Board members, Chairperson, external assessors, various stakeholders, etc. Annexure A1 Main provisions under Companies Act with respect to Board Evaluation Section 134(3)- There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include- (p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors; Section 178(2)- The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director's performance. SCHEDULE IV: CODE FOR INDEPENDENT DIRECTORS II. Role and functions. (2) The independent directors shall bring an objective view in the evalu....