Sebi issues guidance note on evaluation of company boards

Market regulator Securities and Exchange Board of India (Sebi) on Thursday issued guidance on performance assessment of directors on the boards of their companies, so as to improve corporate governance.

The regulator wants companies to ensure that discussions among board members are healthy and free-flowing, critical and dissenting suggestions are heard and conflicts of interest are monitored and dealt with.

Sebi said the guidance is being issued after studying the practices of board evaluation prevalent among listed entities in India. The regulator has also carried out a comparative analysis 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.

The guidance note 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, Sebi stated.

The Sebi guidance note covers all major aspects of board evaluation including:

  • The subject of evaluation, ie, who is to be evaluated;
  • Process of evaluation, including laying down of objectives and criteria to be adopted for evaluation of different persons;
  • Feedback to the persons being evaluated;
  • Action plan based on the results of the evaluation process;
  • Disclosure to stakeholders on various aspects;
  • Frequency of board evaluation; and
  • Responsibility of board evaluation and review of the entire evaluation process periodically.

However, since the concept of board evaluation in India is at a nascent stage, market participants pointed out that as the number of listed entities in India is very large and many of them may not have much clarity on the process of board evaluation, this may need further guidance.

The Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 contain broad provisions on board evaluation, ie, evaluation of the performance of the board as a whole, individual directors (including independent directors and Chairperson) and various committees of the board. The provisions also specify responsibilities of various persons / committees for conduct of such evaluation and certain disclosure requirements as a part of the listed entity's corporate governance obligations.