Board Evaluation Practices in India: Background
CimplyFive Corporate Secretarial Services Pvt. Ltd. (CimplyFive), pioneer in offering research and technology based solutions for compliance with the Companies Act 2013, and InGovern Research Services Pvt. Ltd. (InGovern), India’s first proxy advisory and a premier corporate governance research and advisory company, released their report Board Evaluation Practices in India: A Study of Top 100 Companies in 2015. Board Evaluation is a new practice for many companies mandated by the Companies Act, 2013 in India for the first time. This study is the first ever analysis of the Board Evaluation Practices since being mandated in India.
Board Evaluation Practices in India: Comments
On the occasion of this release, Shankar Jaganathan, Founder & Chief Executive of CimplyFive, said
Board Evaluation is at a nascent stage in India and its potential untapped. Initiatives on corporate sustainability remain incomplete without a well-defined Board Evaluation practice in place. Our 5-star rating system provide Corporate Boards a roadmap to realize this potential and move towards a more sustainable enterprise.
Shriram Subramanian, Managing Director & Chief Executive of InGovern Research added that
Boards should take the Board Evaluation exercises seriously, and not consider it a regulatory requirement to be fulfilled. This report highlights the need for Board Evaluation to be embraced by Indian companies as a means to enhance Board effectiveness and create shareholder value.
Board Evaluation Practices in India: A Study of Top 100 Companies in 2015 is an in-depth analysis of the Board Evaluation practice in India contrasted with global best practices to identify areas for improvement. We have developed a proprietary 5-Star Rating System for Board Evaluation and applied it to the top 100 companies India.
Board Evaluation Practices in India: Highlights
Highlights of the Top 100 Companies evaluation using our proprietary 5-star rating system are:
- 5 companies got 3-Star rating, the highest rating given to the select group of companies. These companies disclosed positive results of their evaluation in addition to the evaluation criteria and evaluation process
- 52 companies got 2-Star rating, as they reported both the evaluation criteria and the evaluation process
- 26 companies got 1-Star rating, as they reported either the evaluation criteria or the evaluation process
- 3 companies did not do Board Evaluation despite the mandate
- 17 companies were exempt from Board Evaluation being public sector companies. Despite exemption, 3 of them shared their evaluation process, criteria or outcome.
Nine of the top 100 companies used the services of an external consultant for their Board Evaluation process, an advisable method, considering the nascent stage of Board Evaluation Practice in India.
Board Evaluation Practices in India: Takeaways
- Meaningful Board Evaluation needs time as three distinct phases are involved. At stage one, the brief for Board Evaluation needs to be agreed upon. In the second stage, feedback needs to be obtained from the participants and in the third stage a draft report needs to be drafted for deliberation by the Board of Directors.
- A comprehensive process of Board Evaluation includes the use of questionnaires to seek individual feedback, web-based questionnaires for assuring confidentiality, personal interviews and discussions in the board. Use of external consultants to facilitate the Evaluation Process, Peer-review of individual directors and Senior Independent Director receiving the performance feedback on the Chairman are some evolved practices.
- Ealuation criteria for the full board included its role and participation in strategy formulation, succession planning, review of board composition, business oversight and governance process. Evaluation of individual directors covered personal attributes like knowledge, experience, ethical standards, communication, and persuasion skills with application tested through attendance, participation and contribution in board discussions.
- Though not widely prevalent, Company Secretaries can play a pivotal role by coordinating and supporting the Board Evaluation process.
- Reporting on conclusions arrived at by the Board Evaluation process is a logical step. Comprehensive evaluations result in reassurances on what is going right and identification of areas where improvement is required.
- The primary objective of any Board Evaluation is to identify areas for improvement that can be addressed to improve Board efficiency and effectiveness. Disclosure on the improvement areas reflects confidence and transparency that indicate good governance. Some of the improvement areas identified are right sizing the board, encouraging members to speak-up, supplement the work on succession planning done by a committee, closer monitoring of strategy formulation and implementation, disciplined use of time in Board meetings and categorizing papers circulated to the Board between those required for decision making and those that are for being kept informed.
- Communicating on Action Plan for remedying an improvement area is critical and valuable. However what gets communicated depends on the action identified. Giving specific details like ‘consider best practice technique, such as a combination of annual individual and peer evaluations’ to enhance Non-Executive Director evaluation process is desirable. Likewise indicating a timeline for the action communicates seriousness and commitment to the action identified.
Board Evaluation Practices in India: Download Report
The full report can be accessed and downloaded at: Board Evaluation Practices at Top 100 Companies.
A supplementary note, ‘Extracts of Board Evaluation from the Directors’ Report of the top 100 Companies’ can be downloaded at: Supplementary Note.
Board Evaluation Practices in India: Partners in Evaluation
CimplyFive Corporate Secretarial Services Private Limited is a pioneer in offering research and technology based solutions for compliance with the Companies Act, 2013.Board Leaders Integrated Software Solution (BLISS) the company’s first product eliminates procedural non-compliance risk for entities incorporated under the Indian Companies Act, 2013. More details about the company and its product BLISS can be obtained from www.cimplyfive.com.
CimplyFive also provides a free to use website, the Companies Act Integrated Ready Reckoner that provides company law at your fingertips. This site uses hypertext to integrate rules, notifications, orders and circulars with the Act and provides real time, online access to the Companies Act as it stands on that day.
InGovern Research Service Private Limited is InGovern is India’s first independent corporate governance research and advisory firm which assists investors that have financial or reputation exposure to companies. InGovern also assists companies in enhancing their corporate governance practices. InGovern’s services include: (a) Vote Recommendations (b) Bespoke Corporate Governance Research (c) CG Consulting and Education (d) Value Enhancement and (e) Risk Monitoring.
InGovern was founded with the objective of enhancing the corporate governance culture and shareholder activism of institutional investors in India. InGovern clients include mutual funds, insurance companies, foreign institutional investors, custodians, companies and others.