India’s capital markets regulator on Thursday issued guidance on how companies should evaluate the performance of their directors to ensure objectivity and improve corporate governance.
Among the guidelines, companies should consider whether discussions among board members are healthy and free-flowing, whether critical and dissenting suggestions are welcome and whether conflicts of interest are monitored and dealt with, the Securities and Exchange Board of India (SEBI) said.
The new guidance comes at a time when a boardroom battle at Tata Sons [TATAS.UL], the holding company of the $100 billion Tata conglomerate, has highlighted the vulnerability of independent company directors in India when they come up against a dominant shareholder.
Tata Sons is waging a bitter battle against former chairman Cyrus Mistry, who has complained of mismanagement and corporate governance failures within the company. It has also ousted Nusli Wadia, an independent director who sat on the boards of three of its listed companies, after he publicly backed Mistry’s claims.
SEBI did not mention any specific companies in its note.
“The purpose of the guidance note is to educate the listed entities and their boards of directors about various aspects involved in the board evaluation process and improve their overall performance as well as corporate governance standards to benefit all stakeholders,” the regulator said.
Companies should check that they are allowing independent directors to perform their roles effectively and check whether directors are allowed to exercise their own judgment and voice their opinions freely, it added.
Evaluations should be performed internally through questionnaires and oral assessments, as well as through external experts to ensure objectivity, the SEBI said, adding that action plans should be based on these evaluations.
A 2016 report by proxy advisory firm InGovern said that, under its five-star rating system, only five of India’s top 100 companies merited three stars for providing effective board evaluations.
InGovern founder Shriram Subramanian described the SEBI guidelines as a useful start but said that they still fell below standards on board evaluations in Britain and the United States.
“Even if (Indian) companies adopt this guidance note in its entirety, it would fall short of global best practice,” he said.