SEBI release Guidance Note on Board Evaluation

Securities and Exchange Board of India (SEBI) vide circular number SEBI/HO/CFD/CMD/CIR/P/2017/004 dated January 5, 2017 releases ‘Guidance Note on Board Evaluation’.

The Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR”) contain broad provisions on Board Evaluation i.e. evaluation of the performance of: (i) the Board as a whole, (ii) individual directors (including independent directors and Chairperson) and (iii) 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.

However, the concept of Board evaluation in India is at a nascent stage. It has been brought to SEBI’s notice by market participants that as the number of listed entities in India is very large, many of them may not have much clarity on the process of Board Evaluation and hence, may need further guidance.

SEBI has studied the practices of Board evaluation prevalent among listed entities 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.

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.

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 Evaluation and
h. Review of the entire evaluation process periodically.

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