tomates routines and provides alerts to foster an atmosphere of good corporate governance. Like Legasis, CimplyFive too is working on a tool that helps companies evaluate their boards.
“Board evaluation is treated like a statutory requisite, almost like a compulsory medical test that you undergo because you have to. Right now, the law asks only for a report on evaluation and means employed. They do not ask for results,” Shankar Jaganathan, founder, CimplyFive Corporate Secretarial Services, said.
CimplyFive and InGovern, an independent corporate governance research and advisory firm, released in May, 2016, a study of board evaluation practices in India’s top 100 companies in 2015. Only five got 3-star ratings, the highest that any company got for their 2015 disclosures for disclosing positive results of board evaluation. These were Ambuja Cements, Contai ner Corporation, Federal Bank, HDFC and Hero Motocorp. Infosys got a two-star rating, along with ITC, Wipro, Bharti Airtel and 48 other companies while Adani Ports, Bosch, Idea Cellular and Maruti Suzuki were among the companies rated one star.
“In a large listed company with a market cap of over ₹ 5000 crore, a formal meeting was conducted for evaluation but three of the four independent directors (except the lead independent director) took and were granted leave of absence. Entire evaluation was done by the lead independent director. In another listed company, a CA acting as an independent director was mandated to fill in forms on behalf of all directors and complete all the documentary formalities. Also, while the terms of independent directors are extended on the basis of their annual performance evaluation, we’ve never heard of an instance where the performance evaluation has caused the removal of an independent director,” said Tuljapurkar.
A 2015 report by the World bank’s International F i na nc e Cor p or at ion ( I F C) t it le d ‘ Boa r d Evaluations: Insights from India and Beyond’ said board evaluations are ineffective and include defensive attitudes by directors, legal and procedural concerns and perceived business risks in India. Indian directors suffer from a “prima donna complex” where they find it almost demeaning that being directors, they, too, have to undergo the process of evaluation, Sandeep Parekh, founder, Finsec Law Advisors and a former executive director at Sebi, told ET.
“Having a software for evaluation would dramatically reduce the amount of leverage which a promoter group, for instance, has over independent directors.”
Board evaluation has not been a familiar international practice. Even the countries that have pioneered this change have been introduced to this concept only in the last 12 years. However, a study in Belgium referred to in the report by IFC has revealed that “the requirement for periodic board evaluation is one of the least respected governance recommendations”.
“The onus of carrying out efficient board evaluation is as much on the investors and institutional investors as it is on the board. If the shareholders ask for it, the boards are bound to take it seriously,” said Sriram Subramanium, founder and MD, InGovern Research. “The arguments being offered regarding the pay hike of the Infosys CEO and severance packages would have had a better backing if the evaluation was done seriously. A lot of questions could have been answered by just revisiting the evaluation documents.”
SANDEEP PAREKH, FOUNDER, FINSEC LAW ADVISORS