Board evaluation important, companies should disclose results to shareholders: IAB

THE INTERNATIONAL Advisory Board (IAB) of the Securities and Exchange Board of India (Sebi) on Saturday said evaluation of company boards is an important element in corporate governance and companies should disclose the results of the evaluation of its board to the shareholders.

“The process of evaluation of the performance of the board has to go beyond a box-ticking exercise. The process has to be conducive to the growth of the company and can differ from company to company. The best evaluation is actually an exercise in self evaluation of the company’s own performance and effectiveness in terms of its mission, financial returns, strategy, business model and social responsibility, and in this context whether the standards expected from the board are being realised,” said IAB in its seventh meeting held at Jaipur.

IAB also said that boards of companies should be “diverse, balanced and in tune with the requirements for the effective functioning of the company”.

“There has to be transparency in board appointments and removal process and similar requirements need to be prescribed at both stages. Audit committee should also focus on forward-looking risk assessment in addition to retrospective evaluation,” said IAB.

Sebi constituted the IAB in September 2011 as part of the measures initiated by the regulator to respond to the challenges arising out of the global financial crisis. The role of IAB is to guide Sebi with its advice on future direction for the organisation, taking into account relevant global experiences, emerging challenges and latest developments in the regulatory space.

The observations of IAB comes at a time when one of India’s largest conglomerate, the Tata group, is engaged in a bitter boardroom battle. Tata Sons, the holding company of the group, has locked horns with its former chairman Cyrus Mistry over a host of issues, including his sudden removal from Tata Sons chairmanship and other serious corporate governance issues.

Mistry sent an email to the board of Tata Sons and Tata Trusts, levelling a series of allegations against the Tata group and his predecessor, Ratan Tata ranging from fraudulent transactions, unethical practices and conflict of interest, raising questions about the level of corporate governance in the conglomerate.