Corporate Governance and Board Excellence
Corporate Governance and Board Excellence
This domain tests board architecture and process: composition and independence, meetings and quorum, committees, evaluation, related-party oversight and the standard of care expected of an independent director.
Core rules
- Section 149(4): every listed public company must have at least one-third of its board as independent directors.
- SEBI LODR Regulation 17 tightens this: at least one-third independent where the chairperson is non-executive, but at least one-half where the chairperson is executive or a promoter. The top 1,000 listed entities must have at least one independent woman director.
- Regulation 17A caps independent directorships at seven listed companies; a whole-time director moving to an independent role in the same company needs a one-year cooling-off.
- Section 173: four board meetings a year with a gap not exceeding 120 days. Independent directors meet separately at least once a year under Schedule IV.
- Committees: Audit (Section 177), Nomination and Remuneration (Section 178), Stakeholders' Relationship and CSR (Section 135), with independent-majority requirements in listed companies.
- Section 178(2) and Schedule IV require annual evaluation of the board, its committees and individual directors, including a review by independent directors of the chairperson and non-independent directors.
Worked example
A listed company has nine directors and an executive chairperson who is also a promoter. Under LODR 17(1)(b) at least half must be independent, so five seats (4.5 rounded up). A board retaining only three independent directors breaches the LODR even though it satisfies the one-third rule in Section 149(4); the stricter standard governs.
Traps
- Applying the one-third test when the chairperson is executive.
- Confusing 'non-executive' with 'independent' - independence requires every Section 149(6) test to be met.
- Treating evaluation as a formality; the outcome must be disclosed in the board's report under Section 134(3)(p).
- Reading Section 149(12) as blanket immunity - it covers only acts done diligently and with knowledge through board processes.