A Guide to Board Evaluation (Revised Edition)
Author: Unknown
Date: 2017-06-15T05:07:34+00:00

A Guide to

Board Evaluation

BACKGROUNDER

JUNE 2017

PRICE : Rs. 200/- (Excluding Postage)

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

All rights reserved. No part of this publication may be translated or copied in any
form or by any means without the prior written permission of The Institute of

Company Secretaries of India.

ISBN : 9789382207-92-4

Published by :

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

ICSI House, 22, Institutional Area, Lodi Road, New Delhi - 110 003

Phones : 41504444, 45341000  Fax : 24626727

Website : www.icsi.edu  E-mail : info@icsi.edu

Printed at :

Chandu Press/200/June 2017

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PREFACE TO REVISED EDITION

The performance evaluation is best tool in enhancing the board’s
effectiveness is recognised globally. An effective performance
evaluation exercise helps the board, committees and individual
directors perform to their optimum capabilities. It improves
leadership/performance culture, clarifies differing directors’ roles,
improves board communication and facilitates board teamwork,
improves decision making processes and efficiency of board
operations, etc.

In India, the Companies Act, 2013 laid down greater emphasis on
good governance through the boards, board processes and enhancing
board’s effectiveness, and performance evaluation is one of them.

The performance evaluation is a qualitative factor certainly facilitates
transition from good to great boards which if implemented in true
letter and spirit would definitely take good governance in India to
greater heights.

In April 2015, the Institute released A Guide to Board Evaluation
based on the provisions of the Companies Act, 2013 and related
best corporate practices. The SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 which came into existence later
in 2015, also contains detailed provisions on board evaluation. This
year, the SEBI has released a Guidance Note on Board Evaluation,
considering all these developments, this publication is being revised.

To facilitate the board performance evaluation, the Institute has
brought out this revised publication. This publication discusses the
need and importance of board evaluation, international trends, legal
framework in India, methodologies, steps involved, post-evaluation
activities and barriers to board evaluation. It also contains the

Parameters and Sample models for evaluation of Chairperson,

Managing Director, Executive Director, Non-executive director,

Independent Director, Board as whole and the Committees and also
provides guidance on how to conduct evaluation of Board. It also
contains Current Trends and Practices in India with respect to board
evaluation and analysis of Annual Reports of top 100 companies
listed on Bombay Stock Exchange.

I am confident that the publication will prove to be immensely

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beneficial in the Board evaluation process. I urge upon the corporates
and my professional colleagues to follow the principles, procedures

& practices as enunciated in this publication for performance
evaluation so as to promulgate good Corporate Governance.

I commend the dedicated efforts put in by CS Nishita Singhal,

Assistant Director in preparing the revised edition and CS Sudhir

Kumar Saklani, Research Associate in analysing the Annual Report
of top 100 companies and finalising the publication under the
guidance of CS Banu Dandona, Joint Director and under the
stewardship of CS Dinesh C. Arora, Secretary.

Improvement is a continuous process; therefore, I would appreciate
the users/ readers for offering their constructive suggestions/
comments for the improvement of this publication.

Place: New Delhi CS (Dr.) Shyam Agrawal

Date: 14th June 2017 President Institute of Company Secretaries of India

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PREFACE TO FIRST EDITION

“Everything that can be counted does not necessarily count;
everything that counts cannot necessarily be counted”

Albert Einstein

The duties of the Board defined under the Companies Act, 2013
clearly codifies that the director of a company shall act in good faith
in order to promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the company, its
employees, the shareholders, the community and for the protection
of environment. This enhanced role of directors requires Boards to
be more engaged, more knowledgeable and more effective.

Board Evaluation is the most effective way to ensure Board members
understand their duties and to adopt effective good governance
practices. To be effective, boardroom appraisals need to have
specific, clearly defined steps and practices, and a special
commitment from the Board.

Board Evaluation as a good governance practice has found its place
in the Companies Act, 2013.This Handbook comprehensively captures
all the provisions relating to Board Evaluation in the Companies Act,

2013, Steps involved in Board Evaluation, Parameters and Sample
models for evaluation of Chairperson, Managing Director, Executive

Director, Non- executive director, Independent Director, Board as
whole and the Committees and also provides guidance on how to
conduct evaluation of Board.

I am confident that the publication will prove to be of immense benefit
to companies and professionals.

I place on record my sincere thanks to CS S. K Agrawala, Central

Council member, CS Ahalada Rao, Central Council member, Mr. N

Hariharan Vice President (Secretarial) & Company Secretary, Larsen

& Toubro Ltd for their valuable inputs in finalizing the hand book.

I commend the dedicated efforts put in by team ICSI led by CS Alka

Kapoor, Joint Secretary and comprising CS Banu Dandona, Deputy

Director, Mr. Chittaranjan Pal, CS Disha Kant, Assistant Education

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Officers under the overall guidance of CS Sutanu Sinha, Chief

Executive & Officiating Secretary and leadership of CS Mamta Binani,

Vice President and CS Vineet Chaudhary, Central Council Member
and Chairman, Corporate Laws and Governance Committee.

In any publication, there is always scope for further improvement. I
would personally be grateful to users and readers for offering their
suggestions/comments for further refinement.

(CS Atul H Mehta)

Place: New Delhi

President

Date: 15-04-15

Institute of Company Secretaries of India

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INDEX

Introduction

1

•

Need for Board Evaluation

3

•

Potential Benefits of Board Evaluation

4

International Trends and Practices

6

•

Good Practices in Board Evaluation by IFC

7

•

G20/OECD Principles of Corporate Governance

10

•

ICGN Global Governance Principles

11

•

UK Corporate Governance Code 2016

12

•

ASX Corporate Governance Council -Australia

13

•

King IV Code of Governance for South Africa

14

•

Code of Corporate Governance, Singapore

16

•

Comparative table of Board Evaluation
in various countries

19

Legal Framework in India

24

•

Requirements under the Companies Act 2013

25

•

Provisions under the SEBI (Listing Obligations
and Disclosure Requirements) Regulations, 2015

28

•

Frequency of Board Evaluation

30

•

Snapshot of Indian Legislative Framework

31

Board Evaluation Methodologies

35

•

Internal Evaluation

36

•

Board Evaluation by External Agencies

39

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Broad Evaluation Framework and Parameters

42

•

Evaluation of the Board as a whole

42

•

Evaluation of the Committees

43

•

Evaluation of Individual Directors

44

•

Managing Director / Whole time Director/

Executive Director

44

•

Independent Directors

45

•

Non- executive Directors

45

•

Evaluation of the Chairperson

46

Post-Evaluation Activities

47

Succession Planning and Board Evaluation

48

Board Evaluation - Disclosure

49

Barriers to Board Evaluation

51

Board Evaluation - Current Trends and Practices in India 56

Sample Board Evaluation Policy

66

Annexures

69

SEBI’s Guidance Note on Board Evaluation

133

Bibiliography

151

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Introduction

“Board evaluation, if it is conducted in a rigorous manner, when
it flows on to and is linked with individual director development
plans and with board succession planning and when the results
are disclosed, is a valuable tool.”

Anne Molyneux, ICGN Board

Introduction

At the core of the corporate governance practices is the Board
of Directors which oversees how the management serves and
protects the long term interests of all the stakeholders of the
company. The institution of Board or directors was based on the
premise that a group of trustworthy and respectable people should
look after the interests of the large number of shareholders who are
not directly involved in the management of the company. The
shareholders and investors repose confidence on the Board of

Directors as their representatives for conducting and monitoring the
affairs of the company. The position of Board of Directors is that of
trust as the Board is entrusted with the responsibility to act in the
best interests of the company. The Board is accountable to the
shareholders for creating, protecting and enhancing wealth, ensuring
optimum utilisation of resources of the company, and reporting to
them on the performance in a timely and transparent manner. The

Board is ultimately responsible for ensuring compliance of various
applicable laws in the best interests of stakeholders.

The Board generally performs three major roles in a company –

•
provide direction (i.e. set the strategic direction of the
company)

•
control (i.e. monitor the management)

•
provide support and advice (advisory role).

1

2

A Guide to Board Evaluation

The aftermath of the global financial crisis and the controversies
surrounding the corporate landscape has brought the focus and
attention on the performance of the board as never before. The role
of the board of directors has undergone rapid transformation over
the past decade. Board evaluation has emerged as one of the
corporate governance priority in recent times globally. Corporate
governance practitioners have been applying Peter Drucker’s idea
that “what gets measured gets managed, and among senior leaders,
what gets acknowledged and valued gets done even better”.

Board evaluation typically examines these roles of the Board
and the entailing responsibilities, and assesses how effectively these
are fulfilled by the Board.

The “Review of the Role and Effective Functioning of Non-

Executive Directors” carried out under the chairmanship of Sir Derek

Higgs in 2003 (the Higgs Review) in U.K. for the first time noted the
importance of Board performance evaluation. It stated that it is ‘best
practice that the performance of the Board as a whole, of its
committees and of its members, is evaluated at least once a year’

and that companies should disclose in their annual report whether
such performance evaluation is taking place.

Board evaluation is a key means by which boards can recognize
and correct corporate governance problems and add real value to
their organizations. A properly conducted board evaluation can
contribute significantly to performance improvements on
organisational; board and individual member level. According to

Heidrick & Struggles Asia Pacific Corporate Governance Report 2014,

“Foundations and Building Blocks for High performing Boards”,
regular Board evaluation is the core driver necessary to promote
change and deliver best practice.

The stakeholders and investors are interested to know whether
the members of Board are effectively functioning individually and
collectively. The Board at many times requires new skills for promptly
responding to the dynamic changing business environment.

Performance measurement, against the set benchmarks, in the form
of Board evaluation has the potential to significantly enhance Board
effectiveness, maximize strengths, tackle weaknesses and improve
corporate relationships. Annual assessment is a powerful tool to
convert good boards into great boards.

A Guide to Board Evaluation

3

Need for Board Evaluation

Evaluation provides the board and its committees with the
opportunity to consider how group culture, cohesiveness,
composition, leadership, meetings information processes and
governance policies influence performance. Board Evaluation helps
to identify areas for potential adjustment and provides an opportunity
to remind directors of the importance of group dynamics and
effective board and committee processes in fulfilling board and
committee responsibilities.

Emphasis on evaluating board and committee performance is
appropriate given the collective nature of board and committee
decision-making authority. However, evaluation of individual directors
is also important as the foundation for effective collective decision-
making is the engagement and efforts of all individual directors.

Therefore, individual director assessment is also a valuable
complement to the board and committee evaluation process. Individual
evaluation encourages self-reflection and can help directors identify
and address individual behaviors that may improve group dynamics
and performance. In addition, formal evaluation of individual directors
can help support the re-nomination decision process.

Thus, Board evaluation contributes significantly to improved
performance at three levels - organizational, Board and individual

Board member level. It also improves the leadership, teamwork,
accountability, decision-making, communication and efficiency of the
board. A commitment to annual evaluation is powerful change agent.

The Board evaluation sets the standards of performance and
improves the culture of collective action by Board. Evaluation also
improves teamwork by creating better understating of Board
dynamics, board-management relations and thinking as a group
within the board. It helps to maximize board/ director contribution
by encouraging participation in meetings and highlighting the skill
gaps on the Board and those of individual members. Directors
demonstrate commitment to improvement, based on the feedback
provided on individual and collective skill gaps.

The purposes of the Board evaluation may be enumerated as
under:

•

Improving the performance of Board towards corporate goals
and objectives.

4

A Guide to Board Evaluation

•

Assessing the balance of skills, knowledge and experience
on the Board.

•

Identifying the areas of concern and areas to be focussed
for improvement.

•

Identifying and creating awareness about the role of Directors
individually and collectively as Board.

•

Building Team work among Board members.

•

Effective Coordination between Board and Management.

•

Overall growth of the organisation.

Potential Benefits of Board Evaluation

Benefits

To organisation

To board

To individual director

Leadershi p

• Sets the performance

• An effective

• Demonstrates
tone and culture of the
chairper son
commitment to
organi sation
utilising a
improvement at

• Role model for CEO
board evaluation
individual level
and senior manage-
demonstrates
ment team
leadership to the
rest of the board.

• Demonstrates
long-term focus of
the board

• Leadershi p
behaviours agreed
and encouraged

Role clarity

• Enables clear distinc-

• Clarifies director

• Clarifies duties of
tion between the roles
and committee
individual directors
of the CEO, manage-
rol es
ment and the board

• Sets a board norm

• Clarifies expectations

• Enables appropriate
for roles
delegation principles

Teamwork

• Builds board/CEO/

• Builds trust

• Encourages individual
manag ement
between board
director involvement
rel ationshi ps
member s

• Develops commitment

• Encourages active
and sense of ownership
partici pation

• Develops commitment

• Develops commit-

• Clarifies expectations
ment and sense of
ownership

Accounta-

• Improved stakeholder

• Focuses board

• Ensures directors
bil ity
relationships (e.g.

attention on
understand their legal
investors, financial
duties to stake-
duties and
markets)

hol der s
responsibili ti es

• Improved corporate

• Ensures board is

• Sets performance
governance standards
appropriately
expectations for

• Clarifies delegations
monitoring organi-
individual board
sati on
member s

A Guide to Board Evaluation

5

Benefits

To organisation

To board

To individual director

Decision-

• Clarifying strategic

• Clarifying strategic

• Identifies areas where
making
focus and corporate
focus
director’s skills need
goals

• Aids in the identifi-
development

• Improves organisa-
cation of skills gap

• Identifies areas where
tional decision-making
on the board
the director’s skills can

• Improves the
be better utilised
board’s decision-
making ability

Communi-

• Improves stakeholder

• Improves board-

• Builds personal
cati on
rel ationshi ps
manag ement
relationships between

• Improves board-
rel ationshi ps
individual directors
manag ement

• Builds trust
rel ationshi ps
between board

• Improved board-CEO
member s
rel ationshi ps

Board

• Ensures an

• More efficient

• Saves directors’ time
oper ations
appropriate top-level
meeti ng s

• Increases effective-
policy framework

• Better time
ness of individual
exists to guide the
manag ement
contributors
organi sation

***

International Trends and Practices

Over time, a board may become complacent or may need new
skills and perspectives to respond nimbly to changes in the
business environment or strategy. Regular and rigorous self-
evaluations help a board to assess its performance and identify
and address potential gaps in the boardroom.

(CII 2014)

A global trend is to require board evaluation, with the objective
of leading to better practices and board succession planning.

Regulators around the world have provided for board evaluation.

Several national codes or regulations require or expect board
evaluations and/or related disclosures, and in most countries it is a
recommended practice. Some countries have mandated an external,
independent board evaluation once every three years. However there
is no one-size-fits-all approach; there are many different ways for
countries and companies to approach evaluations.

Heidrick & Struggles published a report (Heidrick & Struggles

2014) that reviewed corporate governance data, including board
evaluation practices and reporting, from over 400 companies across

15 diverse European jurisdictions, reported that:

•

70% of boards surveyed undergo a performance evaluation
annually.

•

78% percent of boards were evaluated in the last two years,
up from 75 percent in 2009.

•

The board chairperson and/or the board members themselves
are responsible for the evaluation.

•

21% of entities use external consultants to facilitate the board
evaluation.

A study conducted by the Rock Center for Corporate Governance

6

A Guide to Board Evaluation

7
at Stanford University and the Miles Group titled ‘Board of Directors

Evaluation and Effectiveness’ in 2016 reveals that while board
evaluations are a common practice, they are not universal. Eighty
percent of companies conduct a formal evaluation; twenty percent
do not.

The study also reveals that board evaluations appear to be much
less effective at the individual level. Only half (55 percent) of
companies that conduct board evaluations evaluate individual
directors, and only one-third (36 percent) believe that their company
does a very good job of accurately assessing the performance of
individual directors. Boards appear not to be effective in using the
results of evaluations to improve individual performance. Only half

(52 percent) believe their board is very effective in dealing with
directors who are underperforming or exhibit poor behavior, while a
quarter (26 percent) do not.

To improve board functioning, it recommends the following:

1. Conduct a diagnostic where each director’s input is solicited
around a variety of critical topics: board effectiveness,
committee effectiveness, current board composition, the
forward-looking needs of the board to meet the strategic
needs of the enterprise, board structures and processes,
agendas and materials, board interface with management,
board succession process, and board leadership.

2. Provide a detailed report of the findings. Include
recommended actions based upon short, medium, and long-
term timeframes. Develop a skills-and-experience matrix to
assist with board refreshment efforts, individual director
coaching plans, and feedback sessions to provide directors
with more detailed feedback around their effectiveness.

3. Create a process that is as independent as possible. Identify
a point person on the board accountable for managing the
process and following through on its recommendations.

Develop a process for removing underperforming directors.

(1) Good Practices in Board Evaluation – International Finance

Corporation (IFC)

Some of the Good Practices in Board Evaluations as specifies in

IFC Report titled “From Companies to Markets — Global

8

A Guide to Board Evaluation

Developments in Corporate Governance”, 2015, are given below-

•

Evaluations will vary from company to company and within a
company at different times in the company’s development.

Evaluations should consider the specific context of the
company. Nevertheless, below are some recognized good
practices that are emerging:

•

Trust in the credibility and confidentiality of the evaluation
is a key factor for its success, regardless of who manages
the process (IFC 2011). Also, confidentiality and transparency
are critical to the process.

•

It is important to have board members’ full understanding of
and commitment to quality corporate governance and the
evaluation.

•

The goal of an evaluation is to improve the performance of
the board and the company itself.

•

Leadership of the evaluation process is key—usually led by
the chairperson.

•

Evaluations should be a regular feature of board practices.

Most companies undertaking board evaluations do so
annually; some companies, where they are not mandated
otherwise, may undertake an evaluation once every three
years.

•

Evaluations may be best completed in time for discussion at
the board strategy session, thus any actions may be
incorporated into the strategy.

•

Prior to an evaluation, all board members should know how
they will be assessed (that is, the topics for evaluation), the
process, and the way they will be measured.

•

Performance metrics should be developed over time.

•

Questionnaires, open discussion, and one-to-one discussions
are the most widely used approaches.

•

Questionnaires should be carefully drafted, probably in
collaboration with the chairperson, and reviewed by all those
being evaluated, prior to finalization.

•

Evaluations should cover key topics: board composition and

A Guide to Board Evaluation

9
structure, dynamics and functioning (including leadership and
teamwork), role clarity, governance of strategy and risk, board
accountability and oversight role, board decision making,
board advice role, individual characteristics of directors

(vision, contributions, behaviors, time availability, preparation,
particular skills), chairperson’s role, board functioning

(notices, meeting processes, proactivity), and
communication.

•

An evaluation of board committees should cover issues
pertinent to that particular committee.

•

Evaluation results should remain confidential and be
analyzed, distributed to board members, and discussed in
an open and non-confrontational manner.

•

Any evaluation should focus on the improvement of board
performance and thus should lead to the development of an
action plan to address issues arising.

•

The process itself should be reviewed for improvements.

•

Disclosure of the evaluation goals and process should be
communicated to shareholders in the annual report, included
in the company code of corporate governance, and placed
on the company website.

•

Board evaluations can be a sensitive issue to some people.

It is important to be aware of this possibility and to deal with
sensitivities.

•

Evaluations may expose board weaknesses that, if not
attended to, may provide information for a later litigation
process.

•

Safeguards should be built into the system to protect both
the company and individual directors.

•

It is essential for any independent evaluator to be experienced
in board evaluations, be seen to be independent and fair,
and be respected for his or her approach.

•

The evaluation may destroy board collegiality if it is not
handled well and if directors’ comments on peers are too
harsh or ill-considered.

10

A Guide to Board Evaluation

•

Careful consideration should take place before management
is included in the evaluation process. The presence of
management may constrain directors’ comments

(2) G20/OECD Principles of Corporate Governance

The revised/updated G20 Principles maintain many of the
recommendations from earlier versions as continuing essential
components of an effective corporate governance framework.

The chapter on the responsibilities of the board provides for a
new principle recommending board training and evaluation and
a recommendation on considering the establishment of
specialized board committees in areas such as remuneration,
audit and risk management.

In the 2004 version of the OECD Principles, there was little
reference to board evaluations, and only as a voluntary,
recommended practice. In the intervening 11 years to 2015,
pressure built for board evaluations to become the norm. The
revised Principles make it clear that board evaluation is a way to
ensure continual board development, with the goal of achieving
an independent board capable of objective judgment. Board
evaluation is now a corporate governance priority.

OECD Principle VI.E.4 as Revised in 2015 provides:

Boards should regularly carry out evaluations to appraise their
performance and assess whether they possess the right mix of
background and competences.

In order to improve board practices and the performance of its
members, an increasing number of jurisdictions now encourage
companies to engage in board training and voluntary board
evaluation that meet the needs of the individual company.

Particularly in large companies, board evaluation can be
supported by external facilitators to increase objectivity. Unless
certain qualifications are required, such as for financial
institutions, this might include that board members acquire
appropriate skills upon appointment. Thereafter, board members
may remain abreast of relevant new laws, regulations, and
changing commercial and other risks through in-house training
and external courses. In order to avoid groupthink and bring a
diversity of thought to board discussion, boards should also

A Guide to Board Evaluation

11
consider if they collectively possess the right mix of background
and competences.

Countries may wish to consider measures such as voluntary
targets, disclosure requirements, boardroom quotas, and private
initiatives that enhance gender diversity on boards and in senior
management.

(3) ICGN Global Governance Principles

The ICGN Global Governance Principles describe the
responsibilities of boards and shareholders respectively and aim
to enhance dialogue between the two parties. The Principles
apply predominantly to publicly listed companies and set out
expectations around corporate governance issues that are most
likely to influence investment decision-making. They are also
relevant to non-listed companies which aspire to adopt high
standards of corporate governance practice. The Principles are
relevant to all types of board structure including one-tier and
two-tier arrangements.

— The ICGN Global Governance principles provides for the
following responsibilities of the board:

•

The Board should ensure a formal, fair and transparent
process for nomination, election and evaluation of
directors;

•

The Board should conduct an objective board evaluation
on a regular basis, consistently seeking to enhance board
effectiveness.

— It also provides that the nomination committee should
evaluate the process for a rigorous review of the performance
of the board, the company secretary (where such a position
exists), the board’s committees and individual directors prior
to being proposed for re-election.

— The board should also periodically (preferably every three
years) engage an independent outside consultant to
undertake the evaluation.

— The non-executive directors, led by the lead independent
director, should be responsible for performance evaluation of
the chair, taking into account the views of executive officers.

12

A Guide to Board Evaluation

— The board should disclose the process for evaluation and, as
far as reasonably possible, any material issues of relevance
arising from the conclusions and any action taken as a
consequence.

— The Nomination committee should be responsible for the
appointment of independent consultants for recruitment or
evaluation including their selection and terms of engagement
and publically disclosing their identity and consulting fees.

(4) UK Corporate Governance Code 2016

The first version of the UK Corporate Governance Code (the Code)

was framed in 1992 by the Cadbury Committee. The
recommendations in the Cadbury Report have been added to at
regular intervals since 1992. In 2003 the Code was updated to
incorporate recommendations from reports on the role of non-
executive directors and the role of the audit committee.

In 2016, a revised version of the UK Corporate Governance Code
was published containing guidance on risk management and
internal controls, remuneration policies and engagement with
shareholders etc.

The revised Code provides that for board effectiveness it is
required that the board should undertake a formal and rigorous
annual evaluation of its own performance and that of its
committees and individual directors.

Supporting Principles

Evaluation of the board should consider the balance of skills,
experience, independence and knowledge of the company on
the board, its diversity, including gender, how the board works
together as a unit, and other factors relevant to its effectiveness.

The chairman should act on the results of the performance
evaluation by recognising the strengths and addressing the
weaknesses of the board and, where appropriate, proposing new
members be appointed to the board or seeking the resignation
of directors.

Individual evaluation should aim to show whether each director
continues to contribute effectively and to demonstrate
commitment to the role (including commitment of time for board
and committee meetings and any other duties).

A Guide to Board Evaluation

13

Code Provisions

B.6.1. The board should state in the annual report how
performance evaluation of the board, its committees and its
individual directors has been conducted.

B.6.2. Evaluation of the board of FTSE 350 companies should be
externally facilitated at least every three years. The external
facilitator should be identified in the annual report and a
statement made as to whether they have any other connection
with the company.

B.6.3. The non-executive directors, led by the senior independent
director, should be responsible for performance evaluation of
the chairman, taking into account the views of executive directors.

(5) ASX Corporate Governance Council - Australia

The ASX Corporate Governance Council Principles and

Recommendations were initially introduced in 2003 and
subsequent revisions were made in 2007 and 2010. As a result
of the events that occurred both before and during the Global

Financial Crisis, a number of jurisdictions adopted new legislation
to tighten corporate governance codes. Australia also
comprehensively reviewed and released the third edition of the

Principles and Recommendations in 2014.

Principle 1: Lay solid foundations for management and
oversight

A listed entity should establish and disclose the respective roles
and responsibilities of its board and management and how their
performance is monitored and evaluated.

Recommendation 1.6 : A listed entity should: (a) have and
disclose a process for periodically evaluating the performance
of the board, its committees and individual directors; and (b)

disclose, in relation to each reporting period, whether a
performance evaluation was undertaken in the reporting period
in accordance with that process. Commentary The board performs
a pivotal role in the governance framework of a listed entity. It is
essential that the board has in place a formal and rigorous
process for regularly reviewing the performance of the board,
its committees and individual directors and addressing any issues

14

A Guide to Board Evaluation
that may emerge from that review. The board should consider
periodically using external facilitators to conduct its performance
reviews. A suitable non-executive director (such as the deputy
chair or the senior independent director, if the entity has one),
should be responsible for the performance evaluation of the chair,
after having canvassed the views of the other directors. When
disclosing whether a performance evaluation has been
undertaken the entity should, where appropriate, also disclose
any insights it has gained from the evaluation and any governance
changes it has made as a result.

Recommendation 1.7 : A listed entity should: (a) have and
disclose a process for periodically evaluating the performance
of its senior executives; and (b) disclose, in relation to each
reporting period, whether a performance evaluation was
undertaken in the reporting period in accordance with that
process. Commentary The performance of a listed entity’s senior
management team will usually drive the performance of the entity.

It is essential that a listed entity has in place a formal and
rigorous process for regularly reviewing the performance of its
senior executives and addressing any issues that may emerge
from that review.

Principle 2: Structure the board to add value

A listed entity should have a board of an appropriate size,
composition, skills and commitment to enable it to discharge its
duties effectively

The role of the nomination committee is usually to review and
make recommendations to the board in relation to the process for
recruiting a new director, including evaluating the balance of skills,
knowledge, experience, independence and diversity on the board
and, in the light of this evaluation, preparing a description of the
role and capabilities required for a particular appointment.

(6) King IV Code of Governance, South Africa

The King Committee published the King IV Report on Corporate

Governance for South Africa 2016 (King IV) on 1 November 2016.

King IV is effective in respect of financial years commencing on
or after 1 April 2017. King IV replaces King III in its entirety.

While King III called on companies to apply or explain, King IV

A Guide to Board Evaluation

15
assumes application of all principles, and requires entities to
explain how the principles are applied – thus, apply and explain.

King IV is principle- and outcomes-based rather than rules-based.

The focus is on transparency and targeted, well-considered
disclosures. King IV recognises information in isolation of
technology as a corporate asset that is part of the company’s
stock of intellectual capital and confirms the need for governance
structures to protect and enhance this asset. There is a new
emphasis on the roles and responsibilities of stakeholder.

King III recommended that an evaluation of the governing body,
its committees and its individual members be conducted every
year. To provide for sufficient time to appropriately respond to
the results of such performance evaluations, the King IV Code
recommends for a formal evaluation process to be conducted at
least every two years. Every alternate year, the governing body
should schedule an opportunity for consideration, reflection and
discussion of its performance.

Evaluations of the performance of the governing body

Governing body’s primary governance role and responsibilities:

Principle 9: The governing body should ensure that the
evaluation of its own performance and that of its committees,
its chair and its individual members, support continued
improvement in its performance and effectiveness.

Recommended Practices

•

The governing body should assume responsibility for the
evaluation of its own performance and that of its committees,
its chair and its individual members by determining how it
should be approached and conducted.

•

The governing body should appoint an independent non-
executive member to lead the evaluation of the chair’s
performance if a lead independent is not in place.

•

A formal process, either externally facilitated or not in
accordance with methodology approved by the governing
body, should be followed for evaluating the performance of
the governing body, its committees, its chair and its individual
members at least every two years.

16

A Guide to Board Evaluation

•

Every alternate year, the governing body should schedule in
its yearly work plan an opportunity for consideration,
reflection and discussion of its performance and that of its
committees, its chair and its members as a whole.

•

The following should be disclosed in relation to the evaluation
of the performance of the governing body:

— A description of the performance evaluations undertaken
during the reporting period, including their scope, whether
they were formal or informal, and whether they were
externally facilitated or not.

— An overview of the evaluation results and remedial
actions taken.

— Whether the governing body is satisfied that the
evaluation process is improving its performance and
effectiveness

(7) Code of Corporate Governance, Singapore

The Code of Corporate Governance, Singapore was first issued
by the Corporate Governance Committee in 2001. The Code is
not mandatory but listed companies are required under the

Singapore Exchange Listing Rules to disclose their corporate
governance practices and give explanations for deviations from
the Code in their annual reports.

The Council on Corporate Disclosure and Governance initiated a
review of the Code in May 2004. A revised Code was issued on

July 2005.

The Code of Corporate Governance came under the purview of

Monetary Authority of Singapore (MAS) and Singapore Exchange

(SGX) with effect from 1st September 2007 to clarify and
streamline responsibilities for corporate governance matters for
listed companies, bringing it under the sectoral regulator.

The Corporate Governance Council conducted a comprehensive
review of the Code, and submitted its recommendations to MAS
in 2011.

MAS issued a revised Code of Corporate Governance on May

2012. The 2012 Code of Corporate Governance superseded and

A Guide to Board Evaluation

17
replaced the Code that was issued in July 2005. The Code was
effective in respect of Annual Reports relating to financial years
commencing from 1 November 2012.

The Singapore Corporate Governance Code of May 2012 included
for the first time a requirement that boards conduct a formal
assessment of their effectiveness.

Principle 5 on Board Performance: There should be a formal
annual assessment of the effectiveness of the Board as a whole
and its board committees and the contribution by each director
to the effectiveness of the Board.

Guidelines

5.1 Every Board should implement a process to be carried out by
the Nomination Committee for assessing the effectiveness
of the Board as a whole and its board committees and for
assessing the contribution by the Chairman and each
individual director to the effectiveness of the Board. The

Board should state in the company's Annual Report how the
assessment of the Board, its board committees and each
director has been conducted. If an external facilitator has
been used, the Board should disclose in the company's Annual

Report whether the external facilitator has any other
connection with the company or any of its directors. This
assessment process should be disclosed in the company's

Annual Report.

5.2 The Nomination Committee should decide how the Board's
performance may be evaluated and propose objective
performance criteria. Such performance criteria, which allow
for comparison with industry peers, should be approved by
the Board and address how the Board has enhanced long-
term shareholder value. These performance criteria should
not be changed from year to year, and where circumstances
deem it necessary for any of the criteria to be changed, the
onus should be on the Board to justify this decision.

5.3 Individual evaluation should aim to assess whether each
director continues to contribute effectively and demonstrate
commitment to the role (including commitment of time for
meetings of the Board and board committees, and any other

18

A Guide to Board Evaluation
duties). The Chairman should act on the results of the
performance evaluation, and, in consultation with the

Nomination Committee, propose, where appropriate, new
members to be appointed to the Board or seek the resignation
of directors.

***

A

COMPARATIVE TABLE OF BOARD EVALUATION IN VARIOUS COUNTRIES

Guide t

UK

USA

SOUTH AFRICA

AUSTRALIA

SINGAPORE
o B

(NYSE Corporate
oard

Governance

Ev

Guidelines)

aluat

Internal
and
i

MODE

Annual
self- Internal
and

External facilitators Internal and
on

External facilitated
evaluation

External evaluation is recommended

External
evaluation

(chairman or an
evaluation
i n d e p e n d e n t
provider.)

EVALUATION OF

The board should

An annual self- The evaluation of

The board has in place There should be

INDIVIDUAL
undertake a formal
evaluation of the the
individual
a formal and rigorous a formal annual

DIRECTOR
and rigorous annual
performance of the directors should be
process for regularly assessment of
evaluation of its
board of directors performed every
reviewing
the the effective-
individual directors.

and its committees. year.

performance of the ness of the
board, its committees contribution by

The nomination for
and
individual each director to
the
re-
directors
and the effective-
appointment of a
addressing any issues ness of the
director should only
that may emerge from Board.

occur after the
that review.

19
evaluation of the

20

Individual evalua-
performance and

Individual eva-
tion should aim to
attendance of the
luation should
show whether each
director.

aim to assess
director continues
whether each
to
contri-bute
d i r e c t o r
effectively and to
continues to
d e m o n s t r a t e
c o n t r i b u t e
commitment to the
effectively and
role.

d e m o n s t r a t e
commitment to
the
role

( i n c l u d i n g
commitment of
time
for
meetings of the

Board
and A
b
o
a
r
d Gui
c o m m i t t e e s , de
and any other to
duties)

Board

The evaluation of

EVALUATION OF

The board should

There should be E

-do-

-do-
v
the board should
a
undertake a formal
a formal annual l

BOARD
ua
be performed every
assessment of the t
and rigorous annual
ion
evaluation of its
year.

ef fe ctiv en es s

A
ow n
pe rfo r-

The
results
of
of the Board as Gu
mance.

performance eva-
a whole.

ide
luations
should
to

Evaluation of the

If an external

identify training

Bo
board of FTSE 350
facilitator has a
needs for directors.

rd
companies should
been used, the Ev
be
externally

Board should alu
facilitated at least
disclose in the atio
every three years.

c o m p a n y ’ s n

Annual Report
whether
the
external facili-
tator has any
other connec-
tion with the
company or any
of its directors.

EVALUATION OF

The board should -do-

The evaluation of -do-

There should be
undertake a formal
the
board

BOARD
a formal annual
and rigorous annual
committees should

COMMITTEES
assessment of
evaluation of its
be performed every
the effective-
committees.

year.

ness of the board 21
committees.

22

Nothing
specific

EVALUATION OF

The non-executive Nothing Specific

Chairman’s ability to A suitable non-

CHAIRMAN
directors, led by the
add value, and his executive director
senior independent
p e r f o r m a n c e (such as the deputy
director, should be
against what is chair or the senior
responsible
for
expected of his role i n d e p e n d e n t
p e r f o r m a n c e
and
function, director, if the
evaluation of the
should be assessed entity has one),
chairman, taking
every year.

should
be
into account the
responsible for the
views of executive
p e r f o r m a n c e
directors.

evaluation of the
chair, after having
canvassed
the

A
views of the other

Gu
directors.

ide

The board should

An overview of the A listed entity T
h
e t

The results of the
o
should:

N o m i n a t i o n B

DISCLOSURES
state in the annual self evaluation are appraisal process,
oa
report
how
results and action (a) have
and C o m m i t t e e r
not
disclosed
d
should decide E
performance eva- publicly.

plans should be
disclose
a
va
how the Board’s l
luation of the board
disclosed in the
process
for
uat
p e r i o d i c a l l y p e r f o r m a n c e i
has been conducted.

integrated report.

on
evaluating the may
be

A
the
perfor- evaluated and Gu
mance of the propose objec- ide
board,
its tive
perfor- to
committees and mance criteria.

Boa
individual direc-
r

The

Board d
tors; and

E
should state in valu

(b) disclose,
in the company’s ati
relation to each Annual Report on
r e p o r t i n g how its assess-
period, whether ment has been
a performance conducted.

evaluation was There should be a
undertaken in formal annual
the reporting assessment of the
period in accor- effectiveness of
dance with that the contri-bution
process.

by each director to
the Board. The

Board should state
in the company’s

Annual Report
how its assess-
ment has been 2
conducted.

3

Legal Framework in India

In India the Companies Act, 2013 has introduced a slew of
regulations focussed towards enhancing overall governance
standards. Effective stewardship by the board has been amplified
as one of the important cornerstones in the various requirements
specified under the new Act.

The Companies Act, 2013 for the first time codifies the duties of
directors, and specifies that the director of a company shall act in
accordance with the articles of the company and also provides
following mandate to the directors -

•

A director of a company shall act in good faith in order to
promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the
company, its employees, the shareholders, community and
for the protection of environment.

•

A director of a company shall exercise his duties with due
and reasonable care, skill and diligence and shall exercise
independent judgment.

•

A director of a company shall not involve in a situation in
which he may have a direct or indirect interest that conflicts,
or possibly may conflict, with the interest of the company.

•

A director of a company shall not achieve or attempt to
achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is
found guilty of making any undue gain, he shall be liable to
pay an amount equal to that gain to the company.

•

A director of a company shall not assign his office and any
assignment so made shall be void.

Several other measures for increasing board effectiveness like

24

A Guide to Board Evaluation

25
performance evaluation of board of directors; training of independent
directors, guidelines for remuneration of directors has been specified.

Board evaluation, until recently, was recognised as a good
corporate governance practice and largely undertaken voluntarily.

The erstwhile Clause 49 of the Listing Agreement as a non-mandatory
requirement, provided for performance evaluation of non-executive
directors by a peer group. Further, the Corporate Governance

Voluntary Guidelines 2009 recommended that the Board should
undertake a formal and rigorous evaluation of its own performance
and that of its committee and individual directors. A few progressive
companies however had been pursuing Board evaluation (and in
some instances even peer evaluation of directors) voluntarily as they
believed in its usefulness. In all these voluntary cases, the evaluation
was led by the Chairperson and the assistance of independent
external experts was seldom sought. However, the Companies Act,

2013 has introduced mandatory provisions for board evaluation in

India. The Clause 49 of listing agreement which was revised in 2014
mandates performance evaluation of Independent Directors.

Currently legal provisions for board evaluation are provided under
the Companies Act, 2013 and the SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 for all listed entities.

Requirements under the Companies Act, 2013

1. Disclosure requirement in the Board’s Report on Performance

Evaluation

Section 134 (3) (p) read with Sub-rule (4) of Rule 8 of the

Companies (Accounts) Rules, 2014 : Every listed company and
every other public company having paid-up share capital of twenty
five crores or more calculated at the end of the preceding financial
year should include in the report by its Board of Directors, a
statement indicating the manner in which formal annual
evaluation has been made by the Board of its own performance
and that of its committees and individual directors.

However, the Ministry of Corporate Affairs vide Notification No.

G.S.R. 463(E) dated 5-6-2015 provided certain exemption to

Government Companies. Accordingly, the provisions of Section

134(3)(p) does not apply in case the directors are evaluated by
the Ministry or Department of the Central Government which is

26

A Guide to Board Evaluation
administratively in charge of the company, or, as the case may
be, the State Government, as per its own evaluation methodology.

However, keeping the importance of performance evaluation, the

Department of Public Enterprises (DPE) has designed a format
and laid down a procedure for filling up and evaluation of the

Director’s performance.

Thus, the Board of every listed company and every other
public company having paid- up share capital of twenty
five crores or more calculated at the end of the preceding
financial year except Government Companies has to do
formal annual evaluation of the-

•
board

•
its committees and

•
all individual directors.

The Board’s report of such companies must include a
statement indicating the manner & criteria of formal Board

Evaluation.

2. The Role of the Nominations and Remuneration Committee
in Performance Evaluation of Directors

Section 178 (1) read with Rule 6 of the Companies (Meetings of

Board and its Powers) Rules, 2014 : The Board of Directors of
every listed company and all public companies with a paid up
capital of ten crore rupees or more; or having turnover of one
hundred crore rupees or more; or having in aggregate,
outstanding loans or borrowings or debentures or deposits
exceeding fifty crore rupees or more shall constitute the

Nomination and Remuneration Committee consisting of three or
more non-executive directors out of which not less than one-
half shall be independent directors.

Provided that the chairperson of the company (whether executive
or non-executive) may be appointed as a member of the

Nomination and Remuneration Committee but shall not chair
such Committee.

Further, the Companies (Amendment) Bill, 2016 has proposed to
apply the section to public listed companies.

A Guide to Board Evaluation

27

Section 178 (2) : The Nomination and Remuneration Committee
shall identify persons who are qualified to become directors and
who may be appointed in senior management in accordance with
the criteria laid down, recommend to the Board their appointment
and removal and shall carry out evaluation of every director’s
performance.

Further, the Companies Amendment Bill, 2016 has proposed that
the Committee shall specify the manner for effective evaluation
of performance of Board, its committees and individual directors
to be carried out either by the Board, by the Nomination and

Remuneration Committee or by an independent external agency
and review its implementation and compliance.

Section 178 is not applicable to a company to which a licence
is granted under the provisions of Section 8 of the Companies

Act, 2013 (Notification No. GSR 466(E), dated 05-06-2015).

Section 178(2) is not applicable to Government Companies
except with regard to appointment of senior management &
other employees (Notification No. GSR 463(E), dated 05-06-

2015).

Therefore, the Nomination and Remuneration Committee
of every listed company and all public companies with a
paid up capital of ten crore rupees or more; or having
turnover of one hundred crore rupees or more; or having
in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding fifty crore rupees or
more except Section 8 Companies and Government

Companies shall formulate criteria for evaluation of
performance of independent directors and the board of
directors.

Note : The paid up share capital or turnover or outstanding
loans, or borrowings or debentures or deposits, as the
case may be, as existing on the date of last audited

Financial Statements shall be taken into account.

3. Independent Directors’ Role in Performance Evaluation of

Boards, Non-independent Directors and Chairperson

Section 149(8) of the Act provides that the company and

28

A Guide to Board Evaluation
independent directors’ shall abide by the provisions specified in

Schedule IV.

Schedule IV (Part II (2)) : Independent directors are required to
bring an objective view in the evaluation of the performance of
board and management.

Schedule IV (Part VII) : The independent directors are required to
hold at least one meeting in a year, without the attendance of
non-independent directors and members of the management and
in that meeting they are required to review the performance of

•
the non-independent directors and the Board as whole;

•
also review the performance of the Chairperson of the
company, taking into account the views of the executive and
non-executive directors; and

•
assess the quality, quantity and timeliness of flow of
information between the company management and the

Board that is necessary for the Board to effectively and
reasonably perform their duties.

4. Performance Evaluation of Independent Directors

Schedule IV Part V : Re appointment - The reappointment of the
independent directors would be based on their report of
performance evaluation.

Schedule IV Part VIII: Evaluation mechanism

The performance of the independent directors would have to be
done by the entire Board excluding the director to be evaluated.

On the basis of the report of performance evaluation, the
continuance or extension of the term of appointment of the
independent director would be determined.

Requirements under the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015

SEBI with a view to consolidate and streamline the provisions of
existing listing agreements for different segments of the capital
market and to align the provision relating to listed entities with the

Companies Act 2013, notified the SEBI (LODR) Regulations, 2015.

The regulations are applicable to all listed entities. It also requires

A Guide to Board Evaluation

29

Boards to conduct an annual performance evaluation and its
disclosure in the annual report through the following provisions:

1. Regulation (4) (2) (f) (ii) (9)

The Key functions of the board of directors includes -

•

Monitoring and reviewing board of director’s evaluation
framework.

2. Regulation 17(10) mandates that entire board of directors
shall do the performance evaluation of independent directors,
provided that in the evaluation process, the directors who
are subject to evaluation shall not participate.

3. Regulation 19(4) provides that the Nomination &

Remuneration Committee shall lay down the evaluation
criteria for performance evaluation of Independent Directors.

4. Regulation 25(3) provides that the independent directors of
the listed entity shall hold at least one meeting in a year,
without the presence of non-independent directors and
members of the management and all the independent
directors shall strive to be present at such meeting.

5. Regulation 25(4) provides that the independent directors in
the meeting referred in sub-regulation (3) shall, inter alia-

(a) review the performance of non-independent directors and
the board of directors as a whole;

(b) review the performance of the chairperson of the listed
entity, taking into account the views of executive
directors and non-executive directors.

6. Part D(A) - Role of Nomination and Remuneration

Committee

It provides that the role of committee shall, inter alia, include
the following:

•
formulation of criteria for evaluation of performance of
independent directors and the board of directors;

•
whether to extend or continue the term of appointment
of the independent director, on the basis of the report of
performance evaluation of independent directors.

30

A Guide to Board Evaluation

7. Schedule V C (d) - Corporate Governance Report

The following disclosures shall be made in the section on
the corporate governance of the annual report under the head-

Nomination and Remuneration Committee -

•

Performance evaluation criteria for independent
directors.

The SEBI has released a Guidance Note on Board Evaluation,
same is given at the end of this publication.

Frequency of Board Evaluation

Section 134(3)(p) provides that there has to be a formal annual
evaluation of Board of its own performance and that of its committees
and individual directors. The Company may undertake annual
evaluation either in accordance with calendar year or financial year,
as there is no clarity on this. Ideally, the same should be as per
financial year.

***

A

Snap Shot of Indian Legislative Framework

Guide t

Board of Directors and Evaluation
o Board E

Source

Particulars

Board’s Role in evaluation

Remarks
valuatio

Companies Act-Section 134(3)(p) Evaluation to be done by the Has to do formal annual

Board overall evaluation
n

& Listing Regulations
entire Board
evaluation of its own performance

Has to do formal annual

Evaluation of Committees
evaluation of its Committees

Has to do formal annual evaluation

Evaluation of individual directors
of all the individual directors

Has to do performance evaluation

The said evaluation will be the basis
of Independent Director’s (excluding
for continuation of the extension/
the director being evaluated)

the term of the Independent

Director.

Companies Act- Section 134(3)(p) Disclosure

Board’s Report

All the listed companies and public
read with Rule 8 of companies
companies with paid-up share

(Accounts) Rules 2014
capital of Rs. Twenty Five crore or
more shall have to include such a
statement in Board Report
indicating the manner & criteria of

31
formal Board evaluation.

32

Nomination Committee and Evaluation

Source

Particulars

Committee’s Role in evaluation

Remarks

Listing Regulations

Nomination & Remuneration

Shall lay down the evaluation criteria The evaluation criteria for Indepen-

Committee (NRC)

for performance evaluation of Inde-
dent Directors shall be prepared by
pendent Directors

NRC.

(This criteria is also required to be
disclosed in the Annual Report of
the Company)

Companies Act-

Evaluate every director’s

Evaluation of directors include:

section 178(2)

performance
a.

Independent directors
b.

Non executive directors
c.

Executive directors and whole
time directors
d.

Managing Directors

A G
e.

Chairperson
uide to Board Evaluation

A

Role and functions of Independent Directors in relation to evaluation

Guide

Source

Particulars

Independent Directors’

Remarks
to

Role in evaluation

Boar

Companies Act - Schedule IV-

In the separate meeting of Inde-

Review the performance

Review of:

d E

Code for ID (Part VII) &
pendent Directors
of Non-Independent Directors
valu

Listing Regulations
a.

Non executive directors
at
b.

Managing Director, whole time
ion
directors and Executive
directors

Review the performance of the

Review the performance of the

Board as a whole

Board as a whole.

Review the performance of the

Review the performance of the

Chairperson of the Company,

Chairperson.

taking into account the views
of Executive Director’s and

Non executive director’s

Assess the:

a.

quality
b.

quantity and
c.

timeliness
of flow of informationbetween

Quality of information includes

3
the Company management and
its relevance, completeness,

3

34
the Board, that is necessary
authenticity, how comprehensive,
for the Board to effectively and
concise and clear such infor-
reasonably perform their duties. mation is. As regards quantity, the
independent director need to assess
that the information is neither too
less nor too much resulting in an
information overload. Typically the
information to the board members
should carry an executive summary
which is supplemented by detailed
notes and where necessary back-up
papers as annexure. Timeliness of
information flow can be gauged
from facts such as how soon are
important events communicated
between board meetings, timeliness
of the agenda papers, etc.

A Guide to Board Evaluation

Board Evaluation Methodologies

The Companies Act, 2013 or SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 are silent on how the

Board evaluation is to be undertaken. The Companies Amendment

Bill, 2016 has proposed that the Nomination and Remuneration

Committee shall specify the manner for effective evaluation of
performance of Board, its committees and individual directors to be
carried out either by the Board, by the Nomination and Remuneration

Committee or by an independent external agency and review its
implementation and compliance.

Companies should ensure that the process for evaluation of the
board, committees and directors should be developmental rather
than just a compliance exercise. Doing just bare minimum of
compliance would mean squandering the opportunity of genuinely
improving the work of the Board.

Typically, the Board evaluation process should comprise of both
assessment and review. This would include analysis of how the Board
and its committees are functioning, the time spent by the Board considering
matters and whether the terms of reference of the Board committees
have been met, besides compliance of the provisions of the Act.

Generally Board appraisals include following components:

1. Evaluation of the Board as a whole
a. Internally
b. Externally

2. Evaluation of Individual Directors (Independent, Executive,

Non- executive, Whole Time Director)

a. Self evaluation
b. Peer to Peer evaluation
c. External

35

36

A Guide to Board Evaluation

3. Evaluation of the Committees
a. Internal (by the Board)

b. External

4. Evaluation of the Chairperson
a. All Directors
b. External

Board Evaluation can either be done internally or through external
agencies. These are elaborated below-

Board Evaluation
can be done

Internally

Through External

Agencies

Internal Evaluation

In case of internal evaluation, the Board of the company is
responsible for managing both the process as well as the content.

While evaluation processes should be tailored to the specific needs
and objectives of a company, some of the common elements for
effective evaluation includes following.

(a) Delegation of authority : The company should delegate the

Nomination and Remuneration Committee and/or the lead
director or independent chairman, the task of developing and
implementing an evaluation process for the entire board,
committees and individual directors.

(b) Defining the objectives : The objective of the evaluation
should be defined with some specificity. Boards should ask
the following key questions to define the objectives of
evaluation -

•

Is the evaluation being undertaken simply to comply with
laws and best practice?

•

Are there specific areas that require close attention?

•

Have there been significant changes on the Board that

A Guide to Board Evaluation

37
increase interest in working on board culture and
alignment with management?

•

Are there any underlying concerns about how the board
is functioning?

•

What would be considered a successful outcome?

•

Are there sensitivities about exploring certain areas and,
if so, why?

(c) Determining the scope : The defined objective will help to
determine the scope of the board evaluation, both as to who
will be the subject of the evaluation and the topics that
should be addressed for each like – Board, Committees and
individual directors.

(d) Identifying the participants : The participants for the Board

Evaluation process would generally include - directors for
board evaluation; committee members for committee
evaluation and all individual directors and independent
directors also. Individual directors may be asked to self-
assess or they may be asked to assess their peers. In addition,
key members of management may be invited to participate.

(e) Selecting the tools : The evaluation process typically involves
obtaining viewpoints from the Board members on the
functioning of Board, Committee or director performance
through the use of Questionnaires or Interviews or Facilitated

Discussions. While selecting the tools, the Company should
also keep in mind the culture of the organisation and assure
that the process helps to build trust among participants.

•

Questionnaires: Questionnaires are the most common
method for facilitating board evaluation in India. These
provide an efficient means of obtaining viewpoints while
allowing for confidentiality. However, they may not elicit
a full explanation of a particular point of view. Typical
the questionnaires include questions that can be
answered with standardized responses, as well as open-
ended questions and areas for comment.

•

Interviews : Interviews may also be conducted to explore
viewpoints of the participants in detail. It is more time

38

A Guide to Board Evaluation
consuming but provides the opportunity for in-depth
discussions. Questions are typically open-ended and the
interviewer can explore issues raised in detail.

•

Facilitated discussion : This provides the opportunity for
directors and committee members to share viewpoints
and discuss potential modifications to governance
practices in response to concerns and reach consensus.

Facilitated discussion helps to streamline the entire
process.

These methods can also be combined. For example, a survey
or an interview may be used to obtain information in a
manner that protects confidences, followed by a facilitated
discussion, or a survey may be sent out, followed by brief
interviews and culminating in a facilitated discussion. The
defined objective will help determine the topics that are
covered in the evaluation. To keep the evaluation fresh, both
the process for obtaining input and the specific questions
should be changed from time to time.

A comparative analysis of the three Approaches to Board

Evaluation is presented as under –

Quantitative:

Qualitative:

Qualitative: Facilitated

Questionnaires

Interviews
discussion/ Group self-
assessment

Description Board members

One-on-one

Trained facilitator leads
complete a written
interviews are
a group discussion of the
survey, rating board conducted with
full board; session
performance on a
each board
summarized in a report
numeric scale;
member; results
for future use
results are discussed
are discussed by
by the full board in
the full board in
a feedback session a feedback
s e s s i o n

Strengths

• Participants are

• Participants

• Participants find the
familiar with this
become engaged
process energizing and
straightforward,
in the interview
enga ging
standard practice
process; most

• Critical thinking is

• Can be completed
find it interesting
heightened because
at a participant’s
and even enjoy-
views are shared with
convenience
a b l e
everyone and partici-

• Can track a board’s • Information tends
pants can question
progress over time
to be more
each other

• Feedback sessions
complete than

• Generates consensus

A Guide to Board Evaluation

39

Quantitative:

Qualitative:

Qualitative: Facilitated

Questionnaires

Interviews
discussion/ Group self-
assessment
often focus on
what a survey
on priorities and
generating addi-
gathers, which
support for plans to
tional information
is helpful in fully
address them
and insights to
understanding

• Requires no prepara-
supplement the
the issues,
tion by participants
survey data
setting priorities, • Serves as a team

• Anonymity can be
and developing
building exercise
ensur ed
plans to address • Most effective when
them
there is a high degree

• Feedba ck
of trust and openness
sessions tend to
among board members
be highly engaging

• Anonymity can
be ensured

(f) Analyze and discuss the results : The information obtained
from questionnaires and interviews should be collected and
analyzed in a written or oral report that is designed to
stimulate a full board or committee discussion of the results.

Whatever format is used, the evaluation should culminate in
deliberation and discussion about how the board and its
committees can improve their function. This is a key to
productive evaluation.

(g) Commit to action : The results of the evaluation should be
used to resolve issues, make changes and achieve goals. If
the Board discussion leads to consensus about areas in which
changes might be beneficial, appropriate follow-up action
should be taken. The discussion on results of entire board
evaluation process should be recorded in minutes appropriately
to reflect the evaluation done and measures taken.

Drawbacks of Internal Evaluation

•

Directors are reluctant to share issues within the company.

•

This process does not bring confidence among all
stakeholders especially shareholders as they may question
the rigour of the process.

Board Evaluation by External Agencies

The Boards of the company may identify independent external
agency to facilitate the entire process of Board, committee and

40

A Guide to Board Evaluation
directors evaluation to bring in the transparency in the system and
garner the confidence of stakeholders.

A good external facilitator can add much external perspective
which a board would otherwise not be able to access. An external
view can be both challenging as well as reassuring. Evaluation by
external agencies provides independent and impartial advice,
objectivity and rigour. Board Evaluation by external agency also helps
to gain a view on how a board is doing compared to other boards.

While conducting board evaluation through external agencies,
both the parties - the consultants and the company should be clear
about the levels of expectation associated with the assignment. Both
the parties should communicate openly and transparently to avoid
the risk of misunderstandings, and maximise the benefits of the
engagement. Agreements in the following areas should be set out
formally and in writing. It is also important to note that these external
consulting firms have no ties to the Board of Directors or senior
management, and have full autonomy in tabulating the results and
examining the appraised parameters.

(a) Clarity of engagement and scope : There should be
agreement on the scope of the assignment, in advance of
commencing work. There should be agreement on the
process which will be followed to deliver the assignment, in
advance of commencing work.

(b) Agreement on timing, deliverables and fees : There should
be agreement on the nature of the services to be provided.

The agreement should clearly identify the timescale for
completing the assignment, the deliverables, and the basis
of remuneration, in advance of commencing work.

(c) Assignment of personnel : There should be agreement on
who will carry out the assignment. The consultants should
not substitute or sub-contract or assign work without the
prior agreement of the client. The consultants should make
clear whether any person working on the assignment is
employed by the firm, or is working under contract.

(d) Communication and feedback : The consultants will ensure
that the company is kept fully informed about the progress
of the assignment. The consultants will take note of any
feedback provided by the client on the performance of the

A Guide to Board Evaluation

41
consultants’ services, and will seek formal feedback from
the company after the process not just on the outcomes, but
on the overall approach pursued by the consultants, and how
they could be more effective.

(e) Public reporting of outcomes : There should be clarity in the
agreement between the company and the consultants on the
degree and extent to which the consultants’ assent to public
reporting by the company will be required.

(f) Post-evaluation review of the assignment : The company and
the consultants should agree on whether there will be a
review of the evaluation exercise, and how the lessons
learned can be shared to the participants’ mutual benefit.

(g) Post-evaluation review of the assignment outcomes : The
company and the consultants should agree on whether, and
how, there should be a review of what actions have been
taken in response to the evaluation, and the effectiveness of
the outcomes.

***

42

A Guide to Board Evaluation

Broad Evaluation Framework
and Parameters

Boards should understand the framework under which board and
committee evaluations are conducted, and take steps to ensure
evaluations are carried out effectively. As per the Companies Act,

2013 as well as SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015, Board evaluation would generally
include following:

1. Evaluation of the Board as a whole

2. Evaluation of the Committees

3. Evaluation of Individual Directors

•

Managing Director / Whole time Director / Executive

Director

•

Independent Directors

•

Non-executive Directors

4. Evaluation of the Chairperson

1. Evaluation of the Board as a Whole

The performance of the Board as a whole may be evaluated either
from the reviews/ feedback of the directors themselves or by
some external source. The Independent Directors at their
separate meeting shall also assess the quality, quantity and
timeliness of flow of information between the company
management and the Board that is necessary for the Board to
effectively and reasonably perform their duties. The evaluation
of the performance of the Boards is essentially an assessment
of how the Board has performed on following parameters which
determines the effectiveness of boards.

a. Structure of the Board : its composition, constitution and
diversity and that of its Committees, competencies and

42

A Guide to Board Evaluation

43
experience of the members, transparent appointment
process, Board and Committee charters, frequency of
meetings, procedures;
b. Dynamics and Functioning of the Board : annual Board
calendar, information availability, interactions and
communication with CEO and senior executives, Board
agenda, cohesiveness and the quality of participation in Board
meetings;
c. Business Strategy Governance : Board’s role in company
strategy;
d. Financial Reporting Process, Internal Audit and Internal

Controls : The integrity and the robustness of the financial
and other controls regarding abusive related party
transactions, vigil mechanism and risk management;
e. Monitoring Role : Monitoring of policies, strategy
implementation and systems;
f.

Supporting and Advisory Role; and
g. The Chairperson’s Role.

The evaluation form placed later as Part I in Sample

Evaluation Tools may be referred.

2. Evaluation of the Committees

The Board is responsible for the evaluation of the performance
its Committees. The performance of the committees may be
evaluated by the Directors, on the basis of the terms of reference
of the committee being evaluated. The evaluation may also be
externally facilitated. The broad parameters of reviewing the
performance of the Committees, inter alia, are:

a. Discharge of its functions and duties as per its terms of
reference;
b. Process and procedures followed for discharging its
functions;
c. Effectiveness of suggestions and recommendations received;
d. Size, structure and expertise of the committee; and
e. Conduct of its meetings and procedures followed in this
regard.

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A Guide to Board Evaluation

The evaluation form placed later as Part V in Sample

Evaluation Tools may be referred.

3. Evaluation of Individual Director(s)

(a) Evaluation of Managing Director / Whole time Director /

Executive Director

The performance evaluation of Managing Director, Executive

Director of the Company may be done by all the directors.

The external facilitation may also serve as the efficient tool
for evaluation. The Code for Independent Directors provides
that Independent Directors should review the performance
of non-independent Directors, which include Managing

Director / Whole time Director/Executive Director. The broad
parameters for reviewing the performance of Managing

Director/Executive Director are:

a. Achievement of financial/business targets prescribed by
the Board;
b. Developing and managing / executing business plans,
operational plans, risk management, and financial affairs
of the organization;
c. Display of leadership qualities i.e. correctly anticipating
business trends, opportunities, and priorities affecting
the company’s prosperity and operations;
d. Development of policies, and strategic plans aligned with
the vision and mission of the company and which
harmoniously balance the needs of shareholders, clients,
employees, and other stakeholders;
e. Establishment of an effective organization structure to
ensure that there is management focus on key functions
necessary for the organization to align with its mission;
f.

Managing relationships with the Board, management
team, regulators, bankers, industry representatives and
other stakeholders; and
g. Demonstrate high ethical standards and integrity,
attendance at meeting, commitment to organization.

The evaluation form placed later as Part II in Sample

Evaluation Tools may be referred.

A Guide to Board Evaluation

45

(b) Evaluation of Independent Directors:

The performance evaluation of independent directors should
be done by the entire Board of Directors, excluding the
director being evaluated. On the basis of the report of
performance evaluation, it shall be determined whether to
extend or continue the term of appointment of the
independent director.

In addition to the parameters laid down for directors, which
shall be common for evaluation to both Independent and non-
executive directors, an independent director shall also be
evaluated on the following parameters:

a. Maintenance of independence and no conflict of interest.

b. Exercise of objective independent judgment in the best
interest of the company;
c. Ability to contribute to and monitor corporate governance
practice; and
d. Adherence to the code of conduct for independent
directors.

The evaluation form placed later as Part IV in Sample

Evaluation Tools may be referred for peer review.

The evaluation form placed later as Part III in Sample

Evaluation Tools may be referred for self assessment.

(c) Evaluation of Non-Executive Directors

In terms of the Code for Independent Directors, the

Independent director(s) on the Board of the company should
evaluate the performance of non-independent director(s)

which include non-executive director(s). Peer Review method
or external evaluation may also facilitate the purpose of
evaluating non-executive directors. The broad parameters
for reviewing the performance of non-executive directors are:

a. Participation at the Board / Committee meetings;
b. Commitment (including guidance provided to senior
management outside of Board/ Committee meetings);
c. Effective deployment of knowledge and expertise;

46

A Guide to Board Evaluation
d. Effective management of relationship with stakeholders;
e. Integrity and maintaining of confidentiality;
f.

Independence of behaviour and judgment; and
g. Impact and influence.

The evaluation form placed later as Part IV in Sample

Evaluation Tools may be referred.

4. Evaluation of Chairperson of the Board

The performance of the Chairperson is linked to both the
functioning of the Board as a whole as well as the performance
of each director. The Code for Independent Directors provides
that the Independent Director should review the performance of
the Chairperson of the company taking into account the views of
the executive directors and non-executive directors.

Therefore, all the directors of the Board of the company thereof
contribute in evaluating the performance of the Chairperson of
the Board. External agencies may also be involved in evaluating
the Chairperson.

The broad parameters for reviewing the performance of

Chairperson of the Board are:

a. Managing relationship with the members of the Board and
management;
b. Demonstration of leadership qualities and able steering of
meetings;
c. Relationship and communication within the Board;
d. Providing ease of raising of issues and concerns by the Board
members;
e. Promoting constructive debate and effective decision making
at the board;
f.

Relationship and effectiveness of communication with the
shareholders and other stakeholders;
g. Promoting shareholder confidence in the Board; and
h. Personal attributes i.e. Integrity, Honesty, Knowledge, etc.

The evaluation form placed later as Part VI in Sample Evaluation

Tools may be referred.

A Guide to Board Evaluation

47

Different criteria may be assigned different weights depending
on the organisation’s requirements, circumstances, outcome of
previous assessments, stage of Board’s maturity, etc. Instead of the
questionnaire in a simple yes/no format, it is advised that it provides
scope for grading, additional comments, suggestions, etc.

Post-evaluation Activities

Evaluations provide critical insights into how the board can
become stronger and support the organization’s strategic objectives.

However, such assessments are merely superficial if they are not
acted upon, if the strengths revealed are not leveraged, or if the
weaknesses identified are not remediated. Boards look forward to
evaluations for useful feedback, which can be used to develop
specific action plans. The results must be communicated to the
concerned people in an appropriate manner, leading to generating
an improvement action plan.

The actions a board should follow to ensure it does not just “check
the box” in an evaluation, but instead uses the resulting data for
improvement.

Generally a post evaluation activity should include –

1. Prepare a summary report and analysis of the findings
highlighting the degree of board effectiveness in each area
examined, noting areas of effectiveness as well as areas of
concern.

2. Discuss with the nomination and Remuneration Committee
what was learned in the board evaluation process and share
any additional insights.

3. Submit the report to each director and place the board's
discussion of the findings as a high-priority agenda with
sufficient time allocated.

4. Discuss the findings candidly and openly with each director
so that he/she can freely contribute his/her views.

5. Agree on and approve an action plan to address areas of
improvement.

6. Assign responsibilities and monitor any improvement
achieved.

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A Guide to Board Evaluation

7. Incorporate achievement objectives into the next board
evaluation to make it a dynamic, continuous improvement
process that is more than just an annual form-filling exercise.

A similar process may be followed for the evaluation of the board
committees.

Where the results of the evaluation concern individual director
performance, the generally accepted approach is for the board
chairman and/or the nomination and remuneration committee
chairman, with or without an external facilitator, to discuss the
findings individually with each director.

Some companies even follow the practice discuss the results of
performance of directors around the board table, a process that can
lead to much greater mutual understanding.

The success of such an approach depends very much on the
introspection, confidence and honesty of the individuals participating in
the process and the degree of trust and col egiality in their board culture.

If the objective of the board evaluation is to assess the quality
of board-management relationships, results of the evaluation should
be shared with the executive management team.

Succession Planning and Board Evaluation

It is most important that board is prepared for resignation and/or
retirement of its members. Succession planning for the board and for
board committees should follow the board evaluation process. As part
of board evaluation, an evaluation of the skills and competences within
the current board should be measured against future expected
requirements of the skills and competences within the board. This
provides a readily available profile of a new board member, if one be
required on short notice. The board should continually ensure that it
has the right set of skills, talents and attributes.

A well-prepared board will develop a succession plan that
provides guidance on identifying and sourcing potential board
members who can fulfill key requirements. This succession plan helps
the organization appoint new directors quickly in a structured manner,
allowing the board to continue its business without disruption,
meeting any business challenges that are encountered.

***

A Guide to Board Evaluation

49

Board Evaluation – Disclosure

Investors need to know whether a board is effective, and good
corporate communication can do much to convey the board’s
message to investors and other stakeholders on outcomes that arise
from evaluation. The Council of Institutional Investors in the United

States has stated in its report “Best Disclosure –Board Evaluation”

that when making voting decisions about directors, shareholders
value detailed disclosure of the board evaluation process—how the
board goes about evaluating itself, identifying areas for
improvement, and addressing them—as a window into the
boardroom. While shareholders generally do not expect the board
to discuss the details of individual director assessments, they want
to understand the process by which the board goes about regularly
improving itself. This is particularly important because over time, a
board may become complacent or may need new skills and
perspectives to respond nimbly to changes in the business
environment or strategy. Disclosures about how the board evaluates
itself, identifies areas for improvement and provide a window into
how robust the board’s process is for introducing change.

The Council of Institutional Investors has developed following
guidelines explaining its expectations of board evaluation
disclosures.

“Investors value specific details that explain who does the
evaluating of whom, how often each evaluation is conducted, who
reviews the results and how the board decides to address the results.

This type of disclosure does not discuss the findings of specific
evaluations, either in an individual or a holistic way, nor does it
explain the takeaways the board has drawn from its recent self-
evaluations. Instead, it details the “nuts and bolts” of the self
assessment process to show investors how the board identifies and
addresses gaps in its skills and viewpoints generally”.

49

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A Guide to Board Evaluation

CII recommends that self-evaluation disclosures should go
beyond a detailed discussion of the board’s evaluation methodology
to also include a discussion of “big-picture, board-wide findings and
any steps for tackling areas identified for improvement.” This
approach focuses on the most recent evaluation and recaps key
takeaways from the board’s review of its own performance. This
evaluation includes a discussion of areas where the board feels it
functions effectively, areas where it thinks it can improve, and a
plan of action to address these matters.

Disclosure by General Electric

According to CII’s report, General Electric is one of the few U.S.

companies that provide a thorough disclosure of its board evaluation
process. Its disclosure focuses exclusively on the mechanics of how
the evaluation is conducted, without venturing into the results or
findings from previous evaluations. The detailed explanation of the
evaluation process is included in the company’s “Governance and

Public Affairs Committee Key Practices” document, which is separate
from the proxy statement. General Electric’s proxy statement includes
a brief high-level overview of how the process is conducted and
provides a link to the document where a more detailed explanation
can be found.

Disclosure made in Annual report 2016

The Board and its committees annually conduct a
performance
self-evaluation
and
recommend
improvements. Our lead director chaired four meetings of
our independent directors this year, helping us sharpen our
full Board meetings to better cover significant topics.

Compensation policies for our executives are aligned with
the long-term interests of GE investors.

***

A Guide to Board Evaluation

51

Barriers to Board Evaluation

“One of the great mistakes is to judge policies and programs
by their intentions rather than their results”. - Milton Friedman

Corporate boards today are expected to be more engaged, more
knowledgeable and more effective than in the past. In order to attain
it, board evaluation is emerging as the tool to examine board
effectiveness. Annual assessments have become the norm for boards
in many countries.

Despite the growing adoption, board assessments are falling
short of their promise of enhancing board effectiveness. They are
facing certain challenges which are acting as barriers and making
evaluation ineffective.

Barriers to board evaluation can be classified under three
categories:

Barriers to Board Evaluation /Effectiveness

Personal Concerns

•

Mindsets or Attitudes

Attitudes are the first and greatest challenge, particularly when

‘mindsets’ include indifference or inflexibility – unwillingness to
change. The duty to exercise independent judgment also poses

51

52

A Guide to Board Evaluation
distinct challenges. Many directors prefer to go along with the
majority (“group think”) to get along. Directors who have served
with the same Board members over an extended period of time
may be uncomfortable judging or being judged by colleagues.

They are accustomed to evaluating the CEO and other senior
executives, but when asked to engage in Board evaluation, they
raise a wide range of objections.

•

Incompetency to come out of comfort zone

Directors who have served with the same Board members over
an extended period of time seems to develop a comfort zone
and therefore, shows reluctance to infusion of new people into
the organization. Deliberate thought should be given to form a
well-functioning team having balance of new and old experienced
members.

•

Failure to remove unproductive members

People who are not carrying out their commitments as board
members become major blocks to overall board effectiveness.

There needs to be a process for evaluating board member
performance and making recommendations regarding their future
service with the board.

Structural Concerns

•

Non-availability of pre-defined objectives and scope for
evaluation

Board tends to spend their precious and limited time on
discussion of trivial subjects while neglecting major agenda items
which requires their absolute attention. This happens due to lack
of pre-identified objectives and scope for the evaluation.

Temptation to micro-management can be minimised by having a
strategic plan.

Areas including board process, behaviours, communication
issues, the effectiveness of executive sessions, the role of the
lead independent director, the board’s relationship to
management and development of the board’s agenda etc. can
be identified so that the evaluation can be more focussed.

•

Non-identification of assessment approach

Board’s approach assessments can be done in variety of ways
ranging from a director questionnaire to a robust process in

A Guide to Board Evaluation

53
which directors are interviewed individually, typically by a third
party, to draw out candid views about the board’s effectiveness.

•

Small size of Board

Sometimes a board is ineffective because it is simply too small
in number. When we consider the awesome responsibilities of
board leadership, it's easy to see why we need enough people
to do the work. We need enough members to lead and form the
core of the committees and, in general, share in other work of
the board. We also need sufficient numbers to reflect the desired
diversity in the board as well as assure the range of viewpoints
that spurs innovation and creativity in board planning and
decision-making.

•

Ineffective Nomination and Remuneration Committee and lack
of functioning committee structure

Nomination and remuneration committee has lasting impact on
organization as this committee determines who shall constitute
as Board leaders in future. A well organized nomination and
remuneration committee with clear sense of recruiting priorities
as well as expectations for individual board members especially
in the area of fund-raising makes the committee more effective.

These elements are frequently missing in many organizations. If
the nomination and remuneration committee or board recruiting
committee is poorly organized, board members in turn are not
likely to have a good understanding of the organization and their
role as board members.

Also, Board fails to perform below at an acceptable level is due
to lack of a functioning committee structure. While it is true that
major decisions are made in board meetings, it is also true is
that most of the work that supports and implements this decision-
making occurs at the committee level. If the board has a
committee structure that functions inadequately, this can lead
to poor performance in general.

•

Non-availability of post evaluation action plan

Some boards, for compliance reasons, begin an assessment
process, but then spend little or no time on discussing the
findings. In addition to leaving issues unresolved, lack of follow-
up can generate cynicism about the process and the board
leadership’s commitment to improving effectiveness in the future.

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A Guide to Board Evaluation

Absence of action plan to review the results of the assessment
and addressing the results of evaluation further adds to the
ineffectiveness to the board evaluation process.

•

Diversity in culture and governance process

Board structures, governance issues and cultural norms differ
by company and country, and these differences also can affect
the style and scope of the board assessment. To be most
effective, a board assessment must be tailored to the company’s
current business context.

Business Concerns

•

No strategic plan

Absence of a strategic plan in this period of rapid change would
make the process ineffective. A strategic plan provides clear
direction and helps in revealing questionable transactions like
inappropriate loans, related party transactions or fairness of
remuneration packages (annual, per meeting fees, etc). Similarly,
lack of a long-range service delivery and financial development
plan that will advance the strategic plan also be a major business
concern.

•

Absence of a Board Leader

Essential to a successful evaluation is having an independent
board leader to champion the assessment process. The

Independent Board Leader is in a position to drive the process
by involving the right people, asking for directors’ time,
scheduling time on the agenda to discuss the results and ensure
that the board follows up on the issues that emerge.

Boards Leadership Culture strongly influences the issues
investigated by it. The Chairperson plays crucial role in ensuring
legitimacy with sense of fairness and authority in evaluation
process.

•

Having narrower Perspectives

Narrower perspective on Board evaluation is a major hurdle in
process. Incorporating new perspectives on the board’s
effectiveness by seeking inputs from senior management team
members, executives who participate in most of the board
meetings such as the Chief Financial Officer and Head of Human

Resources can help in broadening our perspectives. Non-

A Guide to Board Evaluation

55
availability of a platform for obtaining valuable feedback from

Executives about what Board does well and what does not.

Board assessments also can be more valuable when boards
benchmark themselves against other high-performing boards in
the same industry segment or against best practices in a specific
area.

•

Compliance based Assessment

The Assessment process is limited to compliances only. Rather,
the process should go beyond compliance issues considering
the board’s role in strategic decision-making, gaps in knowledge
and competencies on the board, executive and director succession
planning, etc.

•

No process for Just–in–Time Board Orientation

Learning curve of directors lagged because timely training and
orientation is not provided. An effective "just-in-time" board
orientation program should be prescribed focussing on the
strategic plan of the organization. If the prospective board
members are familiar with the mission, vision, major goals, and
strategies of the organization and additional information and
training is provided to the greatest extent possible, new board
members will participate in their first meeting with confidence.

***

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A Guide to Board Evaluation

Board Evaluation - Current Trends and

Practices in India

Prior to Companies Act, 2013, most companies conducted board
evaluation to raise the company’s Corporate Governance standards
and to ensure that the Boards and their members are functioning
properly. Now, Board evaluation is a mandatory requirement for
certain prescribed classes of companies. Only the government
companies where directors are evaluated by the Ministry or

Department of the Central or State Government are exempted.

India Board Report 2015-16 surveyed over 500 companies.

Selection of the companies was based on their market capitalization

(750 crore INR and more) on the Bombay Stock Exchange (BSE) and
their ownership. According to survey, sixty-two per cent of the
companies surveyed do not currently have a board evaluation process,
and will have to introduce it. Eighty-nine per cent of companies that
have a board evaluation process, would prefer to do it internally.

Among the companies that need to implement a board evaluation
process, 66% would prefer to do a self-assessment and a very small
percentage (16%) of companies, indicated that they will avail the
services of an external/third-party assessor. However, most of the
top 100 companies listed on BSE have implemented board evaluation
process, except Govt. companies which are exempted.

Disclosures

Section 134 (3) (p) provides that the report by Board of Directors
of every company except Government Companies should include a
statement indicating the manner in which formal annual evaluation
has been made by the Board of its own performance and that of its
committees and individual directors.

Though most of the companies have disclosed a para on Board
evaluation stating that they have conducted evaluation of board,
this approach does not focus on the mechanics of how the board
evaluation process is conducted and analyzed. Investors value

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A Guide to Board Evaluation

57
specific details that explain who does the evaluating of whom, how
often each evaluation is conducted, who reviews the results and
how the board decides to address the results. This type of disclosure
does not discuss the findings of specific evaluations, either in an
individual or a holistic way, nor does it explain the takeaways the
board has drawn from its recent self-evaluations. Instead, it details
the “nuts and bolts” of the self-assessment process to show investors
how the board identifies and addresses gaps in its skills and
viewpoints generally. This kind of disclosure can be an “evergreen”

approach that remains the same in proxy materials from year to
year, assuming the board’s evaluation process does not change.

Process of Evaluation

The Act does not prescribe any specific method for evaluating
the board. Generally, Board evaluation is an elaborate process. Pre-
evaluation process involves deciding the objective, criteria and
method for evaluating the board. The board decides all those with
inputs from the CEO. The most common evaluation method is to
collect data by analysing governance documents (e.g., agenda and
minutes), surveying directors through a questionnaire and
interviewing directors. A robust board evaluation strategy employs
all of these tools both in combination and rotation over time.

The data so collected is analysed and a report is presented for
discussion before the full board. Performance of individual directors
is assessed through self-assessment and interview. Feedback is
provided to each director on a one-to-one basis. Usually, the
chairperson of the Nomination and Remuneration Committee or the
lead independent director supervises the whole process, interviews
individual directors, provides feedback to each director and presents
the report before the full board. Confidentiality is the hallmark of
the evaluation process. Therefore, names of individuals are removed
from all documents while collating and analysing the data.

On analysing the annual reports for the year 2015-16 of top 100
companies listed in Bombay Stock Exchange, Bosch Limited, Dabur,

Dr. Reddy, Godrej Consumer, Hero MotoCorp, HDFC, HDFC bank,

Infosys, JSW Steel, Kotak Mahindra Bank, L&T, Mahindra and

Mahindra Limited, Titan, Vedanta, Wipro and ICICI Bank (2016-17)

have evaluated their directors and committees through
questionnaires.

58

A Guide to Board Evaluation

HDFC Bank in its annual report has mentioned that the

Nomination and Remuneration Committee has approved a
framework / policy for evaluation of the Board, Committees of the

Board and the individual members of the Board. The said framework/
policy was duly reviewed during the year. The process of board
evaluation adopted by HDFC Bank disclosed in its annual report 2015-

16 is given in following paras -

“A questionnaire for the evaluation of the Board and its

Committees, designed in accordance with the said framework and
covering various aspects of the performance of the Board and its

Committees, including composition and quality, roles and
responsibilities, processes and functioning, adherence to Code of

Conduct and Ethics and best practices in Corporate Governance was
sent out to the directors. The responses received to the questionnaires
on evaluation of the Board and its Committees were placed before
the meeting of the Independent Directors for consideration. The
assessment of the Independent Directors on the performance of the

Board and its Committees was subsequently discussed by the Board
at its meeting.

Bank has in place a process wherein declarations are obtained
from the directors regarding fulfilment of the “fit and proper” criteria
in accordance with the guidelines of the Reserve Bank of India. The
declarations from the Directors other than members of the NRC are
placed before the NRC and the declarations of the members of the

NRC are placed before the Board. Assessment on whether the

Directors fulfil the said criteria is made by the NRC and the Board on
an annual basis. In addition, the framework / policy approved by the

NRC provides for a performance evaluation of the Non-Independent

Directors by the Independent Directors on key personal and
professional attributes and a similar performance evaluation of the

Independent Directors by the Board, excluding the Director being
evaluated. Such performance evaluation has been duly completed
as above.”

Criteria for evaluation

The Section 178 (2) of Companies Act 2013 and SEBI (LODR)

Regulations provides that Nomination and remuneration Committee
shall formulate criteria for evaluation of performance of independent
directors and the board of directors. In Annual Reports of 2016, some

A Guide to Board Evaluation

59
companies like Asian Paints, Bajaj Auto, Berger Paints, Bharti Infratel,

Britannia, Cadila healthcare, Dabur, Dr. Reddy, Emami, Eicher Motors,

Godrej Consumer, Havells, HCL Technologies, Hero MotoCorp,

Indiabulls, IndusInd Bank, JSW Steel, Kotak Mahindra Bank, L & T

Finance Holdings, L&T, LIC Housing Finance, Lupin, Maruti Suzuki,

Motherson Sumi Systems, Petronet LNG, Reliance Industries,

Siemens, Sun Pharma, Tata Motors, Tata Steel, Tech Mahindra, TVS

Motors, Titan, Vedanta and in 2017 - ICICI Bank, TCS and Yes Bank
have mentioned certain criteria for evaluation of board, directors
and committees in their annual report.

Hero Motocorp Ltd. has stated in its annual report various
criteria on which evaluation of directors has taken place. The company
has made disclosure in its annual report of 2015-16 as –

“Performance of the Board was evaluated on various parameters,
such as composition, strategy, tone at the top, risk, controls and
diversity. Similarly, questionnaires for Committees were also framed
on the parameters, such as adherence to the terms of reference and
adequate reporting to the Board. Parameters for the Directors
included intellectual independence of the Director, participation in
formulation of business plans, constructive engagement with
colleagues and understanding of risk profile of your Company. The

Chairman of the Company was evaluated on parameters such as
leadership style and motivation of the Directors.”

Berger Paints India Ltd. has stated in its annual report that ‘the

Compensation and Nomination and Remuneration Committee have
laid down the following criteria for evaluating the performance of
the Board of Directors:

1. Board members support and debate the organisation’s strategy
and values, enabling them to set the tone from the top.

2. Board members have a clear understanding of the
organisation’s core business, its strategic direction and the
financial and human resources necessary to meet its
objectives.

3. The Board sets the Company’s targets and measures its
performance against them.

4. Board meetings encourage a high quality of debate with
robust and probing discussions.

60

A Guide to Board Evaluation

5. Board members make decisions objectively and
collaboratively in the best interests of the organisation and
feel collectively responsible for achieving organisational
success.

5. The Board communicates effectively with shareholders.

6. Board members recognise the role which they and each of
their colleagues is expected to play and have the appropriate
skills and experience for that role.

7. Board members actively contribute at meetings.

8. The Board has open channels of communication with
executive management and others and is properly briefed.

9. The Board is aware of steps taken to assess and mitigate
risks through Business Process and Risk Management

Committee.

10. The Board is the right size and has the good mix of skills to
ensure its optimum effectiveness.

11. The Board’s committees are properly constituted, perform
their delegated roles and report back clearly and fully to the

Board.

12. The Board meets sufficiently often, and with information of
appropriate quality and detail, such that agenda items can
be properly covered in the time allocated.

13. Information is received in sufficient time to allow for proper
consideration, with scope for additional briefing, if necessary.’

Ashok Leylands Limited has mentioned several detailed
parameters for Board evaluation in its Annual Report of 2015-2016.

‘The criteria for performance evaluation are as follows:

(i) Role and Accountability

-

Understanding the nature and role of Independent

Directors’ position.

-

Understanding of risks associated with the business.

-

Application of knowledge for rendering advice to
management for resolution of business issues.

A Guide to Board Evaluation

61

-

Offer constructive challenge to management strategies
and proposals.

-

Active engagement with the management and
attentiveness to progress of decisions taken.

(ii) Objectivity

-

Non-partisan appraisal of issues.

-

Own recommendations given professionally without
tending to majority or popular views.

(iii) Leadership and Initiative

-

Heading Board Sub-committees.

-

Driving any function or identified initiative based on
domain knowledge and experience.

(iv) Personal Attributes

-

Commitment to role and fiduciary responsibilities as a

Board member.

-

Attendance and active participation.

-

Proactive, strategic and lateral thinking.’

Idea Cellular

‘A formal evaluation mechanism is in place for evaluating the
performance of the Board, the Committees thereof, individual

Directors and the Chairman of the Board. The evaluation was done
based on the criteria which includes, among others, providing
strategic perspective, Chairmanship of Board and Committees,
attendance and preparedness for the meetings, contribution at
meetings, effective decision making ability, role of the Committees.

The Directors expressed their satisfaction with the evaluation process.’

ICICI Bank (2016-17)

‘The evaluations for the Directors, the Board and the Chairperson
of the Board were undertaken through circulation of three
questionnaires, one for the Directors, one for the Board and one for
the Chairperson of the Board. The performance of the Board was
assessed on select parameters related to roles, responsibilities and
obligations of the Board and functioning of the Committees including

62

A Guide to Board Evaluation
assessing the quality, quantity and timeliness of flow of information
between the company management and the Board that is necessary
for the Board to effectively and reasonably perform their duties. The
evaluation criteria for the Directors was based on their participation,
contribution and offering guidance to and understanding of the areas
which were relevant to them in their capacity as members of the

Board. The evaluation criteria for the Chairperson of the Board besides
the general criteria adopted for assessment of all Directors, focused
incrementally on leadership abilities, effective management of
meetings and preservation of interest of stakeholders. The evaluation
process for whole-time Directors is further detailed under the section
titled “Compensation Policy and Practices.’

Marico Ltd. has disclosed the criteria as well as process of

Evaluation –

‘Marico’s Board is committed to assessing its own performance
as also performance of individual director in order to identify its
strengths and areas in which it may improve its functioning. Towards
this end, the Corporate Governance Committee of the Board (‘CGC’)

(which functions as the Nomination and Remuneration Committee
of the Company for the purpose of the Companies Act, 2013),
established the criteria and processes for evaluation of performance
of individual Directors, Chairman of the Board, the Board as a whole
and its individual statutory Committees. The appointment/
reappointment/ continuation of Directors is subject to positive
outcome of the annual evaluation process. The manner in which the
evaluation has been carried out has been explained in the Corporate

Governance Report. In terms of the Act, the Independent Directors
on Marico’s Board also meet separately once in a year to discuss the
matters as prescribed under Schedule IV to the Act and to assess the
performance of the Non – Independent Directors of your Board.

The board evaluation exercise during the year under review has
resulted in the Board identifying three focus areas for it to work
upon in the coming years:

1. Intensifying its efforts in guiding the organization to get future
ready, especially in identifying new growth drivers;

2. Renewed focus and time commitment for mentoring the
senior management, setting them up for success in the ever
changing macro environment; and

A Guide to Board Evaluation

63

3. Revisiting the Board composition with an eye on future trends
especially in the digital era.

The Board is also committed to review progress on these priorities
during the annual Board Retreats held once a year.’

Evaluation by External Agency

On analysing the annual reports of top 100 companies listed in

Bombay Stock Exchange in India, it is observed that some companies

Ashok Leyland, Axis Bank, Bharti Airtel, Bharti Infratel, Infosys, Nestle
and Shree Cement have disclosed that they have appointed external
agency for board evaluation. Some companies are government
companies and are not required to get board evaluation done. Other
companies have not appointed any external consultants for this
process.

Post-Evaluation Activities

Most companies out of top 100 companies which have been
analysed, have not mentioned anything about post evaluation
activities done by them in the annual report. Some companies like

Hindustan Unilever Limited, Bosch Limited and Dr. Reddy have
reported that they have taken post evaluation activity also. The
extracts from their annual reports are given below-

Hindustan Unilever Limited – ‘The results of the Evaluation were
shared with the Board, Chairman of respective Committees and
individual Directors. Based on the outcome of the Evaluation, the

Board and Committees have agreed on an action to further improve
the effectiveness and functioning of the Board and Committees.’

Bosch Limited – “ The feedback from the Directors was
summarized and ideas for further improving effectiveness of the

Board processes, etc. were discussed.”

Dr. Reddy’s Laboratories - ‘A 360 degree feedback cum-
assessment of individual Directors, the Board as a whole and its

Committees was discussed and collective action points for
improvement were put in place.’

Bharti Airtel - ‘The Board members noted the suggestions/ inputs
of Independent Directors, HR and Nomination Committee and
respective committee Chairman and also discussed various
initiatives to further strengthen Board effectiveness.’

64

A Guide to Board Evaluation

Vedanta – ‘Based on the feedback of the Board Evaluation
process, appropriate measures were taken to further improve
the process and other aspects.’

Review of board by independent directors

The Act requires independent directors to hold at least one
meeting in a year, without the attendance of non-independent
directors and members of the management and in that meeting they
are required to review the performance of the non-independent
directors and the Board as whole; and also review the performance
of the Chairperson of the company, taking into account the views of
the executive and non-executive directors.

Independent directors should formally evaluate the board and
non-independent directors. They may finalise the draft report in the
separate meeting. Although, the law is silent on how the result of
evaluation will be used, the draft report should be discussed with
the full board to decide the actions for improving board effectiveness.

Independent directors should involve the CEO and the full board in
deciding the objective, criteria and method of evaluation.

One of the leading Pharmaceutical Indian Company – Sun

Pharmaceutical Industries Limited has stated in its annual report
that separate meeting of independent directors was conducted –

“In a separate meeting of Independent Directors, performance of

Non Independent Directors, performance of the Board as a whole
and performance of the Chairman was evaluated, taking into account
the views of the Executive Directors and Non-executive Directors.

The same was discussed in the Board Meeting that followed the
meeting of Independent Directors at which the performance of the

Board, its Committee and individual Directors was also discussed.”

Evaluation of independent directors

The laws and regulations also provided for the review of
performance of the independent directors by the entire Board
excluding the director and the continuance or extension of the
independent director would be determined by the performance
evaluation report.

However, discussion of report cards of individual directors with
the full board is likely to be resented by directors and might drive
away good directors. The best practice may be to use self-assessment

A Guide to Board Evaluation

65
and interview method to assess individual performance and to provide
feedback to each director (independent or non-independent) on a
one-to-one basis. The reports of independent directors should be
submitted to the chairperson of the Nomination and Remuneration

Committee. It should consider the same while deciding the
continuation of the independent director as a board member. Boards
should adopt the global best practices.

Mostly companies in India which have been assessed have
evaluated the entire board including independent directors.

Bharti Infratel disclosed the criteria of evaluation of independent
directors as under:

‘Some of the performance indicators based on which the

Independent Directors were evaluated include:

— Devotion of sufficient time and attention towards professional
obligations for independent decision and acting in the best
interest of the Company;

— Provides strategic guidance to the Company and determine
important policies with a view to ensure long term viability
and strength;

— Bringing external expertise and independent judgement that
contributes to the objectivity of the Board’s deliberation,
particularly on issues of strategy, performance and conflict
management.’

Infosys in its Annual Report 2016-17 disclosed ‘the performance
indicators on which the independent directors are evaluated:

— The ability to contribute and monitor our corporate
governance practices

— The ability to contribute by introducing international best
practices to address business challenges and risks

— Active participation in long-term strategic planning

— Commitment to the fulfilment of a director’s obligations and
fiduciary responsibilities; these includes participation in Board
and Committee meetings.’

***

66

A Guide to Board Evaluation

Sample Policy for Evaluation of the

Performance of the Board of Directors

EFFECTIVE DATE

1. INTRODUCTION

As one of the most important functions of the Board of Directors
is to oversee the functioning of company’s top management, this
policy aims at establishing a procedure for conducting periodical
evaluation of directors’ performance and formulating the criteria for
determining qualification, positive attribute and independence of
each and every director of the company in order to effectively
determine issues relating to remuneration of every director, key
managerial personnel and other employees of the company. This
policy further aims at ensuring that the committees to which the

Board of Directors has delegated specific responsibilities are
performing efficiently in conformity with the prescribed functions
and duties. In addition, the Nomination and Remuneration Committee
shall carry out the evaluation of performance of every director, key
managerial personnel in accordance with the criteria laid down.

2. OBJECTIVE

The object of this policy is to formulate the procedures and also
to prescribe and lay down the criteria to evaluate the performance
of the entire Board of the Company.

3. RESPONSIBILITY

— Responsibility of the Board

It shall be the duty of the chairperson of the board, who shall
be supported by a Company Secretary to organise the
evaluation process and accordingly conclude the steps
required to be taken. The evaluation process will be used
constructively as a system to improve the directors’ and

66

A Guide to Board Evaluation

67
committees’ effectiveness, to maximise their strength and
to tackle their shortcomings.

The Board of Directors shall undertake the following activities
on an annual basis

— The board as a whole shall discuss and analyze its own
performance during the year together with suggestions
for improvement thereon, pursuant to the performance
objectives.

— Review performance evaluation reports of various
committees along with their suggestions on improving
the effectiveness of the committee. Also, the requirement
of establishing any new committees shall be reviewed
by the Board on an annual basis.

— Review the various strategies of the company and
accordingly set the performance objectives for directors.

— Ensure that adequate disclosure is made with regard to
performance evaluation in the Board’s Report.

— Responsibility of the Nomination & Remuneration Committee

It shall evaluate the performance of individual Directors of
the Company as per the terms of the Nomination and

Remuneration Policy of the Company framed in accordance
with the provisions of section 178 of the Companies Act,

2013.

— Responsibility of Independent Directors

Independent Directors are duty bound to evaluate the
performance of non-independent directors and Board as a
whole. The independent directors of the Company shall hold
at least one meeting in a year to review the performance of
non-independent directors, performance of the chairperson
of the Company and Board as a whole, taking into account
the views of executive directors and non-executive directors.

The independent directors at their separate meetings shall:

(a) review the performance of non-independent directors and
the Board as a whole;

68

A Guide to Board Evaluation

(b) review the performance of the Chairperson of the

Company, taking into account the views of executive
directors and non-executive directors;

(c) assess the quality, quantity and timeliness of flow of
information between the company management and the

Board that is necessary for the Board to effectively and
reasonably perform their duties.

— Evaluation of Independent Director shall be carried on by
the entire Board of Directors of the Company except the

Director getting evaluated.

4. POLICY REVIEW

Subject to the approval of Board of Directors, the “Nomination
and Remuneration Committee” reserves its right to review and amend
this policy, if required, to ascertain its appropriateness as per the
needs of the Company. The Policy may be amended by passing a
resolution at a meeting of the Nomination and Remuneration

Committee.

5. DISCLOSURE

In accordance with the requirement under the Act, disclosure
regarding the manner in which the performance evaluation has been
done by the Board of Directors of its own performance, performance
of various committees of directors and individual directors’

performance will be made by the Board of Directors in the Board’s

Report. Further, the Board’s Report containing such statement will
be made available for the review of shareholders at the general
meeting of the Company.

The Policy has been made available on Company’s official
website and the key features of this Policy have also been included
in the corporate governance statement contained in the annual
report of the Company.

***

A G

SAMPLE EVALUATION TOOLS
uid

Rating Scale:

e to

1. Outstanding

Bo

2. Exceeds Expectation
ard

3. Meets Expectation

Eva

4. Needs Improvement
lua

5. Poor
tion

PART I

Board of Directors Evaluation

(By all the directors or externally facilitated)

Criteria

1

2

3

4

5

How can the board
do it better or
differently

Board Composition & Quality

1 The Board has appropriate qualifications, expertise and experience to meet
the best interests of the company.

2 The board has appropriate combination of industry knowledge and diversity

(gender, experience, background, competence).

3. The process of appointment to the board of directors is clear and transparent.

4. The Role and responsibilities of the Board and its members are clearly
documented.

69

70

5 All the independent directors are independent in true letter and spirit i.e.

whether the independent Director has given declaration of independence
and they exercise their own judgement, voice their concerns and act freely
from any conflicts of interests.

6 Board members demonstrate highest level of integrity (including
maintaining confidentiality and identifying, disclosing and managing
conflicts of interests).

7 The Board members spend sufficient time in understanding the vision,
mission of the company and strategic and business plans, financial reporting
risks and related internal controls and provides critical oversight on the same.

8 The Board understands the legal requirements and obligations under which
they act as a Board; i.e. by laws, corporate governance manual etc. and
discharge their functions accordingly.

A

9 The Board has set its goals and measures its performance against them on

G
annual basis.

uide

10 The Board has defined its stakeholders and has appropriate level of
to B
communication with them.

oard

11 The Board understands the line between oversight and management.

Evalua

12 The board monitors compliances with corporate governance regulations
tio
and guidelines.

n

A G

13 An effective succession plan of board in place.

uide t

14 The Board has the proper number of committees as required by legislation and
o B
guidelines, with well-defined terms of reference and reporting requirements.

oard

15 The Board regularly reviews the grievance redressal mechanism of investors.

Evalu

Board Meetings and Procedures
ation

1 The Annual Calendar of Board meetings is communicated well in advance
and reviewed from time to time.

2 The Board meeting agenda and related background papers are concise and
provide information of appropriate quality and detail.

3 The information is received by board members sufficiently in advance for
proper consideration.

4 Adequacy of attendance and participation by the board members at the
board meetings.

5 Frequency of Board Meetings is adequate.

6 The facility for video conferencing for conducting meetings is robust.

7 Adequate and timely inputs are taken from the members of the board prior

7
to setting of the Agenda for the meetings.

1

72

8 Location of Board Meeting (As a good governance practice the Board
meeting should be held at different places).

9 The Board meetings encourage a high quality of discussions and decision
making.

10 Openness to ideas and ability to challenge the practices and throwing up
new ideas.

11 The amount of time spent on discussions on strategic and general issues is
sufficient.

12 How effectively does the Board works collectively as a team in the best
interest of the company?

13 The minutes of Board meetings are clear, accurate, consistent, complete
and timely and records dissenting views.

A Gu

14 The actions arising from board meetings are properly followed up and
ide
reviewed in subsequent board meetings.

to Bo

15 The processes are in place for ensuring that the board is kept fully informed
ard
on all material matters between meetings (including appropriate external

Ev
information eg. emerging risks and material regulatory changes).

aluati

16 Adequacy of the separate meetings of independent directors.

on

A G

17 Appropriateness of secretarial support made available to the Board.

uide t

18 The Board members understand the terms and conditions of D & O
o B
insurance.

oard

19 All proceedings and resolutions of the Board are recorded accurately,

Eva
adequately and on a timely basis.

luati

Board Development
on

1 Appropriateness of the induction programme given to the new board
members.

2 Timeliness and appropriateness of ongoing development programmes to
enhance skills of its members

3 Appropriate development opportunities are encouraged and
communicated well in time

Board Strategy and Risk Management

1 The time spent on issues relating to the strategic direction and not day-to-
day management responsibilities

2 Engaging with management in the strategic planning process, including
corporate goals, objectives and overall operating and financial plans to

7
achieve them.

3

74

3 The Board has developed a strategic plan / policies and the same would
meet the future requirement of the Company.

4 The Board has sufficient understanding of the risk attached with the business
structure and the Board uses appropriate risk management framework and
whether board reviewed and understood the risks provided in the internal
audit report and the management is taken sufficient steps to mitigate the
risk.

5 The Board evaluates the strategic plan/ policies periodically to assess the

Company’s performance, considers new opportunities and responds to
unanticipated external developments.

6 The Risk management framework is subject to review.

7 Monitoring the implementation of the long term strategic goals.

A

8 Monitoring the company’s internal controls and compliance with applicable

Gu
laws and regulations.

ide t

9 The adequacy of Board contingency plans for addressing and dealing with
o Bo
crisis situations.

ard E

10 Appropriateness of effective vigil mechanism.

valu

11 The Board focuses its attention on long-term policy issues rather than short-
atio
term administrative matters.

n

A G

12 The Board discusses thoroughly the annual budget of the Company and its
uid
implications before approving it.

e to B

13 The Board periodically reviews the actual result of the Company vis-à-vis
oa
the plan/ policies devised earlier and suggests corrective measures, if
rd E
required.

valu

Board and Management Relations
atio

1 The Board sets the overall tone and direction of the Company.

n

2 The Board has approved comprehensive policies and procedures for smooth
conduct of all material activities by Company.

3 The Board has a range of appropriate performance indicators that are used
to monitor the performance of management.

4 The Board is well informed on all issues (short and long-term) being faced
by the Company.

5 The Board adequately reviews proposed departures from the long-and
short- term business plans of the Company before they take place.

6 The Board sets a corporate culture and the values by which executives shall
behave.

7 The Board and the management are able to actively access each other and
exchange information.

7

8 The level of independence of the management from the Board is adequate.

5

76

Succession Planning

1 The Board has a succession plan for the Chairperson and the Chief Executive

Officer / Managing Director.

2 The Board reviews the existing succession plan and if appropriate, make
necessary changes by taking into account the current conditions.

Stakeholder value and responsibility

1 The Board treats shareholders and stakeholders fairly where decisions of
the board of directors may affect different shareholder/ stakeholder groups
differently.

2 The Board regularly reviews the Business Responsibility Reporting / related
corporate social responsibility initiatives of the entity and contribution to
society, environment etc.

A Guide to Board Evaluation

A G

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor
uide to

Overall rating of

Bo

Board performance
ard Eva

Comment

.................………………………………………................................................…………………

luatio

................………………………………………................................................…………………

n

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

If Externally facilitated,

Comments of evaluator:

77

78

PART II

MANAGING DIRECTOR / EXECUTIVE DIRECTOR ASSESSMENT FORM

(By all the Board members)

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Leadership

1. The MD / ED has shown clear vision in correctly
anticipating business trends, opportunities, and
priorities affecting the Company’s prosperity and
operations.

2. The MD / ED has clearly translated his/her vision and

A
strategy into feasible business or operational plans to

G
achieve strategic success for the Company.

uide t

3. The MD/ ED has accurately communicated his/her
o Bo
concept, vision, mission, strategies, goals, and
ar
directions for the Company to stakeholders.

d Evalu

4. The MD / ED has motivated and encouraged high
ati
employee morale and loyalty to the organization, and
on

A
facilitated team-building and cohesiveness among the

Gui

Company’s employees to achieve the Company’s vision.

de to Boa

5. The MD / ED is open to constructive suggestions, and
rd E
exercised effective leadership for the organization.

valuat

6. The MD / ED has been an initiator, setting high working
ion
standards and pursuing goals with a high level of
personal drive and energy.

Strategy Formulation

7. The MD / ED has developed clear mission statements,
policies, and strategic plans that harmoniously balance
the needs of shareholders, clients, employees, and
other stakeholders.

8. The MD/ED has accurately identified and analyzed
problems and issues confronting the Company.

9. The MD/ED has accurately determined and assessed key
success factors for formulating the Company’s strategy.

79

80

10. The MD/ED has ensured that board members, senior
management and other employees had participated in
the formulation of strategic plans so that they had the
ownership of the plans.

11. The MD/ED has assured that company’s resources and
budgets are aligned to the implementation of the
organization’s strategic plan.

12. The MD/ED has established processes that did the
monitoring and controlling works, thus ensuring that
the effectiveness of organizational performance,
including risk management, was achieved.

Strategy execution

A

13. The MD/ED has established an effective organization

Gui
structure, ensuring that there is management focus on
de
key functions necessary for the organization to align
to B
with its mission.

oard E

14. The MD/ED has organized and delegated work
val
accurately, and has performed his or her functions
uat
within his/her scope of responsibility.

ion

A G

15. The MD/ED has consistently made sound decisions and
uid
made timely adjustments in strategies, if required.

e to B

16. The MD/ED has timely and effectively executed
oa
strategies on priorities and with measures set by the
rd E

Board.

valua

17. The MD/ED has accurately supervised performance
tio
monitoring and performance control to ensure
n
accountability at all levels of the organization.

18. The MD/ED has ensured that the company’s operations
complied with requirements from all pertinent laws and
regulations .

Financial planning / performance

19. The MD/ED has possessed a good understanding of the
company’s financial measures relevant to its business
and financial situation.

20. The MD/ED has exercised good judgment in managing
the financial affairs and budgets of the organization.

21. The MD/ED has effectively monitored and evaluated
financial planning, budget and administrative

8
operations.

1

82

Relationships with the Board

22. The MD/ED has built strong working relationships with

Board members and has worked closely and
cooperatively with the board in developing the mission,
and short, medium and long-term strategic plans.

23. The MD/ED has demonstrated a sound knowledge of

Board governance procedures and has consistently
followed them.

24. The MD/ED has presented information to the board on
items requiring Board opinions and decisions in a
professional manner, with recommendations based on
thorough study and sound principles.

25. The MD/ED has been available to individual Board

A
members whenever necessary, as well as supported the

Gui
board in its governance duties by providing necessary
de
resources and other facilities.

to Bo

External Relations
ard E

26. The MD/ED has served as an effective Company’s
valu
representative in communicating with all stakeholders.

ation

A G

27. The MD/ED has encouraged corporate social
uid
responsibility and community involvement in
e to
promoting a positive image of Company.

Boar

28. The MD/ED has assured that the Company maintains
d E
positive relationships in the community and cultivates
val
good working relationships with community groups and
uat
organizations.

ion

Human Resources Management/Relations

29. The MD/ED has created and maintained an
organizational culture and climate which attracts, keeps
and motivates staff to carry out the Company’s mission,
strategic directions and organizational goals.

30. The MD/ED effectively monitors procedures and
practices pertaining to human resources, including
appraisal process and rewarding systems for
management and employees.

31. The MD/ED has ensured that the company has good
internal communication and treated all personnel fairly,
without favoritism or discrimination.

83

84

Succession

32. The MD/ED has effectively reviewed the Company’s
succession plan, and, if appropriate, made necessary
changes by taking into account conditions that are
external or internal to the Company.

33. The MD/ED has put in place the processes and programs
required to create a pipeline of future leadership.

Product/Service Knowledge

34. The MD/ED has demonstrated a thorough knowledge
and understanding about key aspects of the Company’s
products and services.

35. The MD/ED has demonstrated a thorough knowledge and

A G
understanding of Company management and operations.

uide

36. The MD/ED has a good understanding of the company’s
to B
business model and allocation of its resources, as well
oa
as business and industry environment.

rd Eva

37. The MD/ED has regularly demonstrated creativity and
lua
initiative in creating new products and services.

tion

A G

Personal Qualities
uide

38. The MD/ED has attained an image that reflects
to B
positively on the company, as well as demonstrated a
oa
personality, outlook, and attitude that wins trust and
rd E
support from all stakeholders.

valua

39. The MD/ED has exercised good judgment in dealing with
tio
sensitive issues between people and between groups.

n

40. The MD/ED has shown skills at analyzing and addressing
problems, challenges and conflicts, and has been
comfortable with ambiguity and complexity.

41. The MD/ED has maintained a high standard of ethics
and integrity, as well as a healthy balance of time
management and priorities in both work-related and
personal matters.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Overall rating of

Managing Director /

Executive Director’s

8
performance

5

86

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

A Guide to Board Evaluation

A

PART III

Guide

DIRECTOR SELF ASSESSMENT/ PEER REVIEW
to Bo

Criteria

1

2

3

4

5
ard E

KNOWLEDGEABLE
valuati

1 Understands duties, responsibilities, qualifications, disqualifications and liabilities on
as a director.

2 Brings relevant experience to the board and uses it effectively.

3 Understands the vision and mission of the company, strategic plan and key issues.

4 Staying abreast of issues, trends and risks (including opportunities and competitive
factors) affecting the company, and using this information to assess and guide the
company’s performance.

5 Takes advantage of opportunity to upgrade skills by regularly attending professional
development programmes.

6 The management communications are sufficient to enhance company specific
updates.

87

88

DILIGENCE & PARTICIPATION

1 Regularly and constructively attend board, committee and general meetings.

2 Prepares in advance for board and committee meetings.

3 Communicates opinions and concerns in a persuasive yet clear and concise
manner.

4 Uses Independent judgement in relation to decision making.

5 Facilitates and encourages change when it would improve board processes.

6 Encourages other members to contribute their opinions.

A G

7 Raises appropriate issues at meetings and asking the appropriate questions for
uid
clarity.

e to Bo

8 Contributions add value to the decision making.

ard Ev

9 Gets dissent recorded in minutes.

aluati

10 Maintains confidentiality.

on

A G

11 Abides by the legal obligations and code of conduct.

uide to

12 Reports concerns about unethical behaviour, actual and suspected fraud.

Board

LEADERSHIP TEAM

Evalua

1 Listens attentively to the contributions of others.

tion

2 Initiates discussions on issues in company’s interest.

3 Shares good interpersonal relationship with other directors.

4 Supportive and cooperative.

5 Respected by board members.

6 Insists on receiving information necessary for decision making to all the directors.

7 Manages conflicts of interest in best interest of the company.

8 Safeguard the interest of all stakeholders in the decision making.

8

9 Personal values are in congruence with that of the company.

9

90

PART IV

NON-EXECUTIVE DIRECTOR AND INDEPENDENT DIRECTOR EVALUATION FORM

(PEER REVIEW- by Directors other than director being evaluated)

Name of the Director: ______________________________;

Category: Independent / Non-executive

PART A

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Participation at Board/ Committee Meetings

1. Director comes well prepared and informed for the

A

Board / committee meeting(s).

Guide

2. Director demonstrates a willingness to devote time and
to
effort to understand the Company and its business and

Bo
a readiness to participate in events outside the meeting
ard
room, such as site visits?

Evalua

3. Director has ability to remain focused at a governance
tio
level in Board/ Committee meetings.

n

A G

4. Director’s contributions at Board / Committee meetings
uid
are of high quality and innovative.

e to B

5. Director’s proactively contributes in to development of
oar
strategy and to risk management of the Company.

d Eva

Managing Relationship
luatio

6. Director’s performance and behaviour promotes mutual
n
trust and respect within the Board / Committee.

7. Director is effective and successful in managing
relationships with fellow Board members and senior
management ?

Knowledge and Skill

8. Director understands governance, regulatory, financial,
fiduciary and ethical requirements of the Board /

Committee.

9. Director actively and successfully refreshes his/ her
knowledge and skills and up to date with the latest
developments in areas such as corporate governance
framework, financial reporting and the industry and

9
market conditions.

1

92

10. Director is able to present his/ her views convincingly
yet diplomatically.

11. Director listens and takes on Board the views of other
members of Board.

Personal Attributes

12. Director has maintained high standard of ethics and
integrity.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Committee performance

Comment

.................………………………………………................................................…………………

A Gu

................………………………………………................................................…………………

ide to

Please suggest three things that could improve Board’s performance.

Name of Director:

Bo
a) ………………………………………………………………………

…………………………………………

ard
b) ………………………………………………………………………

Signature:

Ev
c) ………………………………………………………………………

…………………………………………

alu

Date :

ati

…………………………………………

on

A

Part - B

Guide

If concerned director is “Independent Director” then in addition to Part-A of this sample tool to
this may also be used.

Boar

Name of the Director: ______________________________;
d Eva

Category: Independent
luati

RATINGS

COMMENTS
on

EVALUATION FACTOR

1

2

3

4

5

1. Director upholds ethical standards of integrity and probity.

2. Director exercises objective independent judgment in the best
interest of Company.

3. Director has effectively assisted the Company is implementing
best corporate governance practice and then monitors the
same.

4. Director helps in bringing independent judgment during board
deliberations on strategy, performance, risk management etc.

5. Director keeps himself/ herself well informed about the

9

Company and external environment in which it operates.

3

94

6. Director acts within his authority and assists in protecting the
legitimate interest of the Company, Shareholder and
employees.

7. Director maintains high level of confidentiality.

8. Director adheres to the applicable code of conduct for
independent directors.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Director performance

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

A G

................………………………………………................................................…………………

uide t

Please suggest three things that could improve Board’s performance.

Name of Director:

o B
a) ………………………………………………………………………

…………………………………………

oar
b) ………………………………………………………………………

Signature:

d Ev
c) ………………………………………………………………………

…………………………………………

alu

Date :

ati

…………………………………………

on

A

PART V

Guide

EVALUATION OF BOARD COMMITTEES
to

(By Board of Directors)

Boar

Criteria

1

2

3

4

5

How can the board d Ev
do it better or alu
differently
ation

Function and Duties

1 The Committee of the Board are appropriately constituted.

2 The terms of reference for the committee are appropriate with clear defined
roles and responsibilities.

3 Observing Committees terms of reference.

4 The composition of the committee is in compliance with the legal
requirement.

5 The amount of responsibility delegated by the Board to each of the
committees is appropriate.

6 The reporting by each of the Committees to the Board is sufficient.

95

96

7 The performance of each of the Committees is assessed annually against
the set goals of the committee.

8 Whether the terms of reference are adequate to serve committee’s
purpose?

9 The committee regularly reviews its mandate and performance.

10 Committee takes effective and proactive measures to perform its functions.

Management Relations

11 Adequate independence of the Committee is ensured from the Board.

12 Committee gives effective suggestion and recommendation.

13 Committee meetings are conducted in a manner that encourages open
communication and meaningful participation of its members.

A G

Committee Meetings and Procedures
uide t

14 Committee meetings have been organized properly and appropriate
o Bo
procedures were followed in this regard?

ard E

15 The frequency of the Committee meetings is adequate.

valua

16 Committee makes periodically reporting to the Board along with its
tio
suggestions and recommendations.

n

A G

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor
uide t

Overall rating of
o B

Board performance
oard Ev

Comment

.................………………………………………................................................…………………

aluati

................………………………………………................................................…………………

on

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

The participation and effective functioning of the committee meetings the questions may remain the same as for Board meetings.

97

98

PART VI

CHAIRPERSON ASSESSMENT

(By each Board member)

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Managing Relationships

1. The Chairperson actively manages shareholder, board,
management and employee relationships and interests.

2. The Chairperson meets with potential providers of
equity and debt capital, if required.

3. The Chairperson manages meetings effectively and

A G
promotes a sense of participation in all the Board
ui
meetings.

de to

Leadership

Board

4. The Chairperson is an effective leader.

Evalu

5. The Chairperson promotes effective participation of all
ati

Board members in the decision making process.

on

A G

6. The Chairperson promotes the positive image of the
uid

Company.

e to Bo

7. The Chairperson promotes continuing training and
ard
development of directors.

Evalua

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor
tion

Overall rating of

Chairperson’s performance

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

99

10

SAMPLE BOARD ASSESMENT MODELS

0

Deloitte*

Sample Board Performance Form

Select the appropriate rating for each statement

0

Insufficient knowledge/ Not applicable

1

Strongly disagree

5

Strongly agree

0

1

2

3

4

5

Composition and Quality

1. Qualified board members are identified by sources independent of management (e.g., A G
independent board members assisted by an independent firm in the search for candidates).

uide to B

2. Board members have the appropriate qualifications to meet the objectives of the board’s oar
charter, including appropriate financial literacy.

d Eva

*

The document is a copyright of Deloitte LLP, an Ontario Limited Liability Partnership, the Canadian member firm of Deloitte Touche Tohmatsu lua

Limited. It is available at http://www.corpgov.deloitte.ca/en-ca/Pages/RolesAndResponsibilities/Performance.aspx
tion

The right to produce the document is received from the organisation.

A G

3. The board demonstrates integrity, credibility, trustworthiness, active participation, an ability uid
to handle conflict constructively, strong interpersonal skills, and the willingness to address e to
issues proactively.

Board

4. The board demonstrates appropriate industry knowledge and includes a diversity of Ev
experiences and backgrounds.

aluatio

5. Members of the board meet all applicable independence requirements.

n

6. The board participates in a continuing education program to enhance its members’

understanding of relevant risk, reporting, regulatory, and industry issues.

7. The board monitors compliance with corporate governance regulations and guidelines.

8. The board reviews its charter annually to determine whether its responsibilities are described adequately.

9. New board members participate in an orientation program to educate them on the organization, their responsibilities, and the organization’s activities.

10. The board chairman is an effective leader.

11. The board, in conjunction with the nominating committee (or its equivalent), creates a 10
succession and rotation plan for board members, including the board chairman.

1

10

Select the appropriate rating for each statement

0

1

2

3

4

5

2

Understanding the Business, including Risks

1. The board takes into account significant risks that may directly or indirectly affect theorganization. Examples include:

•

Regulatory and legal requirements

•

Concentrations (e.g., suppliers and customers)

•

Market and competitive trends

•

Financing and liquidity needs

•

Financial exposures

•

Business continuity

•

Organization reputation

•

Strategy execution

A

•

Management’s capabilities

Guid

•

Management override
e to

•

Fraud control

Bo

•

Organization pressures, including “tone at the top”

ard Ev

2. The board considers, understands, and approves the process implemented by
alu
management to effectively identify, assess, and respond to the organization’s key risks.

ation

A G

3. The board understands and approves management’s fraud risk assessment and has an
uid
understanding of identified fraud risks.

e to Bo

4. The board considers the organization’s performance versus that of its peers in a manner
ard
that enhances comprehensive risk oversight by using reports provided directly by

Ev
management to the board or at the full board meeting. These may include benchmarking
alu
information comparing the organization’s performance and ratios with industry and
atio
peers, industry trends, and budget analysis with explanations for areas where significant
n
differences are apparent.

Select the appropriate rating for each statement

0

1

2

3

4

5

Process and Procedures

1. The board develops a calendar that dedicates the appropriate time and resources
needed to execute its responsibilities.

2. Board meetings are conducted effectively, with sufficient time spent on significant or
emerging.

3. The level of communication between the board and relevant parties is appropriate;
the board chairman encourages input on meeting agendas from committee and board

1
members, management, the internal auditors, and the independent auditor.

03

104

4. The agenda and related information are circulated in advance of meetings to allow
board members sufficient time to study and understand the information.

5. Written materials provided to board members are relevant and concise.

6. Meetings are held with enough frequency to fulfill the board’s duties and at least quarterly, which should include periodic visits to organization locations with key
members of management.

7. The board maintains adequate minutes of each meeting.

8. The board and the compensation committee regularly review management incentive
plans to consider whether the incentive process is appropriate.

A Guid

9. The board meets periodically with the committee responsible for reviewing the
e t
organization’s disclosure procedures.

o Board

10. The board respects the line between oversight and management.

Evaluati

11. Board members come to meetings well prepared.

on

A G

Select the appropriate rating for each statement

0

1

2

3

4

5
uide

Oversight of the Financial Reporting Process, including Internal Controls
to Boa

1. The board considers the quality and appropriateness of financial accounting and
rd
reporting, including the transparency of disclosures.

Evalua

2. The board reviews the organization’s significant accounting policies.

tion

3. The board makes inquiries of the independent auditor, internal auditors, and
management on the depth of experience and sufficiency of the organization’s accounting
and finance staff.

4. The board reviews the management recommendation letters written by the
independent and internal auditors and monitors the process to determine that all
significant matters are addressed.

5. The board ensures that management takes action to achieve resolution when there are
repeat comments from auditors, particularly those related to internal controls.

6. Adjustments to the financial statements that resulted from the audit are reviewed by
the audit committee, regardless of whether they were recorded by management.

7. The board is consulted when management is seeking a second opinion on an accounting

1
or auditing matter.

05

106

Oversight of Audit Functions

8. The board understands the coordination of work between the independent and internal
auditors and clearly articulates its expectations of each.

9. The board appropriately considers internal audit reports, management’s responses,
and steps toward improvement.

10. The board oversees the role of the independent auditor from selection to termination
and has an effective process to evaluate the independent auditor’s qualifications and
performance.

A

11. The board considers the independent audit plan and provides recommendations.

Guide to

12. The board reviews the audit fees paid to the independent auditor.

Board E

13. The board comprehensively reviews management’s representation letters to the
valu
independent auditor, including making inquiries about any difficulties in obtaining the
ati
representations.

on

A G

Select the appropriate rating for each statement

0

1

2

3

4

5
uide

Ethics and Compliance
to Bo

1. Board members oversee the process and are notified of communications received
ard
from governmental or regulatory agencies related to alleged violations or areas of

Ev
non-compliance.

aluat

2. The board oversees management’s procedures for enforcing the organization’s code of
ion
conduct.

3. The board determines that there is a senior-level person designated to understand
relevant legal and regulatory requirements.

4. The board oversees the organization’s hotline or whistleblower process, reviews the
log of incoming calls that relate to possible fraudulent activity, and understands the procedures to prohibit retaliation against whistleblowers.

Monitoring Activities

5. An annual performance evaluation of the board is conducted and any matters that
require follow-up are resolved and presented to the full board.

Overall evaluation

Use the space below to conclude on the overall results taking into account the
quantitative results of this self-assessment and qualitative factors not considered

10
above.

7

10

SAMPLE II

8

GENOME CANADA**

Introduction

The purpose of this evaluation tool is to assist the Board of Directors to:

•
understand and recognize what is working well;

•
identify areas for improvement;

•
discuss and agree on priorities for change which can be addressed in the short-and-long-term;

•
agree on an action plan.

It is intended that this evaluation tool will be completed annually by each director of Genome Canada’s Board of Directors. The Corporate Governance Committee will have responsibility to oversee the implementation of this evaluation tool, including discussing a summary of the results, and preparation of a final report with recommendations to the Board A of Directors.

Guid

In order to encourage open and frank evaluations, as well as offer anonymity to respondents, the evaluation process e to shall be directed by the Corporate Secretary, who will mail the questionnaire to each director as well as collate the Bo results into a report which will be submitted to the Corporate Governance Committee.

ard E

The questionnaire is structured in two parts:

valu

PART 1 – Director Self Assessment
ation

PART 2 – Board of Directors Evaluation

A G

Both parts of the questionnaire are to be completed and sealed in the attached envelope and returned to the Corporate uid Secretary.

e to

PART 1 - DIRECTOR SELF ASSESSMENT

Board

Background

Eval

Genome Canada does not undertake a formal evaluation process for each director. Rather, it promotes a self uat assessment by directors of their own performance.

ion

Assessment Criteria for Individual Directors

The following criteria are useful in determining how effective a Director’s performance results in:

•
contributing to corporate leadership and stewardship

•
contributing to achievement of corporate objectives

•
understanding Genome Canada’s mandate, strategic plan, and key issues

•
constructive contribution to resolution of issues at meetings

•
communicating expectations & concerns clearly

•
obtaining adequate, relevant & timely information

•
promotion of corporation’s interests externally

•
interpersonal relationships with other directors and management

109

•
attendance, confidentiality and preparation for meetings

11

PART 1 - DIRECTOR SELF-ASSESSMENT

0

Rating Scale :

On a scale from 1 to 5 with 1 being “ Strongly Disagree’’ and 5 being ‘’ Very Strongly Agree” please rate your performance as a director based on the following :

Assessment Criteria

Strongly

Disagree

Agree

Strongly

Very

Disagree

Agree Strongly

Agree

1

2

3

4

5

1 I have a good understanding of Genome Canada’s
mandate, strategic plan and key issues.

2 I understand the difference between governing and
managing a corporate enterprise and avoid intruding

A
on management’s responsibilities.

Guid

3 My special skills/ expertise provide a unique
e to
contribution to the board’s overall effectiveness.

Boa

4 I have good interpersonal relationships with the other
rd
directors.

Evalua

5 I think, speak and act independently in relation to
tio
decisions the board must make.

n

A G

6 I facilitate and encourage change when it would
uid
improve board processes.

e to Bo

7 I make a measured and appropriate contribution to
ard
board discussions and deliberations.

Evalu

8 I am sensitive to the complex relationships which
atio
naturally exist among the board chair , the independent
n
directors and the president and CEO.

9 I come to meetings well prepared- having done the
necessary prior reading and having consulted other
directors and/or management if required.

10 I have a good knowledge of the responsibilities of

Genome Canada’s management team and am able to
consult with members of the management team , as
required.

11 I promote Genome Canada’s corporate interests
externally.

12 I respect the confidentiality of business information and

11
our board’s deliberations.

1

112

13 I understand the legal and fiduciary obligations of
individual directors and of the board as a whole.

14 I have a sufficient knowledge of Genome Canada’s as a
legal entity and not-for-profit corporation, as well as
an understanding of its relationship with industry

Canada and other federal departments.

15 When it is appropriate I communicate privately and
constructively with the chair and/or President and CEO
between meetings.

16 I expect high levels of performance from myself, my
fellow directors and management.

17 I ask probing questions focused on policy and strategy

A
rather than tactics and details.

Guid

18 I insist that I and the other directors receive information
e t
necessary for decision making.

o Boa

19 I make a meaningful contribution when I serve on a
rd
board committee.

Evalua

20 My attendance rate at meetings is satisfactory.

tion

A G

21 I serve as a resource to the board and to management.

uide to

22 I introduce new thinking and a fresh perspective to

Bo
problem solving.

ard Ev

23 My attitude is positive, supportive and enthusiastic.

aluati

24 My personal value and ethical system is congruent with
on
that of the board and the corporation.

Additional Comments:

PART 2 - BOARD OF DIRECTORS EVALUATION

Background

The Board of Directors should undergo on an annual basis, a review of its performance against established criteria, for purposes of assessing its effectiveness.

Assessment Criteria

The following criteria assist in determining how effective the Board’s performance is in:

•
leadership

•
stewardship

11

•
contributing to achievement of corporate objectives

3

11

•
timely resolution of issues at meetings

4

•
communications of expectations & concerns clearly

•
obtain adequate, relevant & timely information

•
review & approval of strategic and operational plans, objectives, budgets

•
regular monitoring of corporate results against projections

•
identify, monitor & mitigate significant corporate risks

•
assess policies, structures & procedures

•
direct, monitor & evaluate President and CEO

•
review management’s succession plan

•
effective meetings

A G

•
formal communications policy for corporation
uide

•
corporation’s approach to governance
to Bo

•
accountability
ard E

•
assuring appropriate board size, composition, independence, structure
valu

•
clearly defining roles & monitoring activities of committees
ation

•
review of corporation’s ethical conduct

A G

PART 2 BOARD OF DIRECTORS EVALUATION
uide

Rating Scale
to Bo

On a scale from 1 to 5 with 1 being “Strongly Disagree’’ and 5 being ‘’Very Strongly Agree’’ please rate the ard Board’s performance against the following criteria.

Eval

Note: Additional comments are welcome.

uation

Assessment Criteria

Strongly

Disagree

Agree

Strongly

Very

Disagree

Agree Strongly

Agree

1

2

3

4

5

Strategic Plan and Performance

1 The Board understands the vision, mission and
objectives of Genome Canada.

2 The Board is involved in the strategic planning process,
including corporate goals, objectives and overall
operating and financial plans to achieve them.

3 The Board focuses on strategic issues and regularly
assesses performance against its strategic plans and

11
goals.

5

116

4 The Board monitors financial and other indicators
throughout the year, and takes appropriate action as
required.

5 The Board regularly assesses strategic and operating
risks and takes appropriate action as required.

6 The Board understands the legal requirements and
obligations under which they act as a Board; i.e., bylaws,
funding agreement, corporate governance manual.

7 The Board has adopted and maintains a senior
management succession planning process and is
satisfied with succession planning for the CEO.

8 The Board appropriately relates the compensation of
the president and CEO to performance.

A Gu

9 The Board is diligent in verifying the integrity of its
ide
financial and management controls and systems.

to Bo

10. The Board is made aware of Genome Canada’s
ard
communications with key stakeholders; i.e. media,

Ev
government, general public.

aluat

Additional Comments:

ion

A G

Management Interaction
uide t

11 The Board has sufficient formal and informal contact
o B
with the President and CEO.

oard

12 The Board has sufficient formal and informal contact

Eva
with other management personnel.

luati

13 The Board is able function independently of
on

Management and has the mechanisms in place to
maintain that distinction.

14 The Board understands the difference between its role
and that of management.

15 The Board receives appropriate advice and counsel from
management.

Additional Comments

Board of Director Operations

16 The Board has an effective process for maintaining its size
and compositions to provide appropriate expertise and

11
experience to meet the best interests of Genome Canada.

7

118

17 The Board has an adequate process for orientating and
educating new Directors.

18 The number and length of Board meetings is
appropriate.

19 The amount of time spent on discussions on strategic
and general issues is sufficient.

20 The chair conducts the meetings in a respectful manner
that ensure open communication and meaningful
participation.

21 The chair communicates with directors between
meetings as necessary and appropriate.

22 The amount of information received in board packages

A G
is appropriate for discussion and decision making
uid
purposes.

e to

23. The Board materials are received sufficiently in advance

Boa
to adequately prepare for meetings.

rd Eva

Additional Comments:

luation

A G

Committee Structure ° Executive ° Audit ° Investment ° Election ° Corporate Governance ° Compensation uide t

24 The Committee structure is appropriate.

o Boa

25 The delegation of responsibilities by the Board to its
rd
committee is appropriate.

Evalu

26 The composition of the committee is appropriate.

ation

27 The number and length of committee meetings is
appropriate.

28 The meetings are conducted in a manner that ensures
open communication and meaningful participation.

29 The amount of information received is appropriate for
discussion and decision making purposes

30 The materials are received sufficiently in advance to
adequately prepare for meetings.

31 The committee regularly reviews its mandate and
performance.

Additional Comments:

119

12

List the top three priorities requiring attention in order for the Board of Directors to function more effectively.

0

1

2

3

A Guide to Board

** The document is a copyright of Genome Canada. The document is available at http://www.genomecanada.ca/medias/PDF/ Ev EN/GenomeCanadaBoardDirectorsAnnualQuestionnaire.pdf
alua

The right to produce the document is received from the organisation.

tion

A G

SAMPLE III
uide

KPMG
to Bo

AUDIT COMMITTEE INSTITUTE, IRELAND***
ard

More Satisfied 1 2 3 (Tick any one)

Eval

Less satisfied 4 5 (Tick any one)

uation

A. Creating an effective board

1

2

3

4

5

What could the board do
better or differently?

1. Are you satisfied that the board has clearly documented its role
and responsibilities ( e.g. schedule of matters reserved for the
board , split of the chairman’s role and that of the CEO)?

2. Are you satisfied that board members, both individually and
collectively, understand what is expected of them (e.g. determining
the company’s strategic aims)?

3. Are you satisfied that all non executive directors are independent
of the organisation’s management and exercise their own
judgement; voice their own opinions; and act freely from any
conflicts of interest?

4. Are you satisfied with the process by which board members are

12
appointed?

1

12

5. Are you satisfied with the appropriateness of the succession plans

2
in place?

6. Are you satisfied that board members, as a whole, have sufficient
skills, experience, time and resources to undertake their duties?

7. Are you satisfied that there is sufficient diversity in the boardroom

(e.g. diversity of experience, balance between non executive and
executive director is appropriate)?

8. Are you satisfied that board members have a sufficient
understanding of the organisation and the sector in which it
operates?

9. Are you satisfied that all board member demonstrate the highest

A
level of integrity (including maintaining utmost confidentiality and

G
identifying disclosing and managing conflicts of interest).

uide t

10. Are you satisfied with the level of ‘secretarial support’ placed at
o B
the board’s disposal?

oard E

11. Are you satisfied with the process in place to make funds available
val
to the board to take independent legal, accounting or other advice
uat
when it reasonably believes it necessary to do so?

ion

A G

B. Running an effective board

1

2

3

4

5

What could the board do
uid
better or differently?

e to B

1. Are you satisfied that the board has in place a set of objectives that
oar
seek to enhance its effectiveness?

d Eval

2. Are you satisfied with the chairman’s leadership style (e.g., are
uat
they decisive, open minded and courteous; do they set a good
ion
example, allow members to contribute and hold members to high
standards; do they relate well to other members/attendees, deal
effectively with dissent and work constructively towards
consensus)?

3. Are you satisfied that the board’s workload is dealt with effectively?

4. Are you satisfied that board members work together constructively
as a team?

5. Are you satisfied that board meetings are conducted in a manner
which encourages open discussion, healthy debate and allows each
board member to clearly add value to discussion and decisions?

6. Are board meetings conducted in an atmosphere of creative

12
tension?

3

124

7. Are you satisfied that the relationship between a) the board and b)

the CEO, CFO and members of the senior management team strikes
the right balance between challenge and mutuality?

8. Are you satisfied that the board’s discussions enhance the quality
of management’s decision making (e.g.: does the board engage
those reporting to the board in dialogue that stimulates and
enhance their thinking and performance)?

9. Are you satisfied that the board’s schedule of matters is up to date
and regularly reviewed?

10. Are you satisfied that the board’s meeting arrangements (e.g.,
frequency, timing, duration, venue and format) enhance its
effectiveness?

A G

11. Are you satisfied that the board’s meeting agenda has sufficient
uid
input from all board members?

e to B

12. Are you satisfied that board meetings allow sufficient time for the
oa
discussion of substantive matters?

rd Eva

13. Are you satisfied that board meeting agendas and related
lua
background information are circulated in a timely manner to enable
tion
full and proper consideration to be given to the important issues?

A G

14. Are you satisfied with the quality of the board papers (e.g., not
uid
overly lengthy and clearly explain the key issues and priorities)?

e to Boa

15. Are you satisfied that the board has the appropriate committees
rd
with necessary chargers?

Evaluat

16. Are you satisfied that the board is adequately informed of each
ion
committee’s activities?

17. Are you satisfied that private meetings without the executive
directors present are useful?

18. Are you satisfied that the board’s meeting minutes are clear,
accurate, consistent, complete and timely?

19. Are you satisfied that outstanding actions arising from board
meetings are properly followed up?

20. Are you satisfied that the processes in place for ensuring the board
is kept fully informed on all material matters between meetings

(including appropriate external information e.g. emerging risks and

12
material regulatory changes) is working effectively?

5

12

C. Professional development

1

2

3

4

5

What could the board do

6
better or differently?

1. Are you satisfied that new board members are given an appropriate
induction programme covering issues like: the role of the director;
its terms of references; members’ expected time commitment; an
overview of the organisation and its strategic objectives?

2. Are you satisfied with timeliness and appropriateness of ongoing
professional development received by the board (e.g. regulatory
matters director’s liability)?

A

3. Are you satisfied that board members are afforded appropriate

Gu
opportunities to attend formal courses and conferences, internal
ide
talks and seminars, and briefings by external advisers such as the
to
organisation’s auditors and lawyers?

Board Ev

4. Are you satisfied that any induction and professional development
alu
programmes adequately equip board members to understand the
ati
business environment in which organisation operates?

on

A G

D. Strategic foresight

1

2

3

4

5

What could the board do
uid
better or differently?

e to Boa

1. Are you satisfied that the board devotes significant time to
rd
determining (via management and other sources) the emerging

Eva
issues that could affect the organisation in the future?

luation

2. Are you satisfied that the board has a good understanding of the
company’s key drivers of performance?

3. Are you satisfied that the board appropriately uses scenario
planning as a fundamental process in the evaluation of strategic
risks?

4. Are you satisfied that the majority of the board’s time is spent on
issues relating to the strategic direction and not day-to-day
management responsibilities?

5. Are you satisfied that the organisation’s purpose (mission) and
vision been defined and clearly communicated to all levels within

1
the organisation?

27

12

E. Stewardship

1

2

3

4

5

What could the board do

8
better or differently?

1. Are you satisfied that the board understands and fulfils its
stewardship role?

2. Are you satisfied that the company’s risk management processes
provide to the board a full understanding of the high risk issues
that could impact the organisation?

3. Are you satisfied that the board understands the details of the
control assurance framework including reporting scope and
timeliness?

A Gu

4. Are you satisfied that board members are fully informed in relation
ide
to the issues not covered by the existing Directors and Officers
to

Insurance?

Board E

5. Are you satisfied that there is an adequate policy in place for dealing
val
with potential conflicts of interest and confidential information?

uation

A G

F. Performance evaluation

1

2

3

4

5

What could the board do
uid
better or differently?

e to B

1. Are you satisfied that your existing range of financial and non-
oar
financial performance measures are board enough to monitor
d E
management’s performance?

valua

2. Are you satisfied that your existing performance measures are
tion
linked to the organisation’s strategy?

3. Are you satisfied that the organisation’s performance is adequately
benchmarked against its peers?

4. Are you satisfied that management’s remuneration is appropriately
linked to the organisation’s performance and an appropriate peer
group?

5. Are you satisfied that the board has in place an appropriate process
for regular board, committee and individual board member
evaluation?

6. Are you satisfied that all actions arising from performance
evaluation are followed up?

7. Are you satisfied that the board performance assessment process

12
enhances board effectiveness?

9

13

G. Managing management

1

2

3

4

5

What could the board do

0
better or differently?

1. Are you satisfied that the board has an agreed process to adequately
support the CEO?

2. Are you satisfied that the board has in place a rigorous process to
evaluate the performance of the CEO, with input from all non
executive board members?

3. Are you satisfied that the board is appropriately engaged in CEO/
senior management succession planning?

4. Are you satisfied that there are appropriate delegation authorities
in place for management and that they are regularly reviewed?

A

5. Are you satisfied that the organisation’s culture encourages board

Gu
members to discuss agenda and other issues with senior
ide
management?

to Bo

6. Are you satisfied that bad news is communicated to the board as it
ard
arises?

Evalu

7. Are you satisfied that the CEO and senior management receive
ati
constructive support from the board?

on

A G

H. Value creation

1

2

3

4

5

What could the board do
uid
better or differently?

e to B

1. Are you satisfied that the board has clearly identified the
oar
organisation’s major stakeholders and the ‘value’ each requires?

d Evalua

2. Are you satisfied that there are systems in place to allow the board
tio
to measure whether the organisation is creating or destroying major
n
stakeholder value?

3. Are financial and non financial value drivers in place to focus on the
enhancement of value ?

4. Is your existing decision making process (including the present
structure of management proposals) adequate to properly assess
whether proposals create major stakeholder value?

5. Is your organisation creating major stakeholder value?

6. Does the board/ management have adequate mechanisms for

1
communicating with major stakeholders?

31

13

I.

Corporate culture

1

2

3

4

5

What could the board do

2
better or differently?

1. Are you satisfied that the board’s comprehension of the
organisation’s purpose, vision and strategic plan is reflected in
actions taken in the boardroom?

2. Are you satisfied that the board plays an appropriate pro- active
role in change?

***

The document is the copyright of KPMG Audit Committee Institute, Ireland. The document is available at http://

www.auditcommitteeinstitute.ie/documents/101878_ Board_ Effectiveness_ Quest_ Flyer_ Feb12% 20% 282%29.pdf The right to produce the document has been received from the organisation.

A Guide to Board Evaluation

A Guide to Board Evaluation

133

SEBI’s Guidance Note on

Board Evaluation

A. Background of Board Evaluation in India

India has moved recently from a voluntary Board evaluation under

Clause 49 of the Listing Agreement (SEBI) and Corporate Governance

Voluntary Guidelines of MCA (2009) to a mandatory Board evaluation
under Companies Act, 2013 and SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 (SEBI LODR).

The Companies Act, 2013 and SEBI LODR provide for several
mandatory provisions for Board Evaluation on who is to be evaluated,
who is to evaluate such persons, disclosure requirements, etc. The
main provisions of Companies Act, 2013 and SEBI LODR on Board

Evaluation as applicable to listed entities is attached at Annexure

A1 and summarized as under:

1. Role of the Nomination and Remuneration Committee (NRC):

a. NRC shall formulate of criteria for evaluation of performance
of independent directors and the board of directors.

b. NRC shall carry out evaluation of every director’s performance.

c. NRC shall determine whether to extend or continue the term
of appointment of the independent director, on the basis of
the report of performance evaluation of independent
directors.

2. Role of independent directors:

a. In the meeting of independent directors of the company

(without the attendance of non-independent directors and
management), such directors shall:

(i) review the performance of non-independent directors and
the Board as a whole.

(ii) review the performance of the Chairperson of the

133

134

A Guide to Board Evaluation
company, taking into account the views of executive
directors and non-executive directors.

(iii) assess the quality, quantity and timeliness of flow of
information between the company management and the

Board that is necessary for the Board to effectively and
reasonably perform their duties.

b. The independent directors shall bring an objective view in
the evaluation of the performance of board and management.

3. Evaluation of independent directors : The performance evaluation
of independent directors shall be done by the entire Board of

Directors, excluding the director being evaluated.

4. Disclosure requirements
a. A statement indicating the manner in which formal annual
evaluation has been made by the Board of its own
performance and that of its committees and individual
directors shall be included in the report by Board of Directors
placed in the general meeting.

b. The performance evaluation criteria for independent directors
shall be disclosed in the section on the corporate governance
of the annual report.

B. Subject of Evaluation

As required under SEBI LODR and Companies Act, the evaluation
of the Board involves multiple levels:

1. Board as a whole

2. Committees of the Board

3. Individual Directors and Chairperson (including Chairperson,

CEO, Independent Directors, Non-independent directors, etc.)

C. Process of Evaluation

The process of evaluation is generally elaborate, stretching across
pre-evaluation, evaluation and post- evaluation processes including,
inter alia, the following:

1. Identifying the objectives of evaluation

Identifying the objectives of the evaluation is the first and a
crucial step in the Board Evaluation process. Clear identification
of objectives is key to streamlining the process of evaluation,
analyzing the results and taking appropriate and corrective action.

A Guide to Board Evaluation

135

The objectives may be:

(a) General objectives- Standard Objectives for all Board
evaluations of the entity

(b) Specific objectives- Objectives specific to the current Board
evaluation based on recent events, new issues of concern,
etc.

2. Criteria of evaluation

The criteria for evaluation under different categories depend on
the role the person/group plays in the organization. For instance,
the evaluation of the Chairperson may evaluate the person’s
leadership, coordination and steering skills, etc. which may be
different from the role of other directors. The criteria for every
evaluation may be decided at every level depending on the
functions, responsibilities, competencies required, nature of
business, etc. As per SEBI LODR, the primary responsibility of
formulation of criteria lies on the NRC.

Indicative criteria that may be used for different directors/groups
are:

A. Board as a whole
a. Structure of the Board:

i. Competency of directors: (Different competencies
may be identified as may be required for effective
functioning of the entity and the Board) - Whether

Board as a whole has directors with a proper mix of
competencies to conduct its affairs effectively.

ii. Experience of directors: Whether Board as a whole
has directors with enough experience to conduct its
affairs effectively.

iii. Mix of qualifications: Whether Board as a whole has
directors with a proper mix of qualifications to conduct
its affairs effectively.

iv. Diversity in Board under various parameters:

Gender/background/ competence/experience, etc. –

Whether there is sufficient diversity in the Board on
the aforesaid parameters.

136

A Guide to Board Evaluation
v. Appointment to the Board: Whether the process of
appointment to the board of directors is clear and
transparent and includes provisions to consider
diversity of thought, experience, knowledge,
perspective and gender in the board of directors.

b. Meetings of the Board
i. Regularity of meetings: Whether meetings are being
held on a regular basis
ii. Frequency:

1. Whether the Board meets frequently

2. Whether the frequency of such meetings is
enough for the Board to undertake its duties
properly
iii. Logistics: Whether the logistics for the meeting is
being handled properly- venue, format, timing, etc.

iv. Agenda:

1. Whether the agenda is circulated well before the
meeting

2. Whether the agenda has all relevant information
to take decision on the matter

3. Whether the agenda is up to date, regularly
reviewed and involves major substantial decisions

4. Whether the quality of agenda and Board papers
is up to the mark (explains issues properly, not
overly lengthy, etc.)

5. Whether outstanding items of previous meetings
are followed-up and taken up in subsequent
agendas

6. Whether the time allotted for the every item

(especially substantive items) in the agenda of
the meeting is sufficient for adequate discussions
on the subject

7. Whether the Board is able to finish discussion
and decision on all agenda items in the meetings

A Guide to Board Evaluation

137

8. Whether adequate and timely inputs are taken
from the Board members prior to setting of the

Agenda for the meeting

9. Whether the agenda includes adequate
information on Committee’s activities
v. Discussions and dissent:

1. Whether the Board discusses every issue
comprehensively and depending on the
importance of the subject

2. Whether the environment of the meeting induces
free-flowing free flowing discussions, healthy
debate and contribution by everyone without any
fear or fervour

3. Whether the discussions generally add value to
the decision making

4. Whether the Board tends towards groupthink and
whether critical and dissenting suggestions are
welcomed

5. Whether all members actively participate in the
discussions

6. Whether overall, the Board functions
constructively as a team
vi. Recording of minutes

1. Whether the minutes are being recorded properly-
clearly, completely, accurately and consistently.

2. Whether the minutes are approved properly in
accordance with set procedures.

3. Whether the minutes are timely circulated to all
the Board members

4. Whether dissenting views are recorded in the
minutes
vii. Dissemination of information

1. Whether all the information pertaining to the
meeting are disseminated to the members timely,
frequently, accurately, regularly

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A Guide to Board Evaluation

2. Whether Board is adequately informed of material
matters in between meetings
c. Functions of the Board

(Functions of the Board have been specified in detail in

Chapter II of SEBI LODR and Companies Act)

(i) Role and responsibilities of the Board: Whether the
same are clearly documented E.g. Difference in roles
of Chairman and CEO, Matters reserved for the Board,
etc.

( ii) Strategy and performance evaluation

1. Whether significant time of the Board is being
devoted to management of current and potential
strategic issues

2. Whether various scenario planning is used to
evaluate strategic risks

3. Whether the Board overall reviews and guides
corporate strategy, major plans of action, risk
policy, annual budgets and business plans, sets
performance objectives, monitored implemen-
tation and corporate performance, and oversees
major capital expenditures, acquisitions and
divestments.

(iii) Governance and compliance

1. Whether adequate time of the Board is being
devoted to analyse and examine governance and
compliance issues

2. Whether the Board monitors the effectiveness of
its governance practices and makes changes as
needed

3. Whether the Board ensures the integrity of the
entity ’s accounting and financial reporting
systems, including the independent audit, and that
appropriate systems of control are in place, in
particular, systems for risk management, financial
and operational control, and compliance with the
law and relevant standards.

A Guide to Board Evaluation

139

4. Whether the Board oversees the process of
disclosure and communications.

5. Whether the Board evaluates and analyses the
compliance certificate from the auditors /
practicing company secretaries regarding
compliance of conditions of corporate
governance.

(iv) Evaluation of Risks

1. Whether Board undertakes a review of the high
risk issues impacting the organization regularly

2. In assessment of risks, whether it is ensured that,
while rightly encouraging positive thinking, these
do not result in over-optimism that either leads
to significant risks not being recognised or
exposes the entity to excessive risk.

(v) Grievance redressal for Investors

Whether the Board regularly reviews the grievance
redressal mechanism of investors, details of
grievances received, disposed of and those remaining
unresolved.

(vi) Conflict of interest

1. Whether the Board monitors and manages
potential conflicts of interest of management,
members of the board of directors and
shareholders, including misuse of corporate assets
and abuse in related party transactions

2. Whether a sufficient number of non-executive
members of the board of directors capable of
exercising independent judgement are assigned
to tasks where there is a potential for conflict of
interest

(vii) Stakeholder value and responsibility:

1. Whether the decision making process of the

Board is adequate to assess creation of
stakeholder value

140

A Guide to Board Evaluation

2. Whether the Board has mechanisms in place to
communicate and engage with various
stakeholders

3. Whether the Board acts on a fully informed basis,
in good faith, with due diligence and care, with
high ethical standards and in the best interest of
the entity and the stakeholders

4. Whether the Board treats shareholders and
stakeholders fairly where decisions of the board
of directors may affect different shareholder/
stakeholder groups differently

5. Whether the Board regularly reviews the Business

Responsibility Reporting / related corporate social
responsibility initiatives of the entity and
contribution to society, environment etc.

(viii) Corporate culture and values: Whether the Board
sets a corporate culture and the values by which
executives throughout a group shall behave

(ix) Review of Board evaluation: Whether the Board
monitors and reviews the Board evaluation
framework.

(x) Facilitation of independent directors: Whether the

Board facilitates the independent directors to perform
their role effectively as a member of the board of
directors and also a member of a committee of board
of directors and any criticism by such directors is taken
constructively.

d. Board and management

(i) Evaluation of performance of the management and
feedback:

1. Whether the Board evaluates and monitors
management, especially the CEO regularly and
fairly and provides constructive feedback and
strategic guidance

2. Whether the measures used are broad enough to
monitor performance of the management

A Guide to Board Evaluation

141

3. Whether the management’s performance is
benchmarked against industry peers

4. Whether remuneration of the management is in
line with its performance and with industry peers

5. Whether remuneration of the Board and the
management is aligned with the longer term
interests of the entity and its shareholders

6. Whether the Board selects, compensates,
monitors and, when necessary, replaces key
managerial personnel based on such evaluation

7. Whether the Board ‘steps back’ to assist
executive management by challenging the
assumptions underlying strategy, strategic
initiatives (such as acquisitions), risk appetite,
exposures and the key areas of the entity’s focus

(ii) Independence of the management from the Board:

Whether the level of independence of the
management from the Board is adequate

(iii) Access of the management to the Board and Board
access to the management: Whether the Board and
the management are able to actively access each
other and exchange information

(iv) Secretarial support: Whether adequate secretarial
and logistical support is available for conducting

Board meetings

(v) Fund availability: Whether sufficient funds are made
available to the Board for conducting its meeting
effectively, seeking expert advice E.g. Legal,
accounting, etc.

(vi) Succession plan: Whether an appropriate and
adequate succession plan is in place and is being
reviewed and overseen regularly by the Board
e. Professional development

(i) Whether adequate induction and professional
development programmes are made available to new
and old directors

142

A Guide to Board Evaluation

(ii) Whether continuing directors training is provided to
ensure that the members of board of directors are
kept up to date

B. Committees of the Board
a. Mandate and composition: Whether the mandate,
composition and working procedures of committees of
the board of directors is clearly defined and disclosed.

b. Effectiveness of the Committee: Whether the Committee
has fulfilled its functions as assigned by the Board and
laws as may be applicable

(For different Committees, different functions may be laid
out as sub-criteria for evaluation)

c. Structure of the Committee and meetings:

(i) Whether the Committees have been structure
properly and regular meetings are being held

(ii) In terms of discussions, agenda, etc. of the meetings,
similar criteria may be laid down as specified above
for the entire Board
d. Independence of the Committee from the Board:

Whether adequate independence of the Committee is
ensured from the Board
e. Contribution to decisions of the Board: Whether the

Committee’s recommendations contribute effectively to
decisions of the Board.

C. Individual Directors and Chairperson (including

Chairperson, CEO, Independent Directors, Non-
independent directors, etc.)

General
a. Qualifications: Details of professional qualifications of
the member
b. Experience: Details of prior experience of the member,
especially the experience relevant to the entity
c. Knowledge and Competency:

(i) How the person fares across different competencies
as identified for effective functioning of the entity

A Guide to Board Evaluation

143
and the Board (The entity may list various
competencies and mark all directors against every
such competency)

(ii) Whether the person has sufficient understanding and
knowledge of the entity and the sector in which it
operates
d. Fulfillment of functions: Whether the person understands
and fulfills the functions to him/her as assigned by the

Board and the law (E.g. Law imposes certain obligations
on independent directors)

e. Ability to function as a team: Whether the person is able
to function as an effective team- member
f.

Initiative: Whether the person actively takes initiative
with respect to various areas
g. Availability and attendance: Whether the person is
available for meetings of the Board and attends the
meeting regularly and timely, without delay.

h. Commitment: Whether the person is adequately
committed to the Board and the entity
i.

Contribution: Whether the person contributed effectively
to the entity and in the Board meetings
j.

Integrity: Whether the person demonstrates highest level
of integrity (including conflict of interest disclosures,
maintenance of confidentiality, etc.)

Additional criteria for Independent director:

a. Independence: Whether person is independent from the entity
and the other directors and there if no conflict of interest
b. Independent views and judgement: Whether the person
exercises his/ her own judgement and voices opinion freely

Additional criteria for Chairperson:

a. Effectiveness of leadership and ability to steer the meetings:

Whether the Chairperson displays efficient leadership, is
open-minded, decisive, courteous, displays professionalism,
able to coordinate the discussion, etc. and is overall able to
steer the meeting effectively.

144

A Guide to Board Evaluation
b. Impartiality: Whether the Chairperson is impartial in
conducting discussions, seeking views and dealing with
dissent, etc.

c. Commitment: Whether the Chairperson is sufficiently
committed to the Board and its meetings
d. Ability to keep shareholders’ interests in mind: Whether the

Chairperson is able to keep shareholders’ interest in mind
during discussions and decisions.

Different criteria may be assigned different weights depending
on the organisation’s requirements, circumstances, outcome of
previous assessments, stage of Board’s maturity, etc. Instead of
the questionnaire in a simple yes/no format, it is desirable that
it provides scope for grading, additional comments, suggestions,
etc.

3. Method of evaluation:

As a global best practice, the method of evaluation is generally
in 2 ways:

a. Internal assessment
b. Assessment by external experts

Internal assessment:

Internal assessment of the Board is crucial. Who should evaluate
whom is provided in the Companies Act and SEBI LODR as
specified above.

The internal assessment may be done by following methods:

a. A detailed Questionnaire to be circulated to individual
directors, Committees, Board, etc.

b. Oral assessments provided by the person on interviews

If deemed fit, the questionnaire may enable written answers to
be submitted on a confidential basis. If due to various reasons,
members are not willing to provide written inputs, the

Chairperson or any other person may take initiative and obtain
views of such members on a confidential basis.

Assessment by external experts:

Use of external experts imparts an independence to the

A Guide to Board Evaluation

145
evaluation process and therefore is used by many entities
globally. However, care must be taken to ensure that the external
assessor is not a related party or conflicted due to closeness of
the Board to ensure impartiality.

Such external assessment may be done based on questionnaires/
interviews or a combination of the two and done on a regular
basis. Such external assessment complements the internal
assessment and adds an objective aspect to the evaluation
process.

Effective use of Information Technology through use of board
evaluation software, applications, etc. can also play a facilitating
role.

D. Feedback

Providing feedback to the individual directors, the Board and the

Committees is crucial for success of Board Evaluation. On
collation of all the responses, the feedback may be provided in
one or more of the following ways:

a. Orally given by Chairman/ external assessor or any other
suitable person to
i.

Each Member separately
ii. To the entire Board
iii. To the Committees
b. A written assessment to every member, Board and Committee

The active role of the Chairperson is desirable in providing
feedback to the members. If members are not comfortable to
open individual assessments, provision for confidentiality may
be made where possible. For effectiveness of the evaluation, it
is essential that the feedback be given honestly and without
bias.

E. Action Plan

Based on the analysis of the responses, the Board may prepare
an action plan on:

-

Areas of improvement including training, skill building, etc.

as may be required for Board members

146

A Guide to Board Evaluation

-

List of actions required detailing:

o Nature of actions
o Timeline
o Person responsible for implementation
o Resources required, etc.

-

Review of the actions within a specific time period

The action plan may be prepared by the Board in a comprehensive
manner. Suggestions under the external assessment, individual
member feedback, etc. may be taken into account while drafting
the action plan.

F. Disclosure requirements

SEBI LODR and Companies Act requires disclosure of manner of
formal annual evaluation of the Board, its committees and
individual directors and of performance evaluation criteria for
independent directors to the shareholders on an annual basis.

In addition, for more transparency, many entities worldwide
voluntarily provide additional disclosures including the results
of the Board evaluation, action taken on the basis of the
evaluation, current status, etc. to various stakeholders.

G. Frequency of Board Evaluation

As per SEBI LODR and Companies Act, the Board Evaluation is
required to be done once a year. The entity, if it so desires, may
also conduct such evaluation more frequently. Since Board
evaluation is a continuous process, it is felt that feedback
provided to the members during meetings and otherwise, whether
oral or written, is more effective for continuous improvement
and ideally complements the annual evaluation process.

Many entities globally also complement the internal assessment
with external assessment at regular intervals to impart objectivity
to the process.

H. Responsibility

The responsibility of Board evaluation lies on different persons
depending on the subject of evaluation as per Companies Act
and SEBI LODR.

A Guide to Board Evaluation

147

However, it is found that on a global basis, generally the primary
role of steering the whole process of Board evaluation and of
ensuring its effectiveness in improving the Board efficiency lies
on the Chairperson. Therefore, to achieve maximum benefit of
the process, the role and function of Chairperson in Board

Evaluation needs to be laid out clearly in advance.

I. Review

Board evaluation is not a static process and requires periodical
review for improvement. The responsibility of such review of the
evaluation process lies with the Board of Directors in accordance
with SEBI LODR.

Such review may involve the following:

a. Whether objectives and criteria for evaluation are adequate
or needs to be changed/ updated
b. Whether the process/method of evaluation is appropriate
for individual members, Committees and the Board
c. Whether the actions based on the Board evaluation is being
followed up on a timely basis
d. Whether the Board evaluation has enhanced effectiveness
of the Board
e. Whether the review of the process is being done on a regular
basis
f.

Whether feedback of the members to improve the process is
being taken into account

Such review may be done based on feedback from management,

Board members, Chairperson, external assessors, various
stakeholders, etc.

148

A Guide to Board Evaluation

Annexure A1

Main provisions under Companies Act with respect to Board

Evaluation

Section 134(3) - There shall be attached to statements laid
before a company in general meeting, a report by its Board of

Directors, which shall include—

(p) in case of a listed company and every other public company
having such paid-up share capital as may be prescribed, a
statement indicating the manner in which formal annual
evaluation has been made by the Board of its own
performance and that of its committees and individual
directors;

Section 178(2)- The Nomination and Remuneration Committee
shall identify persons who are qualified to become directors and
who may be appointed in senior management in accordance with
the criteria laid down, recommend to the Board their appointment
and removal and shall carry out evaluation of every director’s
performance.

SCHEDULE IV: CODE FOR INDEPENDENT DIRECTORS

II. Role and functions. (2) The independent directors shall bring
an objective view in the evaluation of the performance of
board and management;

V. Re-appointment: The re-appointment of independent
director shall be on the basis of report of performance
evaluation.

VII. Separate meetings:

(1) The independent directors of the company shall hold at
least one meeting in a year, without the attendance of
non-independent directors and members of management;

(2) All the independent directors of the company shall strive
to be present at such meeting;

(3) The meeting shall:

(a) review the performance of non-independent directors
and the Board as a whole;

A Guide to Board Evaluation

149

(b) review the performance of the Chairperson of the
company, taking into account the views of executive
directors and non-executive directors;

(c) assess the quality, quantity and timeliness of flow of
information between the company management and
the Board that is necessary for the Board to effectively
and reasonably perform their duties.

VIII. Evaluation mechanism:

(1) The performance evaluation of independent directors
shall be done by the entire Board of Directors, excluding
the director being evaluated.

(2) On the basis of the report of performance evaluation, it
shall be determined whether to extend or continue the
term of appointment of the independent director.

Rule 8 (4) of the Companies (Accounts) Rules, 2014

Every listed company and every other public company having a paid
up share capital of twenty five crore rupees or more calculated at
the end of the preceding financial year shall include, in the report by
its Board of directors, a statement indicating the manner in which
formal annual evaluation has been made by the Board of its own
performance and that of its committees and individual directors.

Main provisions under SEBI LODR with respect to Board

Evaluation

CHAPTER II:

4(2)(f)(ii) : Key functions of the board of directors- (9) Monitoring
and reviewing board of director’s evaluation framework.

Chapter IV:

17(10) : The performance evaluation of independent directors shall
be done by the entire board of directors:

Provided that in the above evaluation the directors who are subject
to evaluation shall not participate:

25 : (3) The independent directors of the listed entity shall hold at
least one meeting in a year, without the presence of non-independent

150

A Guide to Board Evaluation
directors and members of the management and all the independent
directors shall strive to be present at such meeting.

(4) The independent directors in the meeting referred in sub-
regulation (3) shall, interalia-

(a) review the performance of non-independent directors and
the board of directors as a whole;

(b) review the performance of the chairperson of the listed entity,
taking into account the views of executive directors and non-
executive directors;

(c) assess the quality, quantity and timeliness of flow of
information between the management of the listed entity
and the board of directors that is necessary for the board of
directors to effectively and reasonably perform their duties.

Schedule II (PART D) (A) ROLE OF NOMINATION AND

REMUNERATION COMMITTEE: Role of committee shall, inter-alia,
include the following:

(2) formulation of criteria for evaluation of performance of
independent directors and the board of directors;

(4) identifying persons who are qualified to become directors and
who may be appointed in senior management in accordance with
the criteria laid down, and recommend to the board of directors their
appointment and removal.

(5) whether to extend or continue the term of appointment of the
independent director, on the basis of the report of performance
evaluation of independent directors.

Schedule V: Corporate Governance Report. The following
disclosures shall be made in the section on the corporate governance
of the annual report.

(4) Nomination and Remuneration Committee:

(d) performance evaluation criteria for independent directors.

***

A Guide to Board Evaluation

151

Bibliography

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(The Corporate Board–November/December 2004) https://
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9. ICGN Global Governance Principles 2014

10. Code of Corporate Governance, May 2012

11. The UK Corporate Governance Code, 2014

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13. ASX Corporate Governance Council-Corporate Governance

Principles and Recommendations, 2014

151

152

A Guide to Board Evaluation

14. NYSE Listed Company Manual

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18. King IV Report on Corporate Governance for South Africa 2016

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Effectiveness : A Study.

***

Document Outline

- cover
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- 2A
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- 3A
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- 9A
- 9B
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Table of Contents

- cover
- 1
- 2
- 2A
- 3
- 3A
- 4
- 5
- 6
- 7
- 8
- 9
- 9A
- 9B
- 10
- 11