Indian board evaluations lack rigour

While most major Indian organizations have been engaged in board evaluation efforts since the Law. The recent ICICI Bank scandal shed light on the low quality of board evaluations in the country. The focus is often wrong in the board evaluation process, and there is no sufficient linking of results with outcomes and with comparison decisions. A better and safer way of evaluating board is with dedicated board evaluation software. Board evaluation software provides board of directors for customizing questions and response types, and for automating the distribution and collection of evaluations.

ICICI Bank scandal sheds light on poor board evaluation processes in India

“Working systems of board evaluation are needed. When they proudly proclaim that they are solidly behind the management, even in an atmosphere of allegation, conspiracy theories, innuendos and insinuations, they unwittingly lend credence to the view that they are at best a procedural nuisance or a substantive distraction. Melbourne CEO Meleveetil Damodaran, writing on the need for improvement board evaluations in India , writes: “When conflict of interest and much worse, is alleged, boards must be seen occupying the driver’s seat .

Damodaran specifically indicated the recent ICICI bank scandal as, at least in part, the result of poor board evaluations. The bank made a $ 500 million loan to Videocon Group, whose controlling shareholder co-founded a separate company with the spouse of ICICI’s CEO. A significant portion of the loan has since become non-performing. But, instead of investigating the matter, ICICI’s board, which included six non-executive members, fully supported the CEO.

As Fitch Ratings pointed out in a note : “The presence of the bank’s CEO on this credit committee – and the bank’s reluctance to support an independent test … have created doubt about the bank’s corporate governance practices – this could lead to reputational damage.”

But Damodaran is honored in the evaluation of the board, warning that the current systems are not rigorous enough. He called for more careful supervision of the board evaluation process, and better disclosure about it.

Indian board evaluations varnish rigour

Since the Companies Act of 2013, every listed company and other public companies with paid-up capital of Rs 25 crore or more (approximately US $ 4 million) are obligated to report the annual performance evaluation of individual directors, the board and its committees. Two years later, SEBI beefed up the regulations ( 2015 SEBI LODR ).

But studies show that the evaluations do not take enough into account, and fail to examine the most important issues.

While the Institutional Investor Advisory Services-National Stock Exchange of India Study for 2016-2017 noted that 89 per cent of the firms were required to do so.

But the focus was wrong in many evaluations, according to the study. There was not enough attention to outcomes, and the results were not related to performance.

Fifty-two firm got a 2-star rating for poorly disclosure of the evaluation criteria and evaluation process. Five companies got a 3-star rating because they spelled out the positive results of their evaluation, in addition to the evaluation criteria and process.

Some firms complained about the complexity of the evaluation framework, which is quite critical and complex. The criteria for performance evaluation has been formulated, the tools have been finalized and a proper process has been completed, “said a spokesperson for the Mumbai-based Kotak Mahindra Bank.

Still another area requiring improvement: Few boards evaluate their chairperson. A large number still doing the job of human resources. This, strictly speaking, is non-compliant, as the regulations stipulate that at least a committee of board members should be responsible for this evaluation.

Intrabond Capital point out . Regular board evaluation correlates positively with improved board contributions in key areas, including clearer strategy, more competitive corporate performance, CEO succession and improved risk oversight.

Board evaluation software improves quality

A substantial number of organizations have turned to third-party board evaluation services to try to assure compliance.

They are evaluating. They are evaluating.

Damodaran suggests that if the board is undertaking a self-evaluation, the process should be led by the lead independent director or the chairman of the nomination and remuneration committee, since their role is most proximate to the evaluation process.

“Responses to questionnaires should be identified as having individual conversations with directors and key managers,” said Damodaran.

A safe way of evaluating board is with dedicated board evaluation software.

Board evaluation software enables Company Secretaries to customize questions and response types, and automates the distribution and collection of evaluations. Some providers also offer templates that include full-board review questions, as well as questions for gathering feedback on individual performance. These tools allow directors to respond anonymously, securely and conveniently – often from mobile devices – giving them the confidence to submit candid feedback.

Diligent Board Evaluations manages the board evaluation process

Diligent Board Evaluations, the board evaluation tool developed by the leading global governance firm, is of great value.

It is a convenient alternative to cumbersome spreadsheets and off-the-shelf surveys and is more cost-effective than hiring outside consultants. Every aspect of its functionality has been informed by Diligent’s experience with corporate, non-profit, healthcare and financial / banking boards worldwide.

The board evaluation software enables: various question types, multiple types of user-tested questions, submission monitoring, easy-to-track monitoring of questionnaire completions with submission deadlines, automatic reporting, and automatic reporting hands-on data manipulation. It also generates custom reports in just a few clicks via an export wizard, and visual and Excel reports for further analysis.

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