Module: | SEBI LODR & Corporate Governance Frameworks
Q24: Consider the following statements regarding the Board Evaluation process mandated under the Companies Act and SEBI LODR Regulations:
1. Independent Directors are required to hold at least one separate meeting in a financial year without the presence of non-independent directors and management.
2. The performance evaluation of an individual Independent Director must be conducted exclusively by an external, independent agency rather than the Board.
3. The Nomination and Remuneration Committee is responsible for specifying the criteria and manner for the effective evaluation of the Board and individual directors.
Which of the above statements is/are incorrect?
2. The performance evaluation of an individual Independent Director must be conducted exclusively by an external, independent agency rather than the Board.
3. The Nomination and Remuneration Committee is responsible for specifying the criteria and manner for the effective evaluation of the Board and individual directors.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; Schedule IV mandates this exclusive meeting to frankly assess the non-independent directors and the Chairperson.
Statement 2 is incorrect; SEBI LODR specifically dictates that the performance of an Independent Director is evaluated by the entire Board of Directors, excluding the director being evaluated (external agencies may facilitate the process, but they do not exclusively conduct the evaluation). Statement 3 is correct; formulation of the evaluation criteria is a core function of the Nomination and Remuneration Committee (NRC). Historical/Related Context: Historically, board evaluations were superficial exercises.
The stringent requirements under the Companies Act 2013 and SEBI LODR forced companies to document specific, measurable criteria for directors, such as meeting attendance, strategic input, and ethical adherence.
Causal Reasoning: Evaluating an Independent Director by the rest of the Board ensures a peer-review mechanism, balancing their role as a critical outsider with their need to collaboratively contribute to the company's strategic direction.