Corporate Board Practices-2018 India Edition

Corporate Board Practices
2018 India Edition
BASE D O N DISCLOSURES IN
AN N UAL REPORTS BY NIFTY
500 COMPANIES
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ISBN 978-0-8237-1350-9
Corporate Board Practices
2018 India Edition
R E S E A R C H REPORT 1662-18
by Matteo Tonello and Manali Paranjpe
CONTENTS
6 Using This Report
9 Key Findings
PART I: B O A R D C O M P O S I T I O N A N D L EADERSHIP
15 Board Compostion
15 Board size
17 Executive and nonexecutive directors
18 Independent directors
24 Women directors
26 Promoter-directors
28 Resident directors
28 Small shareholders’ directors
28 Additional directors
29 Nominee directors
30 Alternate directors
32 A g e of directors
33 Director tenure
35 Director tenure policy (based on age limit)
36 Board Leadership
36 C E O duality
38 Independent chairperson
39 Lead independent director
41 Other directorships
PART II: B O A R D MEETINGS A N D B O AR D C O M M I T TEES

43 Board Meetings
44 Board meeting attendance
49 Audit Committee Practices

49 Size of Audit Committee
50 Executive and nonexecutive directors on Audit Committee
51 Independent directors on the Audit Committee
52 Independent Audit Committee chairperson
53 Role of the Audit Committee
54 Audit Committee meetings
55 Nomination and Remuneration Practices
55 Development of the N R C concept in India
56 Size and composition of the N R C
58 Executive and nonexecutive directors on the N R C
59 Independent directors on the N R C
60 Independent N R C chairperson
60 Role of the independent N R C
60 Independent N R C chairperson
62 N R C meetings
64 Stakeholder Relationship Committee Practices

64 Size of the S R C
65 Executive and nonexecutive directors on the SR C
66 Independent S R C chairperson
68 Role of the S R C and its meetings
69 Corporate Social Responsibility Committee Practices

70 Size and composition of the C S R Committee
71 Executive and nonexecutive directors on the C S R Committee
72 Independent directors on the C S R Committee
73 Independent C S R Committee chairperson
74 Role of the C S R Committee
PART III: M ANAGE R I AL REMUNERATION

75 Managerial Remuneration
75 Overall maximum managerial remuneration
76 Sitting fees
77 Stock options
79 Disclosures
79 Recommendations of the Committee on Corporate Governance
82 A B O U T T H E A U T H O RS / A CKN OWLEDG M ENTS

83 RELATED R E S O U R C E S FROM T H E C O N F E R E N C E B O AR D
EXHIBITS/FIGURES
6 Exhibit 1—Industry Groups and G I C S Codes
7 Exhibit 2—Sample Distribution, by Industry
7 Exhibit 3—Sample Distribution, by Company Size
16 Figure 1.1a—Board Size, by Industry
16 Figure 1.1b—Board Size, by Company Size
18 Figure 1.2a—Executive and Nonexecutive Directors, by Industry
18 Figure 1.2b—Executive and Nonexecutive Directors, by Company Size
23 Figure 1.3a—Independent Directors, by Industry
23 Figure 1.3b—Independent Directors, by Company Size
25 Figure 1.4a—Women Directors, by Industry
25 Figure 1.4b—Women Directors, by Company Size
27 Figure 1.5a—Promoter Directors, by Industry
27 Figure 1.5b—Promoter Directors, by Company Size
29 Figure 1.6a— Nominee Directors, by Industry
29 Figure 1.6b—Nominee Directors, by Company Size
31 Figure 1.7a—Alternate Directors, by Industry
31 Figure 1.7b—Alternate Directors, by Company Size
33 Figure 1.8a—Age of Directors, by Industry
33 Figure 1.8b—Age of Directors, by Company Size
37 Figure 2.1a—CEO Duality, by Industry
37 Figure 2.1b—CEO Duality, by Company Size
39 Figure 2.2a—Independent Chairperson, by Industry
39 Figure 2.2b—Independent Chairperson, by Company Size
41 Figure 2.3a—Directorships in Other NIFTY 500 Companies, by Industry
41 Figure 2.3b—Directorships in Other NIFTY 500 Companies, by Company Size
44 Figure 3.1a—Board Meetings, by Industry
44 Figure 3.1b—Board Meetings, by Company Size
46 Figure 3.2a—Board Meeting Attendance, by Industry
46 Figure 3.2b—Board Meeting Attendance, by Company Size
47 Figure 3.3a—Directors Attending Less Than 75 Percent of Board Meetings, by Industry
47 Figure 3.3b—Directors Attending Less Than 75 Percent of Board Meetings, by Company Size
50 Figure 4.1a—Audit Committee Size, by Industry
50 Figure 4.1b—Audit Committee Size, by Company Size
51 Figure 4.2a—Executive and Nonexecutive Directors on Audit Committee, by Industry
52 Figure 4.2b—Executive and Nonexecutive Directors on Audit Committee, by Company Size
53 Figure 4.3a—Independent Directors on Audit Committee, by Industry
54 Figure 4.3b—Independent Directors on Audit Committee, by Company Size
55 Figure 4.4a—Independent Audit Committee Chairperson, by Industry
53 Figure 4.4b—Independent Audit Committee Chairperson, by Company Size
57 Figure 5.1a—NRC Size, by Industry
57 Figure 5.1b—NRC Size, by Company Size
58 Figure 5.2a—Executive and Nonexecutive Directors on NRC, by Industry
59 Figure 5.2b—Executive and Nonexecutive Directors on NRC, by Company Size
60 Figure 5.3a—Independent Directors on NRC, by Industry
59 Figure 5.3b—Independent Directors on NRC, by Company Size
61 Figure 5.4a—Independent N R C Chairperson, by Industry
61 Figure 5.4b—Independent N R C Chairperson, by Company Size
64 Figure 6.1a—SRC Size, by Industry
64 Figure 6.1b—SRC Size, by Company Size
65 Figure 6.2a—Executive and Nonexecutive Directors on SRC, by Industry
66 Figure 6.2b—Executive and Nonexecutive Directors on SRC, by Company Size
67 Figure 6.3a—Independent Directors on SRC, by Industry
68 Figure 6.3b—Independent Directors on SRC, by Company Size
69 Figure 6.4a—Independent SR C Chairperson, by Industry
67 Figure 6.4b—Independent SR C Chairperson, by Company Size
69 Figure 7.1a—CSR Committee Size, by Industry
69 Figure 7.1b—CSR Committee Size, by Company Size
70 Figure 7.2a—Executive and Nonexecutive Directors on C SR Committee, by Industry
71 Figure 7.2b—Executive and Nonexecutive Directors on C SR Committee, by Company Size
72 Figure 7.3a—Independent Directors on C SR Committee, by Industry
73 Figure 7.3b—Independent Directors on C SR Committee, by Company Size
74 Figure 7.4a—Independent C SR Committee Chairperson, by Industry
72 Figure 7.4b—Independent C SR Committee Chairperson, by Company Size
77 Figure 8.1a—Remuneration – Cash Components, by Industry
77 Figure 8.1b—Remuneration – Cash Components, by Company Size
78 Figure 9.1a—Remuneration – Shares and ESOPs, by Industry
78 Figure 9.1b—Remuneration – Shares and ESOPs, by Company Size
Using This Report
Corporate Board Practices: 2018 India Edition reviews public disclosures of board compo-
sition, governance practices, and granted executive remuneration made by Indian publicly
traded companies in the NIFTY 500 index. The NIFTY 500 index comprises the largest
500 companies, by capitalization, listed on the National Stock Exchange of India (NSE).
According to the most recently released NSE statistics, the NIFTY 500 index represents
about 95.2 percent of the free float market capitalization of the stocks listed on the NSE.
The study is the result of a collaboration between The Directors’ Collective (a research
and educational initiative that brings together The Conference Board, KPMG India, and
Russell Reynolds Associates) and the PRIME Database Group. Unless specifically noted,
the report examines the data compiled by PRIME Database Group and drawn from public
disclosures (annual reports) as of January 5, 2018. In total, the study reviews data for a set
of 4,746 corporate board members.
Exhibit 1
Industry Groups and GICS Codes
GICS GICS
Sector code Industry group subcode
Consumer discretionary 25 Automobiles & components 2510
Consumer durables & apparel 2520
Consumer services 2530
Media 2540
Retailing 2550
Consumer staples 30 Food & staples retailing 3010
Food, beverage & tobacco 3020
Household & personal products 3030
Energy 10 Energy 1010
Financials 40 Banks 4010
Diversified financials 4020
Insurance 4030
Healthcare 35 Healthcare equipment & services 3510
Pharmaceuticals & biotechnology 3520
Industrials 20 Capital goods 2010
Commercial & professional services 2020
Transportation 2030
Information technology 45 Software & services 4510
Technology hardware & equipment 4520
Semiconductors & semiconductor equipment 4530
Materials 15 Materials 1510
Real estate management & development 60 Real estate management & development 6010
Telecommunication services 50 Telecommunication services 5010
Utilities 55 Utilities 5510
Source: The Directors’ Collective/PRIME Database Group, 2018.
6 cor p or a te b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

Aggregate data on board composition, types of directors, board meetings, committees, and
their composition and managerial remuneration are examined and segmented per sector
and per company size (measured in terms of annual revenue). Unless otherwise specified,
data included in the figures of the report refer to median (midpoint) values. Where appro-
priate, the report may also reference the mean (average) of observations. Throughout the
report, references have been made to the recommendations of the Committee on Corporate
Governance and the views of the Ministry of Corporate Affairs and the Securities and
Exchange Board of India, wherever relevant. At certain places in the study, in the event the
sample is all companies listed on the NSE, the same has been so specified. Unless specified,
the data findings are based on the disclosures made by the NIFTY 500 companies.
This report is divided into three parts:

Part I: Board Composition and Leadership offers an overview of the composition of the
board and the types of directorial responsibilities held by certain board members. It also
discusses the concepts of CEO duality and lead independent director.
Part II: Board Meetings and Board Committees focuses on board meetings and
attendance by corporate directors. It describes the composition of the four main board
committees under the Companies Act, 2013 (i.e. audit committee, nomination and
remuneration committee, stakeholder relationship committee, and corporate social
responsibility committee) and analyzes factors such as independence of directors serving
on these committees and the independence of their respective chairpersons.
Part III: Managerial Remuneration studies the compensation (and its components)
that NIFTY 500 companies paid to their directors. It bifurcates such compensation into
cash based and noncash based. Accordingly, it outlines the practices vis-à-vis sitting
fees, stock options, etc.
Exhibit 2 Exhibit 3
Sample Distribution, by Industry Sample Distribution, by Company Size
Percent n=500
of total Annual revenue
Industry n=
0.8 (n=4) in Rupees (billion)
Consumer discretionary 86 17% 0.8 (n=4) 3.0 (n=15) 0 to 2.5
Consumer staples 39 8 7.6 (n=38) 2.5 to 5
5 to 10
Energy 17 3
42.4 (n=212) 10 to 50
Financials 77 15
Greater than 50
Healthcare 41 8 Range not known
Industrials 82 16
Information technology 30 6 45.4 (n=227)
Materials 81 16
Real estate 22 4
Telecommunication services 9 2
Utilities 16 3
T O T AL 500 100%
Source: The Directors’ Collective/PRIME Database

Group, 2018.
www.conferenceboard.org c o r p o r ate boa r d practices: 2018 i n d i a edition 7

Data included in this report should be interpreted with caution. While the report offers a
comprehensive set of charts and tables, providing data across industries and by company
size, board practices may also depend upon and vary according to other factors that are
referenced but not fully assessed in these pages. Data in this report are descriptive, not
prescriptive, and should be used only to identify the latest practices and emerging trends.
The size of certain segments/samples by company size may be too small for the finding
to have more than anecdotal value. None of the commentaries included are intended as
recommendations on board structure or director compensation. It is recommended that
compensation and governance decisions be made after careful consideration of specific
circumstances the company faces in the current marketplace, including overall compen-
sation policy, strategic priorities, and business needs. The effects of the current political
and regulatory regime and external market results should also not be underestimated.
The study also includes an analysis of the following:

1 Recommendations of the Committee on Corporate Governance constituted
under the chairmanship of Uday Kotak submitted its report to the Securitiesand
Exchange Board of India (SEBI) (Committee on Corporate Governance);
2 The response received thereto from the Ministry of Corporate Affairs (MCA); and
3 The corresponding amendments to the Securities and Exchange Board of India
(Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing
Regulations). These have been issued by SEBI vide the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) (Amendment)
Regulations, 2018 (SEBI Listing Amendment Regulations 2018) issued on May 9,
2018. Unless otherwise specifically provided for, the SEBI Listing Amendment
Regulations 2018 shall come into force with effect from April 1,2019.

Key Findings
This study provides background information on the varying levels of compliance by NIFTY
500 companies with the extant regulatory regime for corporate governance. To provide
assistance to companies in outlining their internal compliance, Corporate Board Practices:
2018 India Edition documents and analyzes board practices across NIFTY 500 companies.
It also seeks to provide an overview of the current management framework of companies,
across industry sectors and classified by annual revenue. The constitution of an effective
and compliant board is at the root of corporate governance compliance, and this report
presents findings on how companies have complied with the requirements of the law.
Across NIFTY 500 companies, the board size does not largely differ by industry, and
the average board consists of nine directors.
The board of a public company may have between three to 15 directors and an even
higher number by passing a special resolution. Across NIFTY 500 companies, board size
does not differ significantly by industry, and the average board consists of nine directors.
The only exceptions to this are companies in the energy and materials sectors which
reported a higher board size of 11 and 10 directors respectively and companies in the
information technology and real estate segments which reported an average board of
eight directors. In the energy sector, Indian Oil Company Limited reported the largest
board comprising 18 directors. Oil & Natural Gas Corporation Limited (ONGC) at 15
directors and GAIL (India) Limited at 14 directors are a few of the companies with large
boards. The current law that boards of a public company may have between three to 15
directors and a higher number by passing a special resolution shall stand amended in
light of SEBI’s new mandate. In the opinion of the Committee on Corporate Governance,
there ought to be a minimum of six directors on the board of each listed company to
effectively carry out the functions of the board, and SEBI has decided to accept this
recommendation with modifications. Accordingly, the board of directors of the top
1000 listed entities (with effect from April 1, 2019) and in the top 2,000 listed entities
(with effect from April 1, 2020) shall be required to have a minimum strength of not less
than six directors.
Companies with higher annual revenue have reported larger boards.
NIFTY 500 companies with an annual revenue of less than INR 5 billion reported an
average board of seven directors, and those in the range of INR 5 billion to INR 10 billion
reported an average of eight. On average, for companies with annual revenue between
INR 10 billion and INR 50 billion, the board comprises nine directors, and for companies
with annual revenue greater than INR 50 billion, the board comprises 10 directors. This
finding underscores a direct correlation between company size and board, which is likely
due to the expanding responsibilities and workload of directors in larger organizations. In
today’s governance regime, having a larger board for a company that continues to grow
its operations and profits may usher in more effective management.
www.conferenceboard.org c o r p o r ate boa r d practices: 2018 i n d i a edition 9

Different sectors have varying levels of promoter control of the board.
Boards of companies in the energy, financials, telecommunication services, and utilities

sectors are lesser promoter dominated since these have, on average, less than one
promoter director on their boards. In the energy sector, the least promoter dominated
sector, promoter directors constitute only three percent on average of the total board.
Companies in the healthcare and real estate have on average, two promoter directors
representing as high as 24 and 28 percent of the total board strength respectively.
Factors such as whether the sector is relatively old and developed or new and upcoming,
policies of the government encouraging privatisation of certain sectors, and proportion
of institutional investment in the company are some of the determinants of the level of
promoter control of the board. Promoter control over the board must be distinguished
from promoter shareholding in the company, since the latter may or may not have a
bearing on the control exercised by such promoters at the board level.
Companies with annual revenue in the INR 5 billion to INR 10 billion slab had the
highest levels of promoter board control; those with revenue above INR 50 billion
had the lowest.
On average, all NIFTY 500 companies have at least one promoter director serving on
their boards. In companies having annual revenue greater than INR 50 billion, promoter
directors represent 12.4 percent of the total board. The highest percentage of promoter
directors on the board, at 28 percent, is seen in companies whose annual revenue is
between INR 5 billion and INR 10 billion.
While NIFTY 500 companies comply with the requirement of having a woman director
on the board, the same does not hold for other companies listed on the NSE or the
Bombay Stock Exchange (BSE).
The numbers indicated in Figure 1.4a refer to the number of women directors serving
on the boards of companies, classified by industry. On average, one woman director has
been appointed to the boards of companies as reflected in Figure 1.4a, and in certain
sectors where the average board size is smaller, the proportion of women directors
compared with the full board is higher. In companies in the telecommunication services
sector, 18 percent of the directors are women, followed by 16 percent in the healthcare
sector and 15 percent in information technology and utilities. At 12 percent, companies
in the energy sector have the lowest percentage of women directors. Despite the
above numbers and the efforts of the government to bring in diversity of thought at the
board level through appointment of capable women as directors, it has been noted that
several public sector undertakings had not complied with this requirement as of March
31, 2016, although the deadline to comply was March 31, 2015. As reported by a survey
conducted by KPMG in India’s Board Leadership Centre and Women Corporate Directors
India (WCD) in 2016, as of March 31, 2016, as many as 1,375 out of the 5,541 companies
listed on BSE were noncompliant with regulations requiring appointment of women
directors. On the NSE, this number was lower, at 191 noncompliant companies out of a
total of 1759. Further, the Committee on Corporate Governance proposed enhancing the
requirement of appointment of women directors on boards by making it mandatory for
listed companies to have at least one independent woman director on their boards.
10 c o r p o r a t e b oa r d practices: 2018 i n d i a edition www.conferenceboard.org

SEBI decided to accept this proposal with modifications, and accordingly, the board of
directors of the top 500 listed entities shall be required to have at least one independent
woman director by April 1, 2019, and the same requirement shall be complied with by the
top 1000 companies by April 1, 2020.
Larger companies (by annual revenue) have a higher number of nominee directors
on boards.
No nominee directors were reported to be serving on the boards of companies having

annual revenue less than INR 2.5 billion. For companies whose annual revenue is between
INR 2.5 billion and INR 50 billion, less than one nominee director was appointed to these
boards on average. In companies with annual revenue above INR 50 billion, an average of
one nominee director was appointed.
Industry average for the age of directors is several years more than what is contem-
plated under and required by the Act and SEBI regulations. In terms of the oldest
directors serving on the boards of the NIFTY 500 companies across sectors, the
average age reported was 90 years.
No company is permitted to appoint or continue the employment of any person as

managing director, whole-time director, or manager over age 70. Beyond that, a person
may continue in such a position only if a special resolution to the effect has been
passed. While this age restriction appears to only apply to executive directors, it may
be noted that the minimum age limit requirement applies to independent directors as
well, in terms of the regulations issued by SEBI. In terms of the oldest directors serving
on the boards of the NIFTY 500 companies across sectors, the average age is 90 years.
The industry average for companies in the industrials and materials sectors is as high
as 96 years. Figure 1.8a indicates that the industry average for the age of directors is
several years more than what is contemplated under and required by the Companies
Act, 2013. Among the 4746 directors reviewed by this report, three directors of these
are 90, 91, and 96 years old. While SEBI has now made the legal framework governing
appointment and continuing the appointment of directors beyond the age of 75 years
more stringent, it may be advisable for companies to review their board composition and
make suitable provisions for younger boards. Presently as many as 292 directors across
the boards of NIFTY 500 companies are aged 75 years and above, and companies may
consider the continuation of appointment of such directors in light of their contribution
toward ensuring board effectiveness. The Committee on Corporate Governance has
however now recognized and laid emphasis on the fact that a higher level of shareholder
endorsement may be required for directors to continue in their position beyond a certain
age, especially in light of the fact that even nonexecutive roles on the board
call for a significant time commitment from such directors. Accordingly, given that
the extant rules do not appear to lay down any upper limit restriction for the age of
independent directors, the Committee on Corporate Governance has recommended
and SEBI has approved the inclusion of a new provision requiring a special resolution
with an explanatory statement for justification for the appointment or continuation of
appointment of a nonexecutive director who has attained the age of 75 years.
www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 11

CEO duality is observed in nearly a third of the NIFTY 500 companies.
Across all industries, on average, 31.4 percent of CEOs also hold the post of chair of
the board. In companies in the real estate sector, CEO duality is at the highest, at 56.7
percent. The lowest percentage of CEO duality is reported by companies in the finan-
cials sector in which only 20 percent of companies have CEOs that hold both the CEO
and chair posts. The Committee on Corporate Governance is of the view that separating
the roles of CEO and chairperson reduces concentration of authority in the hands of one
person and provides for a better and more balanced governance structure and that the
time is right in India to introduce the concept of separation of the roles. SEBI has decided
to accept, with modifications, the recommendation of separating CEO/managing director
and chairperson positions. Accordingly, top-500 listed entities are now mandated to
ensure that the chairperson of the board of such listed entity is a nonexecutive director
and complies with other requirements as prescribed.
Less than 20 percent of NIFTY 500 companies have an independent chairperson.
CEO duality implies that the chair of the board of directors of the company is essentially
nonindependent. Only in situations where the office of the CEO and board chair are
distinct can there be a possibility of having an “independent” chair. Global best practices
appear to support the appointment of a nonexecutive, preferably an independent chair
for company boards, in a position separate and distinct from that of a CEO. However,
on average across industries and company size, less as 17 percent of board chairs are
independent. The remaining 83 percent do not meet the test of independence. Whilethe
the Indian legal framework now requires top-500 listed entities to ensure that the chair-
person of the board of such listed entity is a nonexecutive director and complies with
other requirements as prescribed, it is however silent on whether the chairman has to be
compulsorily independent vis-à-vis the listed entity.
Nearly 25 percent of all directors attend less than 75 percent of the board meetings.
The lowest number of directors attending less than 75 percent of the board meetings is
reported to be 18 percent in thehealthcare sector, as indicated in Figure 3.3a. The highest
percentage of directors attending less than 75 percent of board meetings (32 percent) is
reported in companies in the telecommunications services sector. Despite the Companies
Act, 2013, which allowed for alternative modes of attendance at meetings through
electronic media, as high as 25 percent of all directors are reported to have attended less
than 75 percent of the board meetings. This evidence confirms that companies ought to
consider taking steps to implement the offline modes of attendance in a more systematic
and effective manner so as to achieve higher levels of directorattendance in meetings.
The Committee on Corporate Governance has noted that while the Companies Act, 2013
provides for automatic vacation of the office of director as a result of nonattendance of all
board meetings held in a 12 month period, there is no such corresponding requirement
under SEBI laws. The Committee on Corporate Governance recommends that if a director
does not attend at least half of the total board meetings over two financial years on a
rolling basis, his or her continuance on the board should be ratified by the shareholders at
the next annual general meeting. This recommendation has however not been incorporated
by SEBI in its amended corporate governance framework.
12 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

There is a high level of compliance with the requirement of the SEBI regulations to
have an independent nomination and remuneration committee chairperson.
SEBI Listing Regulations stipulate that the chair of the nomination and remuneration
committee must be an independent director. With the exception of companies in
the financials and materials sectors, all the chairs of nomination and remuneration
committees across all industry categories in NIFTY 500 companies are independent
(Figure 5.4a). In the financials sector, noncompliance is at five percent. A marginal one
percent of chairpersons are not independent in the materials sector.
The majority of the directors serving on stakeholder relationship committees are

nonexecutive directors.
While the composition of the stakeholder relationship committee may be at the

discretion of the board, the chair of the stakeholder relationship committee is required
to be a nonexecutive director. Figure 6.2a indicates that the percentage of nonexecutive
directors in stakeholder relationship committees across industries is 65 percent. As an
exception to the above, for companies in the telecommunication services sector, this
average is 79 percent.
Average managerial remuneration is highest in the healthcare sector.
Figure 8.1a indicates that average total remuneration for directors is lowest in companies in
the energy sector followed by the financials sector. The highest average total remuneration
is paid to directors in the healthcare sector. Directors in the healthcare sector appear to
draw the highest salaries in comparison with the industry average. This sector reported the
highest sitting fees and commissions as well. In terms of the industry average, the lowest
salaries are paid to directors in the energy and utilities sector. Not all of the constituent
companies in these sectors are private players, indicating that different compensation
standards prevail in government companies and private players.
Higher total compensation is paid to directors in larger companies.
As per Figure 8.1b, the total compensation paid to directors increases with annual revenue.

Part I
Board Composition and Leadership

Board Composition
This section discusses board composition of companies in the NIFTY 500, including board
size, age of directors, gender, and issues of independence and affiliation.
In terms of the Companies Act, 2013 (Act), the “Board of Directors” (board), in relation
to a company, means the collective body of the directors of such company.1 While this
definition is not explanatory in nature, conceptually, the board of directors is the single
collective body responsible for all duties, functions, management, and administration
of the entire business and affairs of a company.2 Further, although the Act defines a
“director” simply as a director appointed to the board of a company3, the text of the law
and jurisprudence expound the fiduciary duty that a director owes to the company.4 The
Act mandates each company to have a board of directors, and only individuals may be
appointed as directors.5 In comparison with its predecessor, i.e. the Companies Act, 1956,
the Act has expanded the scope of the rule book for boards by prescribing, inter alia,
stricter rules for composition of the board, board committees, and the rights and obliga-
tions of the directors serving on the board of a company.
Board size
Every public company is required to have a board of directors consisting of a minimum
number of three directors, which may go up to a maximum of 15. A company may,
however, appoint more than 15 directors after passing a special resolution.6
Figure 1.1a indicates the average board size of companies, classified by industry group.
On the whole, these numbers illustrate that the board size does not largely differ by
industry and the average board consists of nine directors. The only exceptions to this are
companies in the energy and materials sectors which have reported a higher board size
being 11 and 10 directors respectively and companies in the information technology and
real estate segments which have an average board of eight directors.
Figure 1.1b demonstrates the average board size of companies, classified as per annual
revenue. For companies with annual revenue less than INR 5 billion have an average
board of seven directors. Companies having annual revenue in the range of INR 5 billion
to INR 10 billion, have reported an average board strength of eight directors.
1 § 2(10) of the Companies Act, 2013.

2 See Afra Afsharipour, Handbook on Corporate Governance in India: Legal Standards and Board Practices, 2015.
4 The Companies Act, 1956 did not set out specifically the duties of directors. § 166 of the Companies Act, 2013
provides for the duties of directors of a company and § 88 of the Indian Trusts Act, 1882 illustrates the fiduciary
capacity of a director. See also Rajeev Saumitra v. Neetu Singh &Ors (Delhi High Court judgment dated 27 th
January, 2016).

Figure 1.1a Figure 1.1b
Board Size, by Industry Board Size, by Company Size
Number of board seats Number of board seats
Consumer discretionary (n=86) 9.1 Annual revenue, in Rupees
Consumer staples (n=39) 9.8 Under 2.5 billion (n=4) 6.8
Energy (n=17) 11.4 2.5 to 5 billion (n=15) 7.4
Financials (n=77) 9.5 5 to 10 billion (n=38) 8.0
Healthcare (n=41) 9.3 10 to 50 billion (n=227) 9.0
Industrials (n=82) 9.3 Greater than 50 billion (n=212) 10.0
Information technology (n=30) 8.6
Materials (n=81) 10.1 Note: In Figure 1.1b, the range of annual revenue is not
known for 4 companies (37 directors). Accordingly, out of of
Real estate (n=22) 8.9 4,746 directors, the data is presented for 4,709 directors.
Telecommunication services (n=9) 9.7
Utilities (n=16) 9.8
On average, for companies with annual revenue between INR 10 billion (approximately
150 million) and INR 50 billion (approximately 750 million), the board comprises nine
directors. Companies having annual revenue greater than INR 50 billion have reported
an average board strength of 10 directors. This finding underscores a direct correlation
between company size and the size of the board size, which is likely due to the expanding
responsibilities and workload of directors in larger organizations.
In the opinion of the Committee on Corporate Governance, there ought to be a minimum

of six directors on the board of each listed company to effectively carry out the functions
of the board.7 SEBI, in its board meeting on March 28, 2018, decided to accept this
recommendation with modifications.8 Accordingly, the board of directors of the top 1000
listed entities (with effect from April 1, 2019) and in the top 2,000 listed entities (with
effect from April 1, 2020) are required to have a minimum strength of not less than six
directors. It has been clarified that the top 1,000 and 2,000 entities shall be determined
on the basis of market capitalisation at the end of the immediate previous financial year.9
7 Report of the Committee on Corporate Governance, Chapter I Para 1, available at http://www.sebi.gov.in/

reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. The MCA views
this proposal as unnecessary since the minimum number of directors for a public company has already been
prescribed in the Companies Act, 2013 and that appointment of new directors to meet this requirement shall be
an additional cost for the company, and that such a requirement should be introduced only upon conducting a
study of the top companies. The Committee on Corporate Governance was formed by SEBI in June 2017, under
the chairmanship of Uday Kotak with the objective of enhancing corporate governance standards in listed Indian
companies. The Committee, consisting of Government officials, and representatives of professional bodies,
industries, stock exchanges, academicians, lawyers and proxy advisors, submitted its report on October 5, 2017
and has sought comments from the public on its recommendations. The report also includes the views of the
MCA on the various issues dealt with by the Committee.
8 SEBI press release, available at https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-
meeting_38473.html
9 Inserted as Regulation 17(1)(c) and explanation of the Securities and Exchange Board of India (Listing Obligations
and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations) by the Securities and Exchange Board
of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 issued by SEBI on May
9, 2018 (SEBI Listing Amendment Regulations 2018).

While NIFTY 500 companies have, on average, more than six directors
on their boards, the other companies listed on the NSE need to
expand their boards to meet the requirements of the SEBI Listing
Amendment Regulations.
Of the 1,670 companies listed on the NSE, as many as 256 companies have only two to
five directors on their respective boards. To comply with the SEBI Listing Amendment
Regulations, these companies would need to increase the size of their board, adding
approximately 379 new directors overall.
Source: PRIME Database Group, October 2017
Executive and nonexecutive directors

The Act does not specifically define the terms “executive” and “nonexecutive” directors.
An executive director may typically be a whole-time director or the managing director
of the company. The Act defines a “managing director” as a director who, by virtue of
the articles of association of the company or by an agreement with the company or a
resolution passed in its general meeting or by its board of directors, is entrusted with
substantial powers of management (emphasis supplied) of the affairs of the company and
includes a director occupying the position of a managing director, by whatever name
called.10 A “whole-time director” includes a director in the whole-time employment of the
company.11 All other directors of the company who do not meet the requirements above
would be construed as being “nonexecutive” directors of the company. Although the
Act does not define the term “nonexecutive director,” typically a nonexecutive director
is a director who does not engage in full-time work for the company and consequently
receives lesser remuneration or a lesser fee. Usually people who are known in the industry
are often appointed to this office to increase the credibility of the company.12
Figure 1.2a illustrates, by industry, the number of executive and nonexecutive directors
serving on the board of companies. On average, companies in all sectors have reported
the percentage of executive directors varying in the range of 18 percent to 34 percent of
the total board strength, i.e. two to three directors out of the average board size of nine
are executive.The highest percentage of executive directors may be seen in companies in
the real estate sector (34 percent) and the lowest in telecommunication services (18
percent). All the remaining directors on these boards are nonexecutive directors, repre-
senting 66 percent to 82 percent of the total board size.
Figure 1.2b sets out the figures for executive and nonexecutive directors of companies,
classified on the basis of annual revenue. Companies with annual revenue greater than
INR 50 billion have reported an average of three executive directors on their boards. All
the other companies have reported an average of two executive directors on their boards.
For all the companies, the percentage of nonexecutive directors on boards is 75 percent.

12 See Afra Afsharipour, Handbook on Corporate Governance in India: Legal Standards and Board Practices, 2015.

Figure 1.2a
Executive and Nonexecutive Directors, by Industry
Percent of total
Executive directors Nonexecutive directors
Consumer discretionary (n=86) 25.9% 73.9

Consumer staples (n=39) 26.5 73.5
Energy (n=17) 26.9 73.1
Financials (n=77) 22.6 77.0
Healthcare (n=41) 32.5 67.3
Industrials (n=82) 26.6 73.2
Information technology (n=30) 20.5 79.0
Materials (n=81) 26.1 73.9
Real estate (n=22) 34.4 65.6
Telecommunication services (n=9) 18.4 81.6
Utilities (n=16) 29.5 69.2
Figure 1.2b
Executive and Nonexecutive Directors, by Company Size
Percent of total
Annual revenue, in Rupees
Under 2.5 billion (n=4) 22.2% 77.8
Note: In Figures 1.2a and 1.2b,
2.5 to 5 billion (n=15) 23.4 76.6
for 10 out of 4,746 directors, it is
5 to 10 billion (n=38) 27.6 72.0 not known whether these directors
are executive or nonexecutive,
10 to 50 billion (n=227) 26.8 73.0
and accordingly these have not
Greater than 50 billion (n=212) 25.5 74.2 been included in this analysis.
Percentages may not add up to 100 due to rounding.
Therefore, larger Indian companies (as measured by annual revenue) have not only the
largest boards, as explained above, but also the highest number of executive directors
sitting on a board, which may be seen due to the greater role required of executive
directors. Executive directors are vital not only vis-à-vis day-to-day operations of the
company but also in engagement with various stakeholders.13
Independent directors
The requirement to appoint independent directors was made a statutory provision for
the first time by its inclusion in the Act, although listed companies have had independent
directors under the rules and regulations made by the Securities and Exchange Board of
India (SEBI) since 2000.14 Under the Act, every listed public company is required to have
at least one third of the total number of its directors as independent directors.15
13 See Odgen Berndtson, The Curious Role of the Executive Director, available at https://www.odgersberndtson.
com/media/2264/the_curious_role_of_the_executive_director_board_paper_revised_sept2013.pdf
14 The Confederation of Indian Industry report titled ‘Desirable Corporate Governance: A Code’, which was released
in April 1998, was one of the earliest voluntary guidelines in India in relation to the appointment of independent
directors. The mandatory provision for such an appointment was introduced in Clause 49 of the Listing Agreement,
vide the SEBI Circular No. SMDRP/POLICY/CIR10/2000 dated 21st February, 2000. See Independent Directors in
Changing Legal Scenario, Krrishan Singhania, Dr. Olav Albuquerque and Darryl Paul Barretto, (2013) 1 Comp LJ.

Public companies with paid-up capital of INR 100 million or more, with turnover of INR 1
billion or more, or with outstanding loans, debentures and deposits, exceeding INR 500
million in aggregate, are required to appoint at least two directors who are independent.16
In the event any of the companies referred to above are required to appoint a higher number
of independent directors due to the composition of their respective audit committees,
such companies are mandated to appoint more independent directors as required. The
Act also specifies that companies belonging to a particular class may be required to
appoint a higher number of independent directors.17
For listed companies, SEBI prescribes that the board of directors shall have an optimum
combination of executive and nonexecutive directors with at least one woman director,
and not less than 50 percent of the board of directors shall comprise nonexecutive
directors. Further, for listed companies in which the chairman of the board of directors is
“nonexecutive,” at least one third of the board of directors shall comprise independent
directors. In cases where the listed company does not have a regular nonexecutive
chairman, at least half of the board shall comprise independent directors. Where the
regular nonexecutive chairman is a promoter of the listed company or is related to
any promoter or person occupying management positions at the board level or one
level below, at least half of the board of directors of the listed entity shall consist of
independent directors. SEBI has clarified that for the purpose of determining whether the
chairman is related to any promoter, the following rules shall apply: (i) if the promoter is a
listed company, its directors other than the independent directors, its employees, or its
nominees shall be deemed to be related to it; (ii) if the promoter is an unlisted company,
its directors, its employees, or its nominees shall be deemed to be related to it.18
The company and the independent directors are further required to abide by the provi-
sions of Schedule IV of the Act which lay down the code of conduct for independent
directors, outlining inter alia, their roles and functions, duties, manner of appointment,
re-appointment, resignation, and removal. It also provides for their separate meetings
and the evaluation of their performance.
For the first time, the Act seeks to provide a comprehensive definition of an independent
director.19 The Companies (Appointment and Qualification of Directors) Rules,2014
and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI
Listing Regulations)20, also supplement this definition by introducing additional criteria
16 Rule 4 of the Companies (Appointment and Qualifications of Directors) Rules,2014.

17 Proviso to Rule 4 of the Companies (Appointment and Qualifications of Directors) Rules,2014.
18 Regulation 17 of the SEBI Listing Regulations. In terms of Regulation 15 of the SEBI Listing Regulations,
Regulation 17 requirements are not applicable to listed companies having paid up equity share capital not
exceeding INR 100 million and net worth not exceeding INR 250 million, as on the last day of the previous
financial year. Where the provisions of the Regulation 17 become applicable to a listed company at a later date,
such listed company is required to comply with the requirements within six months from such date. Further,
Regulation 17 also does not apply to a listed entity which has listed its specified securities on the SME Exchange.
For other listed entities which are not companies, but body corporate or are subject to regulations under other
statues, the corporate governance provisions as specified in Regulation 17 shall apply to the extent that it does
not violate their respective statutes and guidelines or directives issued by the relevant authorities.
20 Effective December 1, 2015, the Listing Agreement has been replaced by the SEBI Listing Regulations, as notified
on September 2, 2015. For an analysis of independent directors under Clause 49 of the Listing Agreement, see
AfraAfsharipour, Handbook on Corporate Governance in India: Legal Standards and Board Practices, 2015.

and strengthening the existing provisions. The Companies (Amendment) Act, 201721 has
introduced certain amendments to the definition of an independent director.
An independent director in relation to a company, [means a director other than a

managing director or a whole-time director or a nominee director] 22—
a. who, in the opinion of the board of directors of the company, is a person of

integrity and possesses relevant expertise and experience;
b. (i) who is not or was not, a promoter of the company or its holding, subsidiary, or
associate company [or member of the promoter group of the listed entity]23;
(ii) who is not related to promoters or directors of the company, its holding,
subsidiary or associate company;
c. [who [apart from receiving director’s remuneration]24 has or had no [material]

pecuniary relationship other than remuneration as such director or having
transaction not exceeding ten percent of his total income or such amount as may
be prescribed,25 with the company, its holding, subsidiary or associate company,
or their promoters, or directors, during the two immediately preceding financial
years or during the current financial year;]26
d. none of whose relatives—

(i)is holding any security of or interest in the company, its holding, subsidiary
or associate company during the two immediately preceding financial years or
during the current financial year:
Provided that the relative may hold security or interest in the company of face
value not exceeding INR 5 million or two percent of the paid-up capital of the
company, its holding, subsidiary or associate company or such higher sum as
may be prescribed;
21 The Companies (Amendment) Bill, 2016 was introduced by the Union Minister of Corporate Affairs in the
Lok Sabha on March 16, 2016 and was referred to the Standing Committee on Finance for examination and
for submitting a report thereon. The Standing Committee on Finance (2016-2017) submitted its 37th Report
on December 1, 2016 to the Lok Sabha. As on date of this report, the Companies (Amendment) Bill, 2016 (as
amended by the suggestions of the Standing Committee on Finance) has been enacted as The Companies
(Amendment) Act, 2017.
22 Regulation 16(b) of the SEBI Listing Regulations uses the following terminology “means a non-executive director,
other than a nominee director of the listed entity”.
23 Inserted in Regulation 16(1)(b)(ii) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations
2018. This amendment shall come into force with effect from October 1, 2018.
24 Regulation 16(b)(iv) of the SEBI Listing Obligations Regulations.
25 The SEBI Listing Obligations Regulations specify the absence of a “material” pecuniary relationship, while
the Act has not specified any test or threshold of materiality of the pecuniary relationship. As a result, even
minor pecuniary relationships are covered under this sub-section of the Act, as noted by the Companies Law
Committee in its report dated February 1, 2016. Based on this disconnect, the Companies (Amendment) Bill,
2017 seeks to amend section 149 of the Act to specify limits for the pecuniary relationship of a director with
respect to eligibility of a director to be appointed as an independent director. It also seeks to specify the
scope of restriction on pecuniary relationship entered into by a relative. The Companies (Amendment) Act,
2017 has substituted the words “pecuniary relationship” with the following “pecuniary relationship, other than
remuneration as such director or having transaction not exceeding ten per cent of his total income or such
amount as may be prescribed”.
26 This sub-clause does not apply to Government companies.

(ii)is indebted to the company, its holding, subsidiary or associate company or their
promoters, or directors, in excess of such amount as may be prescribed during the
two immediately preceding financial years or during the current financial year;
(iii)has given a guarantee or provided any security in connection with the indebt-
edness of any third person to the company, its holding, subsidiary or associate
company or their promoters, or directors of such holding company, for such
amount as may be prescribed during the two immediately preceding financial
years or during the current financial year; or
(iv)has any other pecuniary transaction or relationship with the company, or its
subsidiary, or its holding or associate company amounting to two percent or more
of its gross turnover or total income singly or in combination with the transactions
referred to in sub-clause (i), (ii) or (iii);27
e. who, neither himself/herself nor any of his/her relatives—

(i)holds or has held the position of a key managerial personnel or is or has been
an employee of the company or its holding, subsidiary or associate company in
any of the three financial years immediately preceding the financial year in which
he is proposed to be appointed; 28
(ii)is or has been an employee or proprietor or a partner, in any of the three

financial years immediately preceding the financial year in which he is proposed
to be appointed, of—
(A)a firm of auditors or company secretaries in practice or cost auditors of

the company or its holding, subsidiary or associate company; or
(B)any legal or a consulting firm that has or had any transaction with the
company, its holding, subsidiary or associate company amounting to 10
percent or more of the gross turnover of suchfirm;
(iii)holds together with his relatives two percent or more of the total voting
power of the company; or
(iv)is a chief executive or director, by whatever name called, of any nonprofit

organisation that receives 25 percent or more of its receipts [or corpus]29 from
the company, any of its promoters, directors, or its holding, subsidiary, or
associate company or that holds two percent or more of the total voting power
of the company; or
[(v) is a material supplier, service provider or customer or a lessor or lessee of the

listed entity;] 30
f. who possesses such other qualifications as may be prescribed.
27 As amended by the Companies (Amendment) Act, 2017.

28 The Companies (Amendment) Act, 2017 has inserted the following proviso after this sub-clause : “Provided that
in case of a relative who is an employee, the restriction under this clause shall not apply for his employment
during preceding three financial years”.
29 Regulation 16(b)(vi)(D) of the SEBI Listing Regulations.
30 Regulation 16(b)(vi)(E) of the SEBI Listing Regulations.

g an independent director shall possess appropriate skills, experience and
knowledge in one or more fields of finance, law, management, sales, marketing,
administration, research, corporate governance, technical operations or other
disciplines related to the company’s business31.
h [who is not less than 21 years of age.]32
i [who is not a nonindependent director of another company on the board of which

any nonindependent director of the listed entity is an independent director.]33
The rules provide for maintaining a data bank of persons eligible and willing to be
appointed as independent directors by institutions so authorised by the Central
Government, and this list shall be placed on the website of the Ministry of Corporate
Affairs such that the data bank would be available for all concerned companies.34
It may be noted that independent directors essentially would be nonexecutive directors.

From among nonindependent directors, directors may be executive or nonexecutive.
Figure 1.3a illustrates that in companies in the healthcare and information technology
sector, as high as 53 to 55 percent of the board is independent. The lowest percentage of
independent directors is noted in the telecommunication services sector at 44 percent.
The healthcare sector has also reported the highest percentage of independent directors
from among the total nonexecutive directors at 79 percent. Companies in the telecom-
munication services sector have the lowest average percentage of independent directors
out of the total nonexecutive directors; in these companies, only 54 percent of the nonex-
ecutive directors are independent.
Figure 1.3b indicates the average number of independent directors by annual revenue.
Read together with Figure 1.1b (board size) and Figure 1.2b (executive and nonexecutive
directors), we see that the proportion of independent directors vis-à-vis total board
strength and nonexecutive directors also varies. For those NIFTY 500 companies with
annual revenue less than INR 2.5 billion and more than INR 50 billion, independentdirectors
form less than 50 percent of the total board strength (48 and 49 percent respectively).
For all other NIFTY 500 companies, 51 percent and 52 percent of directors for companies
with annual revenue between INR 2.5 billion to INR 10 billion and for those with annual
revenue between INR 10 billion to INR 50 billion, respectively, are independent.
31 Rule 5 of the Companies (Appointment and Qualifications of Directors) Rules,2014.

32 Regulation 16(b)(vii) of the SEBI Listing Regulations.
33 Inserted as Regulation 16(1)(b)(vii) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations
2018. This amendment shall come into force with effect from October 1, 2018.
34 Rule 6 of the Companies (Appointment and Qualifications of Directors) Rules, 2014. The Institute of Chartered
Accountants of India, The Institute of Company Secretaries of India and The Institute of Cost Accountants of
India, under the active encouragement of the Ministry of Corporate Affairs, Government of India, have developed
an independent directors’ repository to facilitate eligible persons to register themselves and for companies to
obtain information about such persons to consider their appointment as independent directors, available at
https://independentdirector.in/

Figure 1.3a
Independent Directors, by Industry
Consumer Consumer Health Information Real Telecommunication
discretionary staples Energy Financials care Industrials technology Materials estate services Utilities
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
Independent directors as a percentage of nonexecutive directors

70.5% 69.3 65.2 63.4 79.4 68.0 70.2 69.4 78.1 54.9 72.2
Independent directors as a percentage of total directors

52.0% 50.9 47.7 48.8 53.4 49.7 55.8 51.3 51.3 44.8 50.0
Figure 1.3b
Independent Directors, by Company Size
Under 2.5 to 5 to 10 to Greater than
2.5 billion 5 billion 10 billion 50 billion 50 billion
(n=4) (n=15) (n=38) (n=227) (n=212)
61.9% 67.1 70.8 71.7 66.7

48.1% 51.4 51.0 52.3 49.5
Note: In Figures 1.3a and 1.3b, for 16 directors, information as to their independent
status is not available, and hence these directors are not included in the analysis.
Source: The Directors’ Collective/PRIME Database Group, 2018
Companies with annual revenue between INR 10 billion and INR 50 billion reported that
72 percent of their nonexecutive directors are independent. Only about 62 percent
of nonexecutive directors in companies with annual revenue less INR 2.5 billion
are independent.
Chapter II of the Report of the Committee on Corporate Governance deals extensively

with the extant law on independent directors and the committee’s recommendations
about them. The Committee has proposed, inter alia, that irrespective of whether the
chairperson of the listed company is executive or nonexecutive, at least half the board
must be independent. The Committee also recommends the submission of a declaration
by the independent director, stating that he or she satisfies the requirements of indepen-
dence, thereby introducing “self-assessment of independence” into Indian company law.35
35 Report of the Committee on Corporate Governance, Chapter II Para 1, available at http://www.sebi.gov.in/

reports/reports/oct-2017/report-of-the-committee-on-corporate-governance-for-public-comments_36178.html.
The MCA has expressed no comments on the recommendation of the Committee on the minimum number of
independent directors. As regards the amendments to the eligibility criteria for independent directors, the MCA
has opined that the provision must be consolidated in the Act rather than under the Act and additionally in the
SEBI Listing Regulations.

How would the requirement of more independent directors affect
listed companies?
If the Committee on Corporate Governance’s recommendation for more independent
board memebers were to be implemented, out of the 1,670 companies listed on NSE, 326
companies (20 percent) would need to change the composition of their boards to ensure
that at least 50 percent of the total number of directors were independent. This indicates,
that in the absence of regulations, nearly a fifth of the NSE-listed companies do not have
largely independent boards.
The institution of independent directors has been further strengthened by the provisions
newly introduced by SEBI in the SEBI Listing Regulations. The quorum for every meeting
of the board of directors of the top 1,000 listed companies with effect from April 1, 2019
and of the top 2,000 listed companies with effect from April 1, 2020 shall be one-third
of the total board size of the company or three directors, whichever is higher, which shall
include at least one independent director. 36
Women directors
In terms of the new corporate law regime in India, every listed company, every other
public company with paid-up capital of INR 1 billion or more or turnover of INR 3 billion
or more, has been mandated to appoint at least one woman director on its board.37 This
provision was introduced primarily with the objective of increasing women’s participation
in decision making at the board level across corporations. 38
The numbers indicated in Figure 1.4a refer to the number of women directors serving
on the boards of companies by industry. On average, one woman director has been
appointed to the boards of companies, as reflected in Figure 1.4a, and in certain sectors
where the average board size is smaller, the proportion of women directors compared
with the full board is higher. In companies in the telecommunication services sector, 18
percent of the directors are women, followed by 16 percent in the healthcare sector and
15 percent in information technology and utilities. At 12 percent, companies in the energy
sector have the lowest percentage of women directors.
Figure 1.4b shows the number of women directors serving on the boards of companies
by reported annual revenues. Since all the companies studied for the purpose of Figure
1.4b have, on average, one woman director on their boards, the percentage of women
directors of the total number of directors varies. For companies having annual revenue
between INR 2.5 billion and INR 5 billion, women directors form 19 percent of the total
board. Companies with annual revenue more than INR 10 billion reported the lowest
percentage of women directors on the board at 13percent.
36 Inserted as Regulation 17(2A) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.
37 Proviso to § 149 of the Companies Act, 2013 and Rule 3 of the Companies (Appointment and Qualification of
Directors) Rules, 2014.
38 See AfraAfsharipour, Handbook on Corporate Governance in India: Legal Standards and Board Practices, 2015,
for an analysis of the provisions for women directors.

Figure 1.4a
Women Directors, by Industry
Percentage of total directors
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
13.4% 13.1 12.4 13.0 16.0 13.6 15.9 13.3 13.8 18.4 15.4
Figure 1.4b
Women Directors, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
14.8% 19.8 17.8 13.4 13.2
Despite the above numbers and the efforts of the government to bring in diversity ofthought
at the board level through appointment of capable women as directors, it has been noted
that several public sector companies had not complied with this requirement as on March
31, 2016, although the deadline to comply was March 31, 2015. 39 As reported by a survey
conducted in 2016, as of March 31, 2016, as many as 1375 out of the 5541 companies listed
on BSE were noncompliant with regulations requiring appointment of women directors. On
the NSE, this number was lower, at 191 noncompliant companies out of a total of 1,759.40
Further, the Committee on Corporate Governance has proposed enhancing this require
ment by making it mandatory for listed companies to have one independent woman
director on their boards. 41 SEBI, in its board meeting on March 28, 2018, decided to accept
this proposal with modifications, 42 and accordingly, the board of directors of the top 500
listed entities are required to have at least one independent woman director by April 1, 2019,
and the same requirement shall be complied with by the top 1000 companies by April 1,
2020. It has been clarified that the top 500 and 1,000 entities shall be determined on the
basis of market capitalisation, as of the end of the immediate previous financial year.43
39 See “Several firms fail to fulfil Sebi rule for at least one woman director on their boards,” The Economic Times
(Mumbai Edition), 18 th April, 2016.
40 These are the findings of a survey conducted by KP MG in India’s Board Leadership Centre and Women Corporate
Directors India (WCD) in 2016. The survey also notes that the proportion of women directors in companies listed
on the NSE increased manifold (by 180 percent) between 2013 and 2016 after the requirements of the Act came into
effect. However, this increase meant only 13.7 percent representation of women in 2016 as compared to 4.9 percent in
2013 indicating that boards of several companies are still not as gender diverse as intended by the policy framework.
41 Report of the Committee on Corporate Governance, Chapter I Para 2, available at http://www.sebi.gov.in/
reports/reports/oct2017/reportofthecommitteeoncorporategovernanceforpubliccomments_36178.html. The
M C A has taken the view that such a woman director need not necessarily be independent and that ensuring
that such a woman director is not a relative is sufficient to address any concerns.
42 SEBI press release, available at https://www.sebi.gov.in/media/pressreleases/mar2018/sebiboard
meeting_38473.html
43 Inserted as proviso and explanation to Regulation 17(1)(a) of the SEBI Listing Regulations by the SEBI Listing
Amendment Regulations 2018.

Several NSE-listed companies need to appoint independent women
directors on their boards to comply with the requirements of the SEBI
Listing Amendment Regulations.
As of May 25, 2018, of the boards of 1,754 companies listed on NSE that were analysed,
1,093 companies (i.e. 62 percent of NSE-listed companies) have an independent
woman director serving on their boards. Accordingly, 661 companies (i.e. 38 percent
of NSE-listed companies) would need to appoint a woman director who fulfills the
criteria for independence.
Source: PRIME Database Group, May 2018. The above data includes companies to which this requirement may not apply.
Promoter-directors
Public companies in India display concentrated shareholding in the hands of a controlling
shareholder (or promoter) that is either a business family or the state.44 The term
“promoter” has wide import under the Act—a promoter may be any person who has
been named as such in a prospectus or is identified by the company in the annual return
or any person who has control45 over the affairs of the company, directly or indirectly,
whether as a shareholder, director, or otherwise. Further, the term “promoter” also
includes any person in accordance with whose advice, directions, or instructions the
board of directors of the company is accustomed to act, although this does not extend
to people acting merely in a professional capacity.46
Given that corporate ownership in India is still concentrated and promoter-dominated, board
independence is encouraged to ensure protection of the interests of minority shareholders
from possible exploitation by the promoter or controlling shareholder.47 While someIndian
companies have evolved to be managed by professionals, the board often remains in the
control of the promoters.48 In certain cases, even promoter-controlled companies are likely
to have as a CEO an individual who has grown professionally as a business manager.49
Figure 1.5a indicates that on average, all NIFTY 500 companies have promoter directors
serving on their boards. However, the boards of companies in the energy, financials, telecom-
munication services, and utilities sectors are less promoter-dominated since these have, on
average, less than one promoter director on their boards. In the energy sector, the least
promoter-dominated sector, promoter directors constitute only three percent of
44 The concept of “promoter” has specific legal significance in the Indian context. Promoters in India are typically
controlling shareholders, but they can also be those instrumental in a public offering or those named in the
prospectus as promoters.
45 § 2(27) of the Companies Act, 2013 defines control as “the right to appoint majority of the directors or to control
the management or policy decisions exercisable by a person or persons acting individually or in concert, directly
or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or
voting agreements or in any other manner.”
47 “Bala” N. Balasubramanian, “Issues in Board and Director Independence,” NSE Quarterly briefing, vol. 15,
October 2016 (https://www.nseindia.com/research/content/res_QBoct16.pdf).
48 See AfraAfsharipour and Manali Paranjpe, Director Notes India: The Role of the Nomination Committee in Board
Independence and Composition in Indian Companies, The Directors’ Collective, 2016.
49 The recent examples of Tata and Infosys indicate that in certain cases, boards of larger corporates which have
been historically led by promoters/promoter groups may undergo a change to bring in professionalmanagers.

Figure 1.5a
Promoter Directors, by Industry
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)

22.8% 25.7 3.2 6.3 31.3 15.8 16.2 21.8 39.3 7.7 9.9

18.5% 20.5 3.1 5.6 23.8 13.6 14.0 17.9 28.2 6.9 9.0
Figure 1.5b
Promoter Directors, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
22.7% 24.7 27.7 21.0 14.2
Note: For Figure 1.5a, for 43 directors in total, it is not clear whether such directors
Independent directors as a percentage of total directors are promoters or form part of the promoter group, and hence have been excluded
from this analysis. For Figure 1.5b, for 37 directors, the data for the slabs of annual
18.5% 19.8 27.7 17.1 12.4
revenue is not available. Additionally, for 43 directors in total, it is not clear whether
such directors are promoters or form part of the promoter group. Accordingly, these
directors are not included in this analysis.
the total board on average. Companies in the healthcare and real estate have two promoter
directors on average (24 and 28 percent of the total board strength respectively). Previous
studies have analysed promoter control of the board in the automobiles sector50 and the infor-
mation technology sector51 and have found that in certain younger sectors with a global
presence, such as information technology, privatisation is encouraged over government
holding. The nature of promoter control was found to vary in these sectors. For example,
the automobile industry is more dominated by government shareholding and family-based
promoter control, whereas institutional investors are seen to have more say on the boards
of companies in the information technology sector.
Figure 1.5b shows that on average, all NIFTY 500 companies have at least one promoter
director serving on their boards. In companies with annual revenue greater than INR 50
billion, promoter directors represent 12.4 percent of the total board while the highest
percentage of promoter directors on the board, at 28 percent, is seen in companies
whose annual revenue is between INR 5 billion and INR 10 billion.
50 See Tawiah, Benjamin and Sharma, Board Structures in India, Evidence from Automobile and IT Companies,
International Journal of Management and Commerce Innovations, Vol. 2, Issue 2, pp: (55-63), Month: October
2014 - March 2015, available at: www.researchpublish.com The study found that the power at the board level was
concentrated in the hands of the promoters in the automobiles sector.
51 See Tawiah and Benjamin, Who Owns Indian Companies? A Decade Of Shareholding Patterns Of Automobile And
It Industry, IOSR Journal of Business and Management, Volume 16, Issue 10.Ver. I (Oct. 2014), PP 01-00, available
at www.iosrjournals.org

Resident directors
Under the Act, every company was previously required to have at least one director who has
stayed in India for a total period of not less than 182 days in the previous calendar year.52
The Companies Law Committee 53, in its report submitted in February 2016, noted that
the above provisions should relate to a financial year instead of calendar year, with the
requirement becoming effective after a period of six months from incorporation (in the
case of new companies). In the opinion of the Companies Law Committee, the above
residency requirement in the previous year makes it imperative for a new subsidiary of a
company incorporated outside India to appoint a person who may be entirely unconnected
with the company, as a director in India, which could possibly lead to disputes. Further, the
Committee has recommended making the requirement applicable to the current financial
year. Accordingly, this requirement is replaced as follows by the Companies (Amendment)
Act, 2017, to provide for easier requirements for appointment of a resident director, as
follows: “Every company shall have at least one director who stays in India for a total
period of not less than 182 days during the financial year: provided that in case of a newly
incorporated company the requirement under this sub-section shall apply proportionately
at the end of the financial year in which it isincorporated.”
Small shareholders’ directors

A listed company may have one director elected by small shareholders in the manner and
with such terms and conditions as may be prescribed. In this context, a “small share-
holder” means a shareholder holding shares of nominal value of not more than INR
20,000 or any other prescribed amount. 54 A listed company, upon receiving a notice from
1000 small shareholders or one tenth of the total number of such shareholders, whichever
is lower, may have a director elected by the small shareholders. The company may also
suo motu opt to have a director representing its small shareholders.55
In what has been viewed as the first attempt to exercise rights under this section 151 of
the Act, Unifi Capital Private Limited proposed Murali Rajagopalachari’s candidature for
being appointed as a small shareholder director in Alembic Limited. However, the board
of Alembic Limited rejected the proposal of such an appointment on the grounds of
conflict of interest between the proposed small shareholder director and the company.56
Additional directors
The articles of association of a company may confer on its board of directors the power
to appoint any person (not being a person who has failed to get appointed as a director

53 The Companies Law Committee was set up on 4 th June, 2015 to make recommendations to the Government
of India in relation to the issues arising from the implementation of the Companies Act, 2013. This committee
comprised of 10 members. In addition to providing its own views, the committee had to take into consideration
recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on CSR, the
Law Commission and other agencies. The Companies Law Committee has submitted its report to the Hon’ble
Union Minister of Finance, Corporate Affairs and Information & Broadcasting on 1st February, 2016.
54 § 151 of the Companies Act, 2013.
55 Rule 7 of the Companies (Appointment and Qualification of Directors) Rules,2014.
56 http://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/board -seat-alembic-junks-
small-shareholder-plea/articleshow/59818834.cms

in a general meeting), as an additional director at any time, who shall hold office up to
the date of the next annual general meeting or the last date on which the annual general
meeting should have been held, whichever is earlier.57
Nominee directors
Subject to the articles of association of a company, the board of directors may appoint
any person as a director nominated by any institution in pursuance of the provisions of any
law for the time being in force of any agreement or by the Central Government or the
State Government by virtue of its shareholding in a Government company.58 Provisions
relating to independent directors clarify the position that a nominee director would not
be considered independent. 59
Figure 1.6a indicates that the average number of nominee directors in companies in all
sectors except financials and energy is less than one. Companies in the financials sector
have on average, one nominee director on their boards. As high as two nominee directors
(being 20 percent of the total board strength) has only been reported as an average by
companies in the energy sector. As shown in Figure 1.6b, the number of nominee directors
on the boards of companies increases with company revenue. No nominee directors
were reported on the boards of companies with annual revenue less than INR 2.5 billion.
For companies whose annual revenue is between INR 2.5 billion and INR 50 billion, less
than one nominee director was reported an average. In companies having annual revenue
above this threshold, an average of one nominee director was appointed.
Figure 1.6a
Nominee Directors, by Industry
Consumer C onsumer Health Information Real Telecommunication
discretionary staples Energ y Financials care Industrials technolog y Materials estate services Utilities
(n=86) (n=39) (n=17) (n=77) (n= 41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
3.6% 3.9 20.2 11.2 1.3 7.9 3.5 5.8 3.6 9.2 7.1
Note: In Figure 1.6a, for 10 directors, the information as to whether these directors are nominee directors or not is not available
and hence such directors have been excluded from the analysis.
Figure 1.6b
Nominee Directors, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
0% 2.7 3.9 4.3 9.1 Note: In Figure 1.6b, for 37 directors, the data for the slabs of annual revenue is not
available, and hence the same are not included in this analysis. Additionally, for 10
directors, the information as to whether these directors are nominee directors is not
available, and hence such directors have been excluded from the analysis.

59 § 149(6) of the Companies Act, 2013..

Alternate directors
The board of directors of a company, if so authorized by the company’s articles of associ-
ation or by a resolution passed in a general meeting, may appoint a person, not being a
person holding any alternate directorship for any other director in the company (emphasis
supplied), to act as an alternate director for a director during his absence for a period
of not less than three months from India.60 The Companies Law Committee had noted61
that the text of the above provision leaves scope for an ambiguous interpretation, by
not specifically prohibiting an existing director of a company from acting as an alternate
director for another director in the same company. This may lead to one person attending
a board meeting in dual capacities—personally as a director and as an alternate director,
and in the opinion of the Companies Law Committee this leads to conflict of interest
and increases ambiguity in the calculation of quorum. In terms with this observation, the
Companies (Amendment) Act, 2017 extends the disqualification also to those directors
who hold a directorship in the same company.
Further, an alternate director appointed for an independent director must fulfill all the
prerequisites of an independent director. The term of office of the alternate director is
only up to the term of office of the director in whose place such alternate director has
been appointed. Once such director has returned to India, the alternate director is
mandated to vacate the office. The Act also envisages the contingency of the term of
the office of the original director expiring prior to his return to India. In such a case, any
provision for the automatic re-appointment of retiring directors, in default of another
appointment, applies to the original director and not to the alternate director. 62
Figure 1.7a indicates that no alternate directors have been appointed for any directors
serving on the boards of companies in the consumer staples, energy, healthcare, infor-
mation technology, real estate, or utilities sectors. Companies in the following sectors
have a higher number of alternate director appointments: materials (BASF India Limited)
and telecommunication services (Bharti Airtel Limited) each have two alternate directors,
while industrials (Cummins India Limited) has three.
Of the total 4746 directors analysed for this report, 11 directors serve as alternate directors
on boards. As indicated by Figure 1.7b, no companies with annual revenue up to INR 10
billion reported any alternate directors on their boards. However, companies whose annual
revenue is between INR 10 billion and INR 50 billion report three alternate directors on
their boards (two on the board of Page Industries Limited and one on the board of CRISIL
Limited). The balance of eight alternate directors serve on boards of companies with
annual revenue higher than INR 50 billion.

61 See Report of the Companies Law Committee dated 1st February, 2016.

Figure 1.7a
Alternate Directors, by Industry
Number of alternate directors
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
3 3
2 2
1
0 0 0 0 0 0
Note: For Figure 1.7a, for 10 directors, the information as to whether they are alternate directors or not, is not available,
and such directors have been excluded from the analysis.
Figure 1.7b
Alternate Directors, by Company Size
Number of alternate directors
(n=4) (n=15) (n=38) (n=227) (n=212)
8
0 0 0
Note: In Figure 1.7b, for 37 directors, the data for the slabs of annual revenue is not available, and hence the same are not included in this analysis. Additionally, for 10 directors,
information as to whether they are alternate directors or not is un available, and such directors have been excluded from the analysis.
According to the Committee on Corporate Governance, since independent directors are

elected to the board for their skills, experience, acumen, network and objectivity, it is not
appropriate to replace them with an alternate director (though that person may satisfy
the criteria of independence) since these qualities are specific to the person appointed as
the independent director. Also, since the Act and the rules made thereunder allow
a director to attend a meeting from any place by electronic means, the Committee has
opined that such appointment of an alternate director for an independent director ought
not to be permitted. 63 SEBI has accepted this recommendation and with effect from
October 1, 2018, no person shall be appointed or continue as an alternate director for an
independent director of a listed entity.64
63 Report of the Committee on Corporate Governance, Chapter II Para 7. The MCA has opined that the provision
pertaining to the appointment of alternate directors cannot be done away with since it would conflict with the
provisions of the Act.
64 Replaced Regulation 25(1) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.

A ge of directors
No company is permitted to appoint or continue the employment of any person as managing
director, whole-time director, or manager who is below 21 years of age or over 70 years of
age.65 However, the appointment of a person who has attained the age of 70 years may be
made by passing a special resolution, in which case the explanatory statement annexed to
the notice for such motion must include the justification for appointing such person.66
Persons appointed to these offices prior to April 1, 2014 can continue on the board after
turning 70 only if the special resolution as stated above has been passed.67
While the above age restrictions appear to be only in respect of executive directors, it
may be noted that the minimum age limit requirement applies to independent directors
as well, in terms of Regulation 16(1)(b)(vii) of the SEBI Listing Regulations.
Nonetheless, companies may opt for an age of retirement lesser than as prescribed by
the Act. For instance, Coal India Limited prescribes the age limit of its chairman and
managing director and other whole-time functional directors as 60 years.68
Figure 1.8a indicates that the average age of the youngest director across companies
classified by industry is 30 years. The energy sector reported the highest average age of
youngest director as 39 years, and the healthcare sector reported the lowest at 24 years.
NIFTY 500 companies reported an average age for the oldest directors serving on the
boards of companies in each sector of 90 years. The industry average for companies in the
industials and materials sectors is as high as 96 years. Companies in the telecommunication
services sector appear to have younger boards, with an average director age of 59, only
marginally lesser than the age of 60 to 62 years observed in the other sectors. Nonetheless,
Figure 1.8a indicates that the industry average for the age of directors is several years more
than what is contemplated under and required by the Act.
Figure 1.8b indicates the average age of directors by company size. The average age for
the youngest director is 24 years; for the oldest, it is 96 years. The lowest average age for
the youngest director has been reported for companies with annual revenue from INR 5
billion to INR 10 billion. Companies whose annual revenue is between INR 2.5 billion and
INR 5 billion have the highest average age of their youngest directors at 42 years. For
companies having annual revenue of INR 10 billion and above, the average age of the
oldest director is as high as 96 years.
The Committee on Corporate Governance has recognised that a higher level of share-
holder endorsement may be required for directors to continue in their position beyond a
certain age, especially in light of the fact that even nonexecutive roles on the board call
for a significant time commitment from such directors. Accordingly, given that the extant
rules do not appear to lay down any upper limit restriction for the age of independent
directors, the Committee on Corporate Governance has recommended 69 and SEBIhas
65 § 196(3)(a) of the Companies Act, 2013.

66 Proviso to § 196(3)(a) of the Companies Act, 2013.
67 Sridhar Sundararajan v. Ultramarine & Pigments Limited (Bombay High Court judgment dated 8 th February, 2016).
68 Coal India Limited, Annual Report 2016-17.
69 Report of the Committee on Corporate Governance, Chapter I Para 5. The MCA has taken a contradictory view,
reasoning that introduction of such a provision will unduly impinge upon the freedom of the management of the
company to decide its non-executive directors.

Figure 1.8a
Youngest director
A g e of Directors, by Industry
Oldest director
Years of age
Average age
28
Consumer discretionary (n=86) 89
61
28
Consumer staples (n=39) 91
62
34
Energy (n=17) 89
60
37
Financials (n=77) 89
61
24
Healthcare (n=41) 89
62
30
Industrials (n=82) 96
61
27
Information technology (n=30) 85
60
28
Materials (n=81) 96
62
27
Real estate (n=22) 89
60
33
Telecommunication services (n=9) 85
59
36
Utilities (n=16) 90
61
Figure 1.8b
A g e of Directors, by Company Size (Annual Revenue, in Rupees)
Years of age
27
Under 2.5 billion (n=4) 71
55
42
2.5 to 5 billion (n=15) 85
62
24
5 to 10 billion (n=38) 86 Note: For Figures 1.8a and 1.8b,
59
27 for 882 directors out of the total
10 to 50 billion (n=227) 96 number of directors, the age of
62 the director is not known. These
28 directors have been excluded
Greater than 50 billion (n=212) 96
61 from the analysis.
approved the inclusion of a provision in the SEBI Listing Regulations requiring a special
resolution to be passed, together with an explanatory statement to be annexed to the
notice for justification, for appointment or continuation of appointment of a nonexecutive
director who has attained the age of 75 years.70
Director tenure
NONINDEPENDENT DIRECTORS
Unless the articles of association of the company provide for the retirement of all
directors at every annual general meeting, at least two thirds of the total number of
directors of a public company are required to be liable to retire by rotation. They shall be
appointed by the company in general meeting, unless the Act specifies otherwise.71
70 Inserted as Regulation 17(1A) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.
71 § 152(6)(a) of the Companies Act, 2013.

This “total number of directors” does not include independent directors of the company.72
The remaining directors in the case of any such company are also to be appointed by the
company in general meeting, subject to any regulations as may be contained in the articles
of association of the company.73
At the first annual general meeting of a public company held after the general meeting at
which the first directors of the company are appointed and at every subsequent annual
general meeting, one-third of the directors who are liable to retire by rotation should
retire from office.74 The directors to retire by rotation at every annual general meeting
shall be those who have been longest in office since their last appointment. As between
persons who became directors on the same day, the retiring director will be determined
by lot and will be subject to any agreement such directors may have among themselves.75
At the annual general meeting at which a director retires as aforesaid, the company may
fill up the vacancy thus created by re-appointing the same person who is retiring as the
director or by appointing some other person.76
It may be concluded from the above that the maximum tenure of a director serving on
the board of a public company and who is liable to retire by rotation is three years. The
Act provides for restrictions on re-appointment of such directors who have completed
their one-time tenure.77 Further, the Act specifies penalties for noncompliance of any of
the above provisions contained in section 152 of the Act. Any individual or director of a
company contravening these provisions shall be punishable with imprisonment for a term
which may extend to six months or with a fine which may extend to INR 50,000. Where
the contravention is a continuing one, a further fine may extend to INR 500 for every day
that the contravention continues.78
INDEPENDENT DIRECTORS
As discussed above, the provisions relating to the retirement of directors by rotation are
not applicable to the appointment of independent directors.79 Subject to the provisions
of section 152 of the Act, an independent director shall hold office for a term up to five
consecutive years on the board of a company, but shall be eligible for re-appointment only
upon passing of a special resolution by the company and disclosure of such appointmentin
the board’s report. 80
72 Explanation to§ 152(6) of the Companies Act, 2013.

73 § 152(6)(b) of the Companies Act, 2013.
74 § 152(6)(c) of the Companies Act, 2013.
75 § 152(6)(d) of the Companies Act, 2013.
76 § 152(6)(e) of the Companies Act, 2013.

No independent director shall hold office for more than two consecutive terms, but such
independent director shall be eligible for appointment after the expiration of three years of
not serving as an independent director.81 To be appointed after the period of three years,
the independent director shall not, during the said period of three years, be appointed in
or be associated with the company in any other capacity, either directly or indirectly.82
Director tenure policy (based on age limit)

As discussed above, while there is no upper age limit for independent directors. Non-
independent directors are required to retire once they attain the age of 70 years, unless their
position as a director is continued by an approval by 75 percent of the shareholders/members
of the company. In keeping with the above requirements of the law, companies typically
incorporate director tenure policies based on age limit in their articles of association.

82 Proviso to § 149(11) of the Companies Act, 2013.

Board Leadership
This section examines board leadership trends in India, in particular the trend of chief
executive officer (CEO) duality.
C E O duality
“ C E O duality” means that the chief executive officer of the company is also the chairperson
or chairman of the board of directors. Best practice standards advocate the separation of
these two roles given that the former relates to “execution,” while the latter emphasizes
“monitoring.” 83 Different perspectives arise from agency theory, which argues in favor of
separation of these roles between different persons to ensure that the operational and
supervisory functions are carried out effectively, 84 and organisation theory, which supports
C E O duality for establishing robust and unambiguous leadership. 85 Previously, the Corporate
Governance Voluntary Guidelines, 2009, issued by the Ministry of Corporate Affairs, India,
2009 had recommended the separation and clear demarcation of the offices, roles, and
responsibilities of the chairman and the C E O , as far as possible, “to promote balance of
power and to prevent unfettered decision making power with a single individual.” 86
Under the new corporate law regime, listed companies and all public companies having
paid-up capital of INR 100 million or more are required to have the following whole-time
key managerial personnel:87 (a) managing director, or C E O or manager, and in their absence, a
whole time director; (b) company secretary; and (c) chief financial officer. 88 Although the
Act stipulates that no person shall be appointed or reappointed as the chairperson of the
company (in pursuance of the articles of association of the company) and the managing
director or the C E O of the company at the same time, it paves the way for C E O duality by
enabling the making of such appointment in a dual capacity if the articles of association of
the company provide for it or if the company does not carry on multiple businesses. 89
An analysis of recent annual reports filed by some of the companies with high market
capitalization in their respective industries reveals that C E O duality is not a constant
across all these players. Companies such as MRF Limited (consumer discretionary) and
Edelweiss Financial Services Limited (financials) have appointed the same person as the
C E O and as the chairman of the board. O n the other hand companies such as ITC Limited
(consumer staples), H D F C Bank Limited (financials), Tata Motors Limited (consumer
discretionary), and Bharti Airtel Limited (telecommunication services), have reported
the appointment of different persons to both these offices.
83 See “Bala” N Balasubramaninan, Strengthening Corporate Governance in India, W.P. No. 2014-01-03, January
2014, Indian Institute of Management, Ahmedabad, India.
84 See DendiRamdani and Arjen van Witteloostuijn, “The Impact of Board Independence and C E O Duality on
Firm Performance: A Quantile Regression Analysis for Indonesia, Malaysia, South Korea and Thailand,” British
Journal of Management, Vol. 21, 607–626 (2010).
85 See Sydney Finkelstein and Richard A. D’Aveni, “ C E O Duality as a Double-Edged Sword: How Boards of Directors
Balance Entrenchment Avoidance and Unity of Command,” Academy of Management Journal, 1994, Vol. 37, No.
5, 1079-1108.
86 Paragraph A.2: Separation of Offices of Chairman & Chief Executive Officer, Corporate Governance Voluntary
Guidelines, 2009, issued by the Ministry of Corporate Affairs, India.
87 Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
89 Proviso to § 203(1) of the Companies Act, 2013.

Figure 2.1a C E O and chairperson are combined
C E O Duality, by Industry Company has separate C E O and chairperson
Percent of total
Energy (n=17) 35.3 64.7
Materials (n=81) 30.4 69.6
Real estate (n=22) 56.7 43.3
Utilities (n=16) 44.4 55.6
Figure 2.1b
C E O Duality, by Company Size Note: In Figures 2.1a and 2.1b,
Percent of total for 10 out of 4,746 directors, the
information as to whether they are
Annual Revenue, in Rupees serving as chairperson on any board
Under 2.5 billion (n=4) 60.0% 40.0 is not available, and hence these
directors have been excluded from
2.5 to 5 billion (n=15) 25.0 75.0 this analysis. Further, for Figure
5 to 10 billion (n=38) 34.9 65.1 2.1b, for 37 directors, the data for
the slabs of annual revenue are not
10 to 50 billion (n=227) 31.5 68.5
available and hence the same are
Greater than 50 billion (n=212) 30.2 69.8 not included in this analysis.
Figure 2.1a shows figures for CEO duality by industry. Across all industries, 31.4 percent
of CEOs simultaneously hold the post of chairman, while the remaining 68.6 percent
of directors do not. For companies in the real estate sector, CEO duality is highest at
56.7 percent; for companies in the financials sector, CEO duality is lowest at 20 percent.
Consequently, companies in the financials sector also reported the highest industry
average for separate roles for CEO and chariman at 80 percent.
Figure 2.1b shows figures for CEO duality by annual revenue. Across all NIFTY 500
companies, an average of 31.3 percent CEOs simultaneously hold the post of chairman,
while the remaining 68.8 percent of directors do not. For companies with annual revenue
between INR 2.5 billion to 5 billion, CEO duality is lowest at only 25 percent; for companies
with annual revenue less than INR 2.5 billion, CEO duality is as high as 60 percent.
Companies with annual revenue between INR 2.5 billion to INR 5 billion reported the
highest average of CEOs not being chairman at 75 percent.
The Committee on Corporate Governance is of the view that separating the roles of CEO
and chairperson reduces concentration of authority in the hands of one person and provides
for a better and more balanced governance structure and that the time is right in India to
introduce the concept of separation of the roles. However, in the opinion of the Committee,
at the stage of introduction of such a requirement, it would be more relevant to restrict it
to listed entities with more than 40 percent public shareholding, i.e. companies in which
public shareholders constitute a large portion of the shareholding of the company.90
90 Report of the Committee on Corporate Governance, Chapter I Para 10. The MCA has no comments on this issue.

SEBI, in its board meeting on March 28, 2018, has decided to accept, with modifications, the
recommendation of separating CEO/managing director and chairperson positions, to be
initially made applicable to the top 500 listed companies by market capitalization with effect
from April 1, 2020.91 Accordingly, such top-500 listed entities are mandated to ensure that
the chairperson of the board of such listed entity is a nonexecutive director and further, is not
related to the managing director or the CEO as per the definition of the term “relative” under
the Act. The top-500 listed entities shall be identified on the basis of market capitalization
as at the end of the immediate preceding financial year. However, the above requirement
is not applicable to listed companies that do not have any identifiable promoters as per the
shareholding pattern filed by such companies with the stock exchanges.92
Several NSE listed companies need to segregate the positions of the

CEO and chairperson to comply with the reqquirements of the SEBI
Listing Amendment Regulations.
Out of the 1670 companies listed on NSE, as many as 640 companies (38 percent of NSE
listed companies) that presently have the same person as chairperson and CEO/managing
director and would need to segregate these roles.
Independent chairperson
As discussed above, CEO duality implies that the chairman of the board of directors of the
company is essentially nonindependent. Only in situations where the office of the CEO
and chairman are distinct can there be a possibility of having an “independent” chairman.
Global best practices appear to support the appointment of a nonexecutive, preferably
independent chairman for company boards, whose position is separate and distinct from
that of a CEO.93 Having an independent chairman may perhaps ensure better,
more effective monitoring of the activities and progress of the board that is unbiased.
While the the Indian legal framework now requires top-500 listed entities to ensure that
the chairperson of the board of such listed entity is a nonexecutive director and further, is
not related to the managing director or the CEO as per the definition of the term “relative”
under the Act, it is however silent on whether the chairman has to be compulsorily
independent vis-à-vis the listed entity.94
As seen in Figure 2.2a, no company in the utilities sector reported having an independent
chairman. Companies in the real estate and materials sectors reported a very low
percentage of chairmen who meet the criteria of independence under the Act and the SEBI
Listing Regulations, at three percent and eight percent respectively. On the other hand,
91 SEBI press release, available at https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-

meeting_38473.html
92 Inserted as Regulation 17(1B) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.
93 SeeRaajeev B Batra, Should the chairman and CEO be separate? The Hindu Business Line, published on January
14, 2015.
94 Inserted as Regulation 17(1B) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.

Figure 2.2a Company has an independent chairperson
Independent Chairperson, by Industry
Chairperson does not meet independence standards
Percent of total
Energy (n=17) 11.8 88.2
Materials (n=81) 7.8 92.2
Real estate (n=22) 3.3 96.7
Utilities (n=16) 100
Figure 2.2b
Independent Chairperson, by Company Size Note: In Figures 2.2a and 2.2b,
Percent of total for 10 out of 4,746 directors, the
information as to whether they are
Annual revenue, in Rupees serving as chairperson on any board
Under 2.5 billion (n=4) 100% is not available, and hence these
directors have been excluded from this
2.5 to 5 billion (n=15) 12.5 87.5
analysis. Further, for Figure 2.2b, for 37
5 to 10 billion (n=38) 20.9 79.1 directors, the data for the slabs of
10 to 50 billion (n=227) 19.4 80.6 annual revenue are not available and
hence the same are not included in
Greater than 50 billion (n=212) 13.7 85.9 this analysis.

companies in the telecommunication services sector reported the highest percentage

of independent chairmen, at 33 percent. Companies in the financials sector reported
that 37 percent chairmen are independent. On average across industries in the NIFTY
500 companies, less than 17 percent of chairmen are independent, and therefore the
remaining 83 percent do not meet the test of independence.
Figure 2.2b illustrates that no board chairmen of companies with annual revenue less
than INR 2.5 billion are independent. On the other hand, companies with annual revenue
between INR 5 billion and INR 10 billion reported that 20 percent chairmen satisfy the
test of independence. Overall, Figure 2.2b represents that in the NIFTY 500 companies
studied for this report, 83 percent of the chairmen arenonindependent.
Lead independent director

A “lead independent director” is an independent director who is typically in charge
of functions including, inter alia, overseeing the functioning of independent directors,
convening their meetings, and generally acting as the independent directors’ represen-
tative in discussions between the independent and nonindependent board members. In
terms of global best practices, the duties and functions of a lead independent director
include acting as an independent chief among all board members who takes a proactive
role in board decisions and responds to issues raised by shareholders or members of the
company which have not been satisfactorily dealt with by the board chair or management.95
95 See A Short Note on Lead Independent Director, InGovern Research Services.

While the appointment of a lead independent director formed part of the SEBI Consultative
Paper on Review of Corporate Governance Norms in India,96 it is not mandated by the
Act or any other corporate governance norms currently in force. Such a position may assume
importance in companies where the chairman of the board is executive/nonindependent
or would not strictly meet the criteria for independence.
However, certain companies in India do incorporate the concept of lead independent

director into their corporate governance policies. For instance, as per the annual report
filed by Wipro Limited for the year 2016–1797, the company has designated one of its
independent directors as the lead independent director. Reliance Industries Limited also
has a lead independent director on its board, and the company has outlined the duties of a
lead independent director in its annual report: The lead independent director’s role is as
follows: (1) to preside over all meetings of independent directors; (2) to ensure there is an
adequate and timely flow of information to independent directors; (3) to liaise between the
chairman and managing director, the management, and the independent directors; and (4)
to preside over meetings of the board and shareholders when the chairman and managing
director is not present or where he is an interested party to perform such other duties as
may be delegated to him by the board and/or the independent directors.
In the opinion of the Committee on Corporate Governance, all listed entities (which have
a nonindependent chairperson) must be mandated to designate one independent
director as the lead independent director, who in addition to being a member of the
NRC, shall, inter alia, preside over the meetings of the board at which the chairperson or
vice-chairperson is not present, serve as a liaison between the chairperson of the board
and the independent directors, and be available for consultation and direct communi-
cation, if requested by significant shareholders.98
In the absence of a regulation mandating the appointment of a lead

independent director, few companies have designated an independent
director as the lead independent director, which is a depature from
global best practices.
Out of the 1,670 companies listed on NSE, in as many as 1,330 companies (80 percent), the
chairperson is not independent. If the Committee’s recommendation were to be imple-
mented, a lead independent director would have to be appointed in all these companies.
96 Issued for public comments by SEBI in 2013.

97 Available at http://www.wipro.com/investors/financial-information/annual-reports/
98 Report of the Committee on Corporate Governance, Chapter II Para 8. The MCA has no comments on this issue.

A contravention of any of the provisions of Chapter XI of the Act dealing with the
appointment and qualifications of directors (for which no specific punishment is provided)
is punishable with a fine not less than INR 50,000 but which may extend to INR 500,000.99
In terms of the Act, this penalty would be levied on the defaulting company and every
officer of the company who is in default.100
Other directorships
SEBI has mandated that a person may hold director positions in not more than eight listed
companies, effective April 1, 2019. This maximum limit shall stand reduced to seven listed
companies, effective April 1, 2020. This applies to alternate directorships that can be held
by directors at any point of time. For independent director posts, the maximum limit is
prescribed by SEBI as seven listed companies. Individuals serving as whole-time directors
or managing directors in any listed company are permitted to hold independent director
posts in not more than three listed companies.101
Figures 2.3a and 2.3b indicate the number of directorships held by persons in more than
one NIFTY 500 company. The average number of directorships held by one person for
companies in the NIFTY 500, across industry, and across company size, is two.
Figure 2.3a
Directorships in Other NIFTY 500 Companies, by Industry
Number of other positions held in NIFTY 500 companies
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
2 2 2 2 2 2 2 2 2 2 2
Figure 2.3b
Directorships in Other NIFTY 500 Companies, by Company Size
Number of other positions held in NIFTY 500 companies
(n=4) (n=15) (n=38) (n=2 27) (n=212)
2 2 2 2
1 Note: In Figure 2.3b, for 37 directors, the data for the slabs of annual revenue
are not available, and hence the same are not included in this analysis.

100 § 2(60) of the Companies Act, 2013 defines the concept of an officer who is in default. This includes whole time
directors, key managerial personnel and extends to directors of the company who are aware of the contravention
but participate in board proceedings without objecting to such decision.
101 Inserted as Regulations 17A of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.

Part II
Board Meetings and
Board Committees

This section deals with the meetings of the boards of directors of companies in the NIFTY
500, including frequency and attendance.
Board Meetings
Every company is required to hold the first meeting of its board of directors within 30
days from the date of its incorporation and thereafter, is mandated to hold a minimum
number of four meetings every year in such a manner that not more than 120 days shall
intervene between two consecutive meetings of the board.102 In other words, at least one
meeting must be held in each calendar quarter, such that at least four meetings are held
in each calendar year.103 Companies may choose to prescribe a higher number of board
meetings in a year. For example, the Corporate Governance Policy of ITC Limited requires
its board of directors to meet at least five times a year.104
Figure 3.1a plots the figures for number of meetings of the board of directors of
companies, classified by industry. While the companies operating in the financials sector
have conducted an average of nine board meetings per year, companies in the utilities and
energy sectors have reported an average of eight board meetings in a year. It isnoteworthy
that these numbers are higher than the statutorily prescribed minimum requirement.
Companies operating in consumer staples, consumer discretionary, industrials, information
technology and materials sectors have recorded an average of six board meetings in ayear.
Lowest average number of board meetings (i.e. five) have been reported in the healthcare
and real estate sectors.
Figure 3.1b plots the number of board meetings by annual revenue. Companies with
annual revenue of less than INR 2.5 billion reported an average of five board meetings
in a year, while companies with annual revenue between INR 2.5 billion and INR 50
billion reported an average of six. Companies with annual revenue greater than INR 50
billion, the highest revenue bracket, reported the highest number of board meetings
in the year at seven.
In the opinion of the Committee on Corporate Governance, the primary focus of the
mandatory minimum of four meetings should be financial results and general compliance.
Accordingly, the Committee has recommended that the board should meet more frequently,
to focus on management and corporate governance issues and must thus convene meetings
of the board at least five times each year. This may enable the board to expend its time on
varied but vital issues relating to strategy, succession planning, budgets, risk management,
ESG (environment, sustainability, and governance), and board evaluation.105

103 Paragraph 2.1 of SS-1 : Secretarial Standard on Meetings of Board of Directors, issued by the Council of the
Institute of Company Secretaries of India and approved by the Central Government. Secretarial Standards are
now mandatory in terms of § 118(10) of the Companies Act, 2013.
104 http://www.itcportal.com/about-itc/shareholder-value/annual-reports/itc-annual-report-2017/pdf/ITC-Report-
and-Accounts-2017.pdf
105 Report of the Committee on Corporate Governance, Chapter I Para 6, available http://www.sebi.gov.in/reports/
reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. The MCA views this change to
the SEBI Listing Regulations as unnecessary since under section 173 of the Act, the Central Government is
empowered to issue a notification to increase the requirement of minimum board meetings for certain classes of
companies and hence the text of the SEBI Listing Regulations need not be varied.

Figure 3.1a
Board Meetings, by Industry
Number of board meetings per year
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
9.8
8.4 8.0
7.4
6.1 6.3 5.7 5.9 6.3 6.3
5.4
Figure 3.1b
Board Meetings, by Company Size
Number of board meetings per year
(n=4) (n=15) (n=38) (n=227) (n=212)
7.9 Note: In Figures 3.1a and 3.1b, 5,326 is the total number of directors for which this data
6.3 5.8 6.0 is available. For 180 directors, the data on total number of board meetings and their
5.0
attendance is not available and these directors have been excluded from this analysis.
Further, in Figure 3.1b, for one company (i.e. 12 directors), the turnover range is not known
and hence this company/these directors have been excluded from this analysis.
If a minimum of five board meetings are mandated, companies

currently in the NIFTY 500 would already meet the requirement.
However, other companies listed on the NSE would need to
demonstrate compliance.
Out of the 1,670 companies that are listed on the NSE, there were as many as 409 such
companies (24 percent) which had fewer than five board meetings in the year 2016–17.
Board meeting attendance

MODE OF ATTENDANCE
The Act has broadened the concept of “attendance” at a board meeting, by allowing,
in addition to participation in person, attendance through video conferencing or other
prescribed audio visual means that are capable of recording and recognizing the participation
of the directors and of recording and storing the proceedings of such meetings together
with the details of the date and time.106 Such participation of the directors through video
conferencing or other audio visual means is taken into account while determining the
quorum for every board meeting.107


The Act provides that the Central Government may specify matters which are not permitted
to be dealt with in a board meeting through video conferencing or such other audio visual
means.108 Presently, in terms of Rule 4 of the Companies (Meetings of Board and its Powers)
Rules, 2014, approval of annual financial statements, the board’s report, prospectus, and
matters relating to amalgamation, merger, demerger, acquisition, and takeover are not
permitted to be dealt with through video conferencing or other audio visual means.
NONATTENDANCE OF ALL MEETINGS IN A YEAR: VACANCY OF OFFICE

According to the Act, the office of a director becomes vacant when a director absents
himself/herself from all the meetings of the board of directors held during a period of
12 months, with or without seeking leave of absence of the board of directors of the
company109 and the Act imposes penalties on any person who continues to function as a
director though he knows his position has become vacant due to absence.110
Figure 3.2a shows board meeting attendance by industry. The average across all indus-
tries ranges from 75 to 85 percent, with companies in the healthcare sector recording
the highest percentage of attendance at 85 percent. Companies in the energy sector
reported the lowest percentage of attendance at 75percent.
A breakdown of companies by revenue shows a similar pattern. Figure 3.2b indicates that
except for companies with annual revenue between INR 2.5 billion to INR 10 billion, all other
companies reported that their directors have attended 80 percent of the board meetings
conducted in the latest period on average. This percentage is lower for companies with
annual revenue between INR 5 billion to INR 10 billion, at an average of 79 percent atten-
dance. Companies with annual revenue between INR 2.5 billion to INR 5 billion reported
the highest attendance at 82 percent.
While on one hand the Act imposes stricter corporate governance norms, the nonattendance
by a director of even a majority of the board meetings conducted during the year does not
trigger a disqualification for directors. With the exception of vacation of office arising out of
complete nonattendance, several directors across companies attend lesser than 75 percent
of board meetings held during ayear.111
108 Proviso to § 173(2) of the Companies Act, 2013. Similarly, Audit Committee meetings for consideration of financial
statement including consolidated financial statement, if any, to be approved by the board under section 134(1) of
the Act, require physical attendance of theconcerned directors.
109 § 167(1)(b) of the Companies Act, 2013.
110 § 167(2) of the Companies Act, 2013 provides that if a person functions as a director even when he knows that
the office of director held by him/her has become vacant on account of any of the disqualifications specified in
sub-section (1), he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which
shall not be less than INR 100,000 but which may extend to INR 500,000, or with both.
111 See Board Effectiveness: Through the looking glass, Institutional Investor Advisory Services, 3 rd December, 2015

Figure 3.2a
Board Meeting Attendance, by Industry
Percentage of board meetings attended by the average director in the previous year
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
85.9
82.7 82.1
80.2% 80.5 79.2 79.6 79.9 80.4
78.8
75.3
Figure 3.2b
Board Meeting Attendance, by Company Size
Percentage of board meetings attended by the average director in the previous year
(n=4) (n=15) (n=38) (n=227) (n=212) Note: For Figures 3.2a and 3.2b, 5,326 is the total number of directors for which
82.9 this data is available. For 180 directors, the information relating to the total number
80.1 81.0 80.5 of board meetings and their attendance is not available and these directors have
79.3
been excluded from this analysis. Further, for Figure 3.2b, for one company
(i.e. 12 directors), the turnover range is not known and hence this company/
these directors have been excluded from this analysis.
On average across industries in the NIFTY 500 companies, approximately 25 percent of

directors attend less than 75 percent of board meetings. The healthcare sector reported
the lowest percentage of this behavior at 18 percent; that is, less than 18 opercent of
directors attended less than 75 percent of meetings, as indicated in Figure 3.3a. The
telecommunications services sector reported the highest percentage of directors attending
less than 75 percent of meetings at 32 percent. Figure 3.3b shows the average percentage
of directors attending less than 75 percent of board meetings by annual revenue.
The Committee on Corporate Governance has noted that while the Act provides for
automatic vacation of the office of director as a result of nonattendance of all board
meetings held in a 12 month period, there is no such corresponding requirement under
the SEBI Listing Regulations. Given the importance of a director’s contribution of his or
her time and expertise in the interests of the stakeholders, the Committee on Corporate
Governance recommends that if a director does not attend at least half of the total board
meetings over two financial years on a rolling basis, his or her continuance on the board
should be ratified by the shareholders at the next annual general meeting.112
112 Report of the Committee on Corporate Governance, Chapter I Para 3, available http://www.sebi.gov.in/reports/
reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. The MCA has not provided any
views on this recommendation.

Figure 3.3a
Directors Attending Less Than 75 Percent of Board Meetings, by Industry
Percentage of directors attending less than 75 percent of board meetings
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
32.6
27.5 29.3 28.4
26.6% 26.2 24.7 22.9 24.7
22.4
18.9
Figure 3.3b
Directors Attending Less Than 75 Percent of Board Meetings, by Company Size
Percentage of directors attending less than 75 percent of board meetings
(n=4) (n=15) (n=38) (n=227) (n=212) Note: For Figures 3.3a and 3.3b, 5,326 is the total number of directors for which
this data is available. For 180 directors, the information relating to the total number
26.5% 25.8 27.4
25.2 25.2 of board meetings and their attendance is not available and these directors have
been excluded from this analysis. Further, for Figure 3.3b, for one company
(i.e. 12 directors), the turnover range is not knownand hence this company/
these directors have been excluded from this analysis.
If the recommendation of the Committee on Corporate Governance

were to be implemented, several companies listed on the NSE would
need to have director appointments ratified by the shareholders.
A look at directors who were on boards of the 1,670 NSE-listed companies for the
two-year period from 2015–2017 (excluding any who were appointed or ceased to be
directors mid-year), reveals that 660 directors across 463 companies attended less than
half the board meetings. If Committee recommendations were to be implemented, these
director appointments would need to be ratified by theshareholders.

MEETINGS OF INDEPENDENT DIRECTORS
Independent directors of a listed company or of any other company required to appoint
independent directors under the Act are required to hold at least one meeting in a year
without the presence of the nonindependent directors and any members of manage-
ment.113 In such meetings, the independent directors are expected to, inter alia, (a) review
the performance of nonindependent directors and the board of directors as a whole;
(b) review the performance of the chairman, taking into account the views of executive
directors and nonexecutive directors; and (c) assess the quality, quantity, and timeliness of
flow of information between management and the board of directors necessary for the
board to effectively and reasonably perform their duties.114
While no amendments have been proposed to the SEBI Listing Regulations, the
Committee on Corporate Governance opines that such meetings may be held more
than once at the discretion of the independent directors for effective participation of the
independent directors.115
MEETINGS OF COMMITTEES
In terms of the Act, the board committees may convene their meetings as often as
necessary. They are nonetheless required to convene the minimum number of meetings
required under the Act or any other rules and regulations.116 Currently the SEBI Listing
Regulations require at least four meetings of only the Audit Committee every year. There
is no requirement prescribing the minimum number of meetings of other committees
thereunder. The subject matters dealt with by each committee are specified under the
provisions of the Act, the rules made thereunder and the SEBI Listing Regulations. This
shall be dealt with in greater detail in the next part.
113 Regulation 25(3) of the SEBI Listing Regulations and Paragraph 2.3 of SS-1 : Secretarial Standard on Meetings of
Board of Directors, issued by the Council of the Institute of Company Secretaries of India and approved by the
Central Government.
114 Regulation 25(4) of the SEBI Listing Regulations and Paragraph 2.3 of SS-1 : Secretarial Standard on Meetings of
Board of Directors, issued by the Council of the Institute of Company Secretaries of India and approved by the
Central Government.
115 Report of the Committee on Corporate Governance, Chapter II Para 9, available http://www.sebi.gov.in/reports/
116 Paragraph 2.2 of SS-1 : Secretarial Standard on Meetings of Board of Directors, issued by the Council of the
Institute of Company Secretaries of India and approved by the CentralGovernment.

Audit Committee Practices
This section discusses the constitution of the audit committees of the board of directors
and the overall audit committee practices of the NIFTY 500 companies.
The Act prescribes that the board of directors of every listed public company shall constitute
an Audit Committee.117 Further, all public companies with paid-up capital of INR 100 million
or more, with turnover of INR 1 billion or more, or with outstanding loans, borrowings,
debentures, or deposits exceeding INR 500 million or more in aggregate are also required
to constitute an Audit Committee at the board level.118
Size of Audit Committee

The Act prescribes that the Audit Committee shall consist of a minimum of three directors with
independent directors forming a majority, with a further special condition that the majority of
the members of the Audit Committee, including its chairperson, shall be persons with ability
to read and understand the financial statement.119 In keeping with the Act, the SEBI Listing
Regulations prescribe that the Audit Committee shall have a minimum of three directors as
members.120 However, in terms of independence of the directors forming part of the Audit
Committee, it prescribes a stricter norm by mandating that two thirds of the members of the
Audit Committee shall be independent directors.121 In terms of the financial literacy of the
Audit Committee members, the SEBI Listing Regulations stipulate a higher standard than the
Act, by requiring that all the members of the Audit Committee be financially literate and that
at least one member have accounting or related financial management expertise.122
Figure 4.1a indicates that on average, Audit Committee strength has been recorded as
four directors for companies operating in all industries.
Figure 4.1b shows audit committee size by annual revenue. These figures indicate that NIFTY
500 companies with revenue above INR 5 billion have audit committees of four directors;
those with annual revenue below INR 5 billion reported an average audit committee
strength of three directors.
117 § 177(1) of the Companies Act, 2013. As per Regulation 18 of the SEBI Listing Regulations, every listed entity is
required to constitute a qualified and independent audit committee in accordance with the terms of reference.
118 Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014. For the purpose of this rule, the paid up
share capital, turnover, outstanding loans, borrowings, debentures or deposits, as the case may be, as existing on
the date of the last audited financial statements are to be taken into account.
119 § 177(2) of the Companies Act, 2013. § 2(40) of the Companies Act, 2013 defines a “financial statement” in
relation to a company to include (i) a balance sheet as at the end of the financial year, (ii) a profit and loss account,
or in the case of a company carrying on any activity not for profit, an income and expenditure account for the
financial year, (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable;
and (v) any explanatory note annexed to, or forming part of, any of theabove documents.
120Regulation 18(1)(a) of the SEBI Listing Regulations.
121 Regulation 18(1)(b) of the SEBI Listing Regulations.
122 Regulation 18(1)(c) of the SEBI Listing Regulations. For the purpose of this requirement “financially literate”
means the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account,
and statement of cash flows. A member shall be considered to have accounting or related financial management
expertise if he or she possesses experience in finance or accounting, or requisite professionalcertification
in accounting, or any other comparable experience or background which results in the individual‘s financial
sophistication, including being or having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.

Figure 4.1a
Audit Committee Size, by Industry
Number of audit committee seats
Consumer C onsumer H ealth Information Real Telecommunication
(n=86) (n=39) (n=17) (n=77) (n= 41) (n=82) (n=30) (n=81) (n=2 2) (n=9) (n=16)
3.8 4.1 3.6 4.0 3.8 3.7 3.6 4.0 4.1 3.8 3.8
Figure 4.1b
Audit Committee Size, by Company Size
Number of audit committee seats
(n=4) (n=15) (n=38) (n=227) (n=212)
3.6 3.9 4.0

3.3 3.5
Note: For Figure 4.1b, the data is available for 3,074 directors in all. Out of these,
the range of annual revenue is not known for four companies. Accordingly, 28 directors
out of the 3,074 directors have not been included in this analysis.
Executive and nonexecutive directors on Audit Committee

NONEXECUTIVE DIRECTORS
As noted above, the Act prescribes that the majority of directors forming the Audit
Committee shall be independent directors,123 which means that at least 50 percent of the
members of a statutorily compliant Audit Committee shall necessarily be nonexecutive.
Further, in terms of the SEBI Listing Regulations, two-thirds of the members of the Audit
Committee shall be independent directors.124 In other words, at least 66 percent of the
members of an Audit Committee compliant with SEBI requirements shall be nonexecutive.
The remaining directors forming part of the Audit Committee may or may not be nonex-
ecutive since the above requirements prescribe only a minimum number of independent
directors, without any upper limit or restriction.
The percentage of nonexecutive directors in audit committees across industries is above

90 percent, well above the statutory minimum of 50 percent, with the exception of the
real estate sector which reported that 85 percent of directors on Audit Committees are
nonexecutive (Figure 4.2a).
As noted in Figure 4.2b, companies with annual revenue between INR 2.5 billion and INR
5 billion reported a percentage of nonexecutive directors on their audit committees at 87
percent. For all other revenue categories, such directors form more than 90 percent of
the total strength of the audit committees.


Figure 4.2a
Executive and Nonexecutive Directors on Audit Committee, by Industry
Percent of total
Consumer discretionary (n=86) 7.9 92.1

Energy (n=17) 6 .5 93.5
Real estate (n=22) 14.4 85.6
Utilities (n=16) 6.7 93.3
Figure 4.2b
Executive and Nonexecutive Directors on Audit Committee, by Company Size
Percent of total
Under 2.5 billion (n=4) 7.7 92.3
2.5 to 5 billion (n=15) 13.5 86.5
5 to 10 billion (n=38) 9.6 90.4
10 to 50 billion (n=227) 9.4 90.6
Greater than 50 billion (n=212) 7.0 93.0
Note: For Figure 4.2b, the data is available for 3,074 directors in all. Out of these, the range of annual revenue is not
known for four companies. Accordingly, 28 directors out of the 3,074 directors have not been included in this analysis.
Independent directors on the Audit Committee

As noted above, the Act prescribes that majority of the directors forming part of the
Audit Committee shall be independent directors,125 and in terms of the SEBI Listing
Regulations, two-thirds of the members of the Audit Committee shall be independent
directors.126 The remaining directors forming part of the Audit Committee may or may
not be independent since the above requirements prescribe only a minimum number of
independent directors, without any upper limit or restriction.
Figure 4.3a shows the breakdown of independent directors by industry. The financials
sector reported the lowest percentage of independent directors (of total directors)
serving on audit committees at 72 percent. The healthcare sector reported the highest
percentage of independent directors in audit committees at 95 percent.
Figure 4.3b indicates that on average, 84 percent of the nonexecutive directors on

audit committees are independent. Companies with annual revenue less than INR
2.5 billion reported that 75 percent of nonexecutive directors serving on audit
committees were independent.


Figure 4.3a
Independent Directors on Audit Committee, by Industry
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)

88.2% 89.9 82.8 71.8 90.8 88.7 85.7 90.3 94.8 73.5 85.7

81.2% 82.6 77.4 65.8 83.2 79.5 82.6 82.0 81.1 73.5 80.0
Figure 4.3b
Independent Directors on Audit Committee, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
75.0% 86.7 90.2 88.2 83.2

69.2% 75.0 81.5 79.9 77.4 Note: For Figure 4.3b, the data is available for 3,074 directors in all.
Out of these, the range of annual revenue is not known for four companies.
Accordingly, 28 directors out of the 3,074 directors have not been included
in this analysis.
Source: The Directors' Collective/PRIME Database Group, 2018
Independent Audit Committee chairperson

In terms of the SEBI Listing Regulations, the chairperson of the audit committee should
necessarily be an independent director and he shall be present atannual general meetings
to answer shareholder queries.127
Figure 4.4a indicates that companies in all sectors except financials reported that
the chairmen of their respective audit committees are independent directors. The
financials sector reported that 92 percent of their respective audit committee chair-
persons are independent.
For companies with annual revenue greater than INR 50 billion, approximately 97 percent
have audit committee chairpersons who are independent. In all the other revenue groups,
100 percent of companies reported audit committees with independent directors
as chairpersons.
127 Regulation 18(1)(d) of the SEBI ListingRegulations.

Figure 4.4a
Independent Audit Committee Chairperson, by Industry
Percent of total
Company has an independent audit committee chairperson
Audit committee chairperson does not meet independence standard
Consumer discretionary (n=86) 100%

Energy (n=17) 100
Materials (n=81) 100
Percentages do not add up to 100 due to rounding.
Figure 4.4b
Independent Audit Committee Chairperson, by Company Size
Percent of total
Annual revenue, in Rupees Note: For Figure 4.4b, the data
Under 2.5 billion (n=4) 100% is available for 3,074 directors
in all. Out of these, the range
2.5 to 5 billion (n=15) 100
of annual revenue is not known
5 to 10 billion (n=38) 100 for four companies. Accordingly,
28 directors out of the 3,074
10 to 50 billion (n=227) 100
directors have not been included
Greater than 50 billion (n=212) 97.0 3 in this analysis.
Role of the Audit Committee

Every Audit Committee is mandated to act in accordance with the terms of reference
specified in writing by the board of directors of the company which shall, inter alia, include:
(i) the recommendation for appointment, remuneration, and terms of appointment
of auditors of the company; (ii) review and monitoring of the auditor’s independence
and performance and effectiveness of audit process; (iii) examination of the financial
statement and the auditors’ report thereon; (iv) approval or any subsequent modification
of transactions of the company with related parties; (v) scrutiny of inter-corporate loans
and investments; (vi) valuation of undertakings or assets of the company, wherever it is
necessary; (vii) evaluation of internal financial controls and risk management systems; and
(viii) monitoring the end use of funds raised through public offers and related matters.128
The Audit Committee shall have authority to investigate into any matter in relation to the
items specified above or referred to it by the board of directors and for this purpose shall
have power to obtain professional advice from external sources and have full access to
information contained in the records of the company.129
The Audit Committee may call for the comments of the auditors about internal control
systems, the scope of audit, including the observations of the auditors and review of


financial statement before their submission to the board of directors of the company,
and may also discuss any related issues with the internal and statutory auditors and the
management of the company.130
The auditors of a company and the key managerial personnel shall have a right to be
heard in the meetings of the Audit Committee when it considers the auditor’s report but
shall not have the right to vote.131
The report of the board of directors of the company under section 134(3) shall disclose
the composition of an Audit Committee, and when the board of directors had not
accepted any recommendation of the audit committee, the same shall be disclosed in
such report along with the reasons therefor.
Every listed company or such class or classes of companies shall establish a vigil
mechanism for directors and employees to report genuine concerns in such manner
as may be prescribed.132
The vigil mechanism under section 177(9) shall provide for adequate safeguards against
victimization of persons who use such mechanism and make provision for direct access to
the chairperson of the Audit Committee in appropriate or exceptional cases,provided
that the details of establishment of such mechanism shall be disclosed by the company on
its website, if any, and in the report of the board of directors.133
In accordance with the recommendations of the Committee on Corporate Governance,134

the SEBI Listing Regulations have been amended to include an additional responsibility of
the Audit Committee to scrutinize the end utilization of funds where the total amount of
loans, advances, or investment from the holding company to the subsidiary exceeds INR 1
billion or 10 percent of the asset size of the subsidiary, whichever is lower.135
Audit Committee meetings

The SEBI Listing Regulations require the Audit Committee to meet at least four times
in a year with not more than 120 days between two meetings.136 The Committee on
Corporate Governance recommends that in order to ensure that the Audit Committee
has the opportunity to expend time on discussing matters beyond quarterly reporting,
the minimum number of its meetings must be increased to five every year.137 Thequorum
for every Audit Committee meeting is either two members or one-third of its members
whichever is greater, with at least two independent directors.138

134 Report of the Committee on Corporate Governance, Chapter III Para 2, available http://www.sebi.gov.in/reports/
135 Inserted as sub-clause (21) in clause A of Part C of Schedule II of the SEBI Listing Regulations by the SEBI Listing
136 Regulation 18(2)(a) of the SEBI Listing Regulations.

Nomination and Remuneration Committee Practices
This section discusses the development of the Nomination and Remuneration Committee
(NRC) in India and its composition and functions in a company.
Development of the N RC concept in India

The first set of corporate governance standards as enshrined in Clause 49 of the Listing
Agreement did not require boards of Indian companies to constitute nomination committees.
Because directors (including independent directors) were voted upon individually at a
shareholders’ meeting by way of a separate resolution, a majority of the shareholders could
determine the composition of the entire board. Controlling shareholders could therefore
wield significant influence in the processes of nomination and appointment of directors.
Despite the lack of a formal requirement, several leading companies had nevertheless
constituted nomination committees as a matter of good practice or due to foreign listing
requirements. These included companies cross-listed on foreign stock exchanges, such as the
New York Stock Exchange (NYSE), that mandate the formation of a nomination committee.
However, even by 2009, a substantial number of Indian listed companies chose not to
constitute a nomination committee.139
To address the influence of controlling shareholders in the nomination and appointment

of directors, the requirement of nomination committees was recognized formally in India
for the first time under the Corporate Governance Voluntary Guidelines 2009 issued by
the Ministry of Corporate Affairs (the Voluntary Guidelines).140 The Voluntary Guidelines
provided that companies should have a nomination committee comprising a “majority of
independent directors,” including its chairman. The Voluntary Guidelines, however, were
voluntary only and did not institute a mandatory requirement.
The Voluntary Guidelines did not bring about a significant change in the director nomination
process. Directors, both executive and independent, continued to be nominated by either
existing directors or by controlling shareholders.141 Although the nomination committee had
begun to play a significant role in other countries in increasing minority shareholders’ faith in
the director selection process, it did not achieve the intended effect in the Indian scenario.
Hence, it was suggested that the nomination committee should be made a mandatory
requirement.142 The Standing Committee on Finance, which was charged with reviewing the
Companies Bill, 2009, advocated the creation of a single “Nomination and Remuneration
Committee” (as distinguished from a separate nomination committee) as a mandatory
139 According to a 2009 survey, 56 percent of the respondents did not constitute a nomination committee. CG
Review 2009: India 101-500, FICCI & Grant Thornton, March 2009 (http://www.ficci.com/spdocument/20282/
FICCI-GT-CGR-2009.pdf).
140 See Corporate Governance Voluntary Guidelines 2009, Ministry of Corporate Affairs, Government of India,
December 2009 (http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.pdf .)
141 A 2011 survey indicated that 55 percent of directors are nominated by existing directors. Corporate Governance
Review of the Mid-market Listed Companies in India: 2010-11, FICCI & Grant Thornton, 2011 (http://www.ficci.
com/spdocument/20281/FICCI-GT-Corporate-Governance-Survey-2011.pdf).
142 See Vikramaditya Khanna and Shaun J. Mathew, “The Role of Independent Directors in Controlled Firms in India:
Preliminary Interview Evidence,” National Law School of India Review, vol. 22, 2010, pp. 35-66; UmakanthVarottil,
“Beyond Satyam: Analyzing Corporate Governance in India,” IndiaCorpLaw Blog, February 13, 2009 (http://
indiacorplaw.blogspot.com/2009/02/beyondsatyamanalyzing-corporate.html).

requirement in its report dated August 31, 2010.143 This recommendation was finally
enacted into law under the Act.144
Size and composition of the NRC

CONSTITUTION OF THE NRC
The Act makes it compulsory for all companies falling under any of these categories
to constitute an NRC:
• All listed companies;145 and

• All public companies with paid-up capital of INR 100 million or more or having
turnover of INR 1 billion or more or which have, in the aggregate, outstanding
loans, borrowings, debentures, or deposits exceeding INR 500 million.146
The establishment of an NRC is also mandatory under the SEBI Listing Regulations.147
COMPOSITION
The composition of the NRC is crucial to ensure proper compliance with established
nomination procedures and facilitate the creation of a balanced board. For example, inter-
national corporate governance standards regard independent board members playing a key
part in the NRC as good practice.148 Questions arising at any meeting of the NRC are to be
determined by a majority of votes of its members who are present, and in case of an equality
of votes, the chairperson of the NRC must have a second or casting vote.149 Given this, compo-
sition of the NRC needs to be considered carefully in order to promote good governance.
The members of the NRC are appointed by the board or by the chosen NRC chairperson.
As with any other board committee, the NRC should be constituted bearing in mind
factors such as the director’s knowledge, skills and expertise, and capacity to honor time
commitments required by the functioning of the NRC. The members of the NRC should
also be able to outline the goals of the committee and be led by a capablechairperson.150
143 Twenty-First Report, Standing Committee on Finance, Ministry of Corporate Affairs, August 31, 2010 (http://
www.nfcgindia.org/pdf/21_Report_Companies_Bill-2009.pdf).
144 Subrata Sarkar, “Indian Corporate Board Structure: Moving Towards Best Practices?” NSE Quarterly briefing, vol.
11, October 2015 (https://www.nseindia.com/research/content/res_QB11.pdf).
145 § 178(1) of Companies Act, 2013.
146 Rule 6 of the Companies (Meetings of Board and Its Powers) Rules, 2014. For purposes of this rule, 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 the last audited financial statements must be taken into account.
147 Regulation 19 of the SEBI Listing Regulations.
148 G20/OECD Principles of Corporate Governance, Organisation for Economic Co-operation and Development,
2015 (http://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf).
149 See Table F of Schedule I of the Companies Act, 2013
150 Board Committees: A Handbook, The Companies Act, 2013 Series, The Institute of Company Secretaries of India
(https://www.icsi.edu/webmodules/CompaniesAct2013/BOARD%20COMMITTEES.pdf).

However, in certain cases, scholars argue that proposal and shortlisting of names for the
NRC by the CEO in turn amounts to a greater “familiarity quotient” between the board
and the CEO, potentially weakening governance. One potential remedy to the issue of
familiarity is for “outsiders” to be introduced to the board or a committee of independent
directors to be charged with nominating the next independent director.151
SIZE OF THENRC
Under the Act as well as under the SEBI Listing Regulations, the NRC is to consist of
three or more nonexecutive directors, out of which not less than one-half must be
independent directors. The chairperson of the company, whether an executive or nonex-
ecutive director, may be appointed as a member of the NRC but is not permitted to
chair the committee.152
Figure 5.1a indicates that except for companies in the financials sector, companies
reported an average NRC size of three directors.
Figure 5.1b shows that most companies across revenue categories reported an average
NRC size of three directors. Companies with annual revenue below INR 2.5 billion are the
exception at two directors.
Figure 5.1a
N R C Size, by Industry
Number of N R C seats
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
3.7 4.0 3.9

3.4 3.6 3.6 3.5 3.4 3.6 3.2
2.9
Figure 5.1b
N R C Size, by Company Size
Number of N R C seats
(n=4) (n=15) (n=38) (n=227) (n=212)
3.1 3.6 3.5 3.4
2.5
Note: For Figure 5.1b, out of 1,722 directors, the range of annual revenue is not known
for four companies. Accordingly, 14 directors have not been included in the above analysis.
151 See Report of the Committee Constituted by the Ministry of Corporate Affairs to Formulate a Policy Document
on Corporate Governance, September 2012 (http://www.nfcgindia.org/pdf/Guiding-Principles-of-CG.pdf).
152 § 178(1) of Companies Act, 2013 and Regulations 19(1) and (2) of the SEBI Listing Regulations.

Executive and nonexecutive directors on the N RC
Figure 5.2a shows that across industry categories, nonexecutive directors form more than
90 percent of the directors serving on NRCs. In the telecommunications sector, 100 percent
of members of the NRCs are nonexecutive directors.
As per Figure 5.2b, for companies with annual revenue up to INR 2.5 billion, all members
of the NRCs are nonexecutive directors. For all other companies over 90 percent of the
directors on the NRC are nonexecutive.
Figure 5.2a
Executive and Nonexecutive Directors on N R C , by Industry
Percent of total directors

Energy (n=17) 4.8 95.2
Real estate (n=22) 8.0 92.0

Utilities (n=16) 5.9 94.1
Figure 5.2b
Executive and Nonexecutive Directors on N R C , by Company Size
Percent of total directors
Under 2.5 billion (n=4) 100%
Note: For Figure 5.2b, out of
2.5 to 5 billion (n=15) 2.2 97.8
1,722 directors, the range of
5 to 10 billion (n=38) 4.4 95.6 annual revenue is not known
for four companies. Accordingly,
10 to 50 billion (n=227) 3.8 96.2
14 directors have not been
Greater than 50 billion (n=212) 5.4 94.6 included in the above analysis.

Independent directors on the NRC
Figure 5.3a indicates that the telecommunication services sector has the lowest
percentage of independent directors serving on NRCs at 57 percent. The real estate
sector has highest percentage of independent directors in NRCs at 87 percent.
Figure 5.3b indicates that on average, 80 percent of directors on NRCs are independent.
Companies with annual revenue between INR 5 billion and INR 10 billion reported
the most independent NRCs, i.e. 82 percent of the directors serving on NRCs were
reported as independent.
The Committee on Corporate Governance has acknowledged the growing impor-

tance of the NRC and that ensuring independence of the NRC has a direct correlation
with effective governance of the company. Accordingly, the Committee on Corporate
Governance has recommended that the requirements for the composition of the Audit
Committee and the NRC be aligned and has thus suggested that even the NRC should
have at least two-thirds of its members as independent directors.153
Figure 5.3a
Independent Directors on NRC, by Industry
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)

79.8% 80.1 78.0 78.3 84.7 78.8 73.7 81.5 95.0 57.1 79.2

76.0% 78.5 71.9 76.6 77.9 76.0 70.9 77.2 87.4 57.1 74.5
Figure 5.3b
Independent Directors on NRC, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
80.0% 80.0 82.3 79.2 80.3

80.0% 78.3 78.7 76.2 75.9 Note: In Figures 5.3a and 5.3b, out of 1,722 directors serving on nomination
and remuneration committees, it is not known for one director whether that
director is independent or not and hence this director has not been included
in this analysis.
reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. In the view of the MCA, such
an amendment to the SEBI Listing Regulations would not be desirable since the same would have the effect of
rendering the provisions of the Act non-est.

Not many NRCs of NSE-listed companies would undergo a change in
composition if the recommendation that NRCs should have at least
two-thirds of members as independent directors is accepted by SEBI.
Of the 1,670 companies listed on the NSE, only 145 (nine percent overall) have an NRC
with less than two-thirds of its strength as independent directors. Accordingly, a relatively
fewer number of companies would need to change the composition of their NRCs if the
recommendation were to be implemented.
Source: PRIME Database Group, October 2017.
Independent N RC chairperson
The SEBI Listing Regulations stipulate that the chairperson of the NRC necessarily needs
to be an independent director.154
Figure 5.4a indicates that across industries, with the exception of financials and
materials, 100 percent of NIFTY 500 companies have an independent NRC chairperson.
Noncompliance (the NRC chariperson does not meet the independence standard) is five
percent for financials and one percent for materials.
In terms of companies classified by annual revenue, Figure 5.4b indicates that all NIFTY
500 companies, except those having annual revenue above INR 50 billion, have complied
with the requirement of the SEBI Listing Regulations. For companies with annual revenue
above INR 50 billion, two percent of the NRC chairpersons are nonindependent.
Role of the NRC

The appointment of directors is voted upon by shareholders of the company at every
annual general meeting.155 However, the core function of shortlisting the names of people
to be proposed as directors vests with the board of directors. This core board function
has been statutorily delegated to the NRC.
154 Regulation 19(2) of the SEBI Listing Regulations

155 § 152 of Companies Act, 2013. Section 152 of the Act provides that: (i) A minimum of two-thirds of the total
number of directors of a public company must be persons whose period of office is liable to determination by the
retirement of directors by rotation; and (ii) One-third of the total number of directors will retire from office at the
annual general meeting. However, they are then eligible to be reappointed as a director at the general meeting.
In addition, a person cannot be appointed or reappointed as a managing director, whole-time director, or
manager for a term exceeding five years at a time. In addition, no reappointment can be made before a period of
one year has passed since the expiry of their term in office. Independent directors can hold office for a term of up
to five consecutive years on the board of a company, although they will remain eligible for reappointment upon:
(i)The passing of a special resolution by the company; and (ii) Disclosure of their reappointment in the board’s
report. An independent director cannot hold office for more than two consecutive terms, but that independent
will be eligible for appointment after the expiration of three years after ceasing to be an independent director.

Figure 5.4a
Independent N R C Chairperson, by Industry
Percent of total
Company has an independent N R C chairperson
N R C chairperson does not meet independence standard
Consumer discretionary (n=86) 100%

Energy (n=17) 100
Figure 5.4b
Independent N R C Chairperson, by Company Size
Percent of total
2.5 to 5 billion (n=15) 100
5 to 10 billion (n=38) 100
10 to 50 billion (n=227) 100
The Act outlines the role of the NRC in the director nomination process, which is primarily
expected to identify people who are qualified to become directors and who may be
appointed to senior management in accordance with the criteria laid down. TheNRC
is required to recommend the appointment of such people to the board. For existing
directors on the board of the company, the Act mandates that the NRC carry out an
evaluation of every director’s performance and, if necessary, recommend removal of any
director from the board.156 The NRC is also required to formulate the criteria for deter-
mining the qualifications, attributes, and independence of a director.157
156 § 178(2) of Companies Act, 2013

157 Under section 178(3) of Companies Act, 2013, the NRC is also required to recommend to the board a policy,
relating to the remuneration for the directors, key managerial personnel and other employees. While formulating
such policy, the NRC should ensure that (a) the level and composition of remuneration is reasonable and sufficient
to attract, retain and motivate directors of the quality required to run the company successfully, (b) relationship of
remuneration to performance is clear and meets appropriate performance benchmarks, and (c) remuneration to
directors, key managerial personnel and senior management involves a balance between fixed and incentive pay
reflecting short and long term performance objectives appropriate to the working of the company and
its goals. “Senior management” in this context means personnel of the company who are members of its core
management team excluding the board of directors comprising all members of management one level below the
executive directors, including the functional heads. See Explanation to section 178 of Companies Act, 2013. In
terms of section 178(4) of the Companies Act, 2013, the policy so framed by the NRC has to be disclosed in the
board’s report. This is meant to introduce transparency in the functioning of the NRC.

While reviewing the performance of directors, the NRC should ideally consider factors
such as independence of behavior and judgement, effective deployment of knowledge
and expertise, and development of policies aligned with the vision of the company.158
The NRC necessarily plays a vital role in ensuring board independence since it is only
through the unbiased review of the NRC that the shortcomings of the board of directors
of the company will be brought to light.
Under the SEBI Listing Regulations, certain additional functions are prescribed
for the NRC:159
• Formulating the criteria for evaluation of performance of independent directors

and the board as a whole;
• Devising a policy on board diversity;

• Opining on whether to extend or continue the term of appointment of any
independent director on the basis of the report of such independent director’s
performance evaluation; and
• Recommending to the board all remuneration, in whatever form, payable to

senior management.160
Further, the chairperson of the NRC, or in his absence, any other member of the NRC
the chairperson has authorized to act on his behalf, is required to attend the general
meetings of the company.161 While the attendance of the chairperson of the NRC at the
annual general meeting of the company has been provided primarily for the chairperson
to respond to queries raised by shareholders of the company, the chairperson has been
vested with discretionary powers to decide who shall answer such queries.162
N RC meetings
While the SEBI Listing Regulations mandate minimum meetings for the Audit Committee,
there was no similar requirement for the NRC. SEBI has now accepted the recommen-
dation of the Committee on Corporate Governance163 that the NRC should meet at
least once every year.164
158 See A Guide to Board Evaluation, The Companies Act, 2013 Series, The Institute of Company Secretaries of India
(https://www.icsi.edu/portals/0/guide_to_board.pdf).
159 See Part D of the Schedule II of the SEBI Listing Regulations.
160 Inserted as sub-clause (6) of clause A of Part D of Schedule II of the SEBI Listing Regulations by the SEBI Listing
161 § 178(7) of Companies Act, 2013.
162 Regulations 19(2) and (3) of the SEBI Listing Regulations.
164 Inserted as Regulation 19(3A) of the SEBI Listing Regulations by the SEBI Listing Regulations Amendment
Regulations 2018.

Further, SEBI has, in acceptance of the recommendation of the Committee on Corporate
Governance, and with a view toward protecting the interest of all the stakeholders and
minority shareholders in particular,165 mandated that the quorum for the meetings of the
NRC shall be either two members or one-third of its members, whichever is greater, with
at least one independent director.166

Stakeholder Relationship Committee Practices
This section discusses the constitution of the stakeholders relationship committee (SRC)
of the board of directors and practices of the NIFTY 500 companies in relation thereto.
In terms of the Act, the board of directors of a company having more than 1000 share-
holders, debenture holders, deposit holders, or any other security holders at any time
during a financial year, is mandated to constitute an SRC, consisting of a chairperson who
shall be a nonexecutive director and such other members as may be decided by the board.167
Size of the S RC
Figure 6.1a indicates that for NIFTY 500 companies operating in all industries, SRC
strength has been recorded as three directors on average.
Figure 6.1b reflects the SRC size for companies, classified on the basis of annual revenue.
These figures indicate that all NIFTY 500 companies have, on average, SRCs that
comprise three directors, except companies having annual revenue up to INR 2.5 billion
which have reported an average SRC strength of two directors.
Figure 6.1a
SRC Size, by Industry
Number of S RC seats
Consumer C onsumer H ealth Information Real Telecommunication
(n=86) (n=39) (n=17) (n=77) (n= 41) (n=82) (n=30) (n=81) (n=2 2) (n=9) (n=16)
3.0 3.3 3.1 3.3 3.0 3.0 3.0 3.1 3.1 3.2 3.0
Figure 6.1b
SRC Size, by Company Size
Number of S RC seats
(n=4) (n=15) (n=38) (n=227) (n=212)
3.1 3.3 3.0 3.2
2.3 Note: In Figure 6.1b, out of 1,550 directors serving on stakeholder relationship committees,
data for annual revenue range is not available for four companies and hence 13 directors
have not been included in this analysis.

Executive and nonexecutive directors on the SRC
While the composition of the SRC may be at the discretion of the board, the chairperson
of the SRC is required to be a nonexecutive director. 168 In the data analyzed for 500
companies, in one company in the materials sector and one company in the financials
sector, both being in the annual revenue bracket between INR 10 billion to INR 50 billion,
the chairperson of the SRC is reported to be an executive director. All other companies
reported compliance with the requirement that the chairperson of the SRC should be a
nonexecutive director.
Figure 6.2a indicates that the percentage of nonexecutive directors in SRCs across indus-
tries ranges from 60 to 65 percent, with the exception of telecommunication services in
which 79 percent of directors on SRCs are nonexecutive.
As noted in Figure 6.2b below, companies with annual revenue less than INR 2.5 billion
reported the highest percentage of nonexecutive directors on the SRC at 89 percent.
Figure 6.2a
Executive and Nonexecutive Directors on SRC, by Industry
Percent of total

Energy (n=17) 40.4 59.6
Materials (n=81) 34.9 65.1
Real estate (n=22) 39.7 60.3
Utilities (n=16) 39.6 60.4
Figure 6.2b
Executive and Nonexecutive Directors on SRC, by Company Size
Percent of total
Under 2.5 billion (n=4) 11.1 88.9
2.5 to 5 billion (n=15) 28.3 71.7
5 to 10 billion (n=38) 31.2 68.8
10 to 50 billion (n=227) 35.7 64.3
Note: In Figure 6.2b, out of 1,550 directors serving on stakeholder relationship committees,
data for annual revenue range is not available for four companies and hence 13 directors
have not been included in this analysis.

Independent S RC chairperson
Figure 6.3a indicates the percentage of independent directors on the SRC is lowest in
the financials sector at 66 percent of total directors. The percentage of independent
directors in SRCs is highest in the healthcare sector at 83 percent.
Figure 6.3b indicates that across revenue groups, 46 percent of the directors on company
SRCs are independent on average. Companies with annual revenue of less than INR 2.5
billion reported the least independent SRCs: only 33 percent of directors serving on SRCs
are independent in that sector.
Figure 6.3a
Independent Directors on SRC, by Industry
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)

71.3% 74.1 77.4 72.7 77.9 68.6 71.7 74.1 90.2 47.8 75.9

46.5% 49.2 46.2 48.6 48.4 45.0 47.3 48.2 54.4 37.9 45.8
Figure 6.3b
Independent Directors on SRC, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
37.5% 66.7 79.1 73.1 72.4
Note: In Figures 6.3a and 6.3b, for three directors out of 1,550 directors serving
Independent directors as a percentage of total directors on stakeholder relationship committees, it is not known whether these three
directors are independent or nonindependent and accordingly, these directors
33.3% 47.8 54.4 47.0 47.0
have not been included in this analysis. Further, in Figure 6.3b, data for annual
revenue range is not vailable for four companies and hence 13 directors have not
been included in this analysis.

The chairperson of the SRC, or in his absence, any other member of the committee
authorized by him in his behalf must attend the general meetings of the company.169 SEBI
has now mandated that the chairperson of the SRC shall be required to remain present at
annual general meetings of the company to answer queries of the security holders.170
Figure 6.4a indicates that companies across industries have varying percentages of
independent SRC chairpersons. The real estate sector reported the highest percentage
of independent SRC chairpersons at 95 percent. The energy and utilities sectors have 93
percent of the SRC chairpersons to be independent. On the other hand, in the
telecommunications sector, only 63 percent of SRC chairpersons are independent.
As indicated by Figure 6.4b, in companies with annual revenue less than INR 2.5 billion,
no SRC chairperson is independent. For the other revenue groups, on average, 78
percent of companies reported an independent SRCchairperson.
Figure 6.4a
Independent S R C Chairperson, by Industry
Percent of total
Company has an independent S RC chairperson
S RC chairperson does not meet independence standard

Energy (n=17) 93.8 6.3
Note: For Figure 6.4a, information is available for
Materials (n=81) 84.8 15.2
461 chairpersons of stakeholder relationship
Real estate (n=22) 95.0 5 committees. Out of these, information about
Telecommunication services (n=9) the independence of one chairperson is not
62.5 37.5
available, and accordingly the chairperson has
Utilities (n=16) 93.3 6.7 not been included in this analysis.
Figure 6.4b
Independent S R C Chairperson, by Company Size
Percent of total
Note: In Figure 6.4b, information is available for
2.5 to 5 billion (n=15) 64.3 35.7
461 chairpersons of stakeholder relationship
5 to 10 billion (n=38) 88.9 11.1 committees. Out of these, information about
annual revenue range is not known for four
10 to 50 billion (n=227) 78.6 21.0
directors, and accordingly they have not been
Greater than 50 billion (n=212) 81.0 19.0 included in this analysis.

170 Regulation 20(3) of the SEBI Listing Regulations as substituted by the SEBI Listing Amendment Regulations 2018.

Role of the S RC and its meetings
The SRC is primarily constituted to resolve the grievances of security holders of the
company171 and specifically look into the various aspects of interest of shareholders,
debenture holders, and other security holders.172 This is outlined in Part D of the Schedule
II of the SEBI Listing Regulations.173
In keeping with the opinion of the Committee on Corporate Governance, SEBI has
now mandated a minimum of one meeting of the SRC every year.174 Further, SEBI has
amended the provisions of the SEBI Listing Regulations to prescribe the requirement
that the composition of the SRC shall be at least three directors, with at least one being
an independent director.175 The Committee on Corporate Governance has also recom-
mended that the detailed role of the SRC be included in a legal framework.
Several NSE-listed companies will need to alter the composition of

their SRCs to comply with the SEBI Listing Amendment Regulations
that require SRCs of three directors, with one of them being
independent.
Of all the companies listed on the NSE, 407 companies (24 percent of NSE-listed
companies) have less than three directors on SRCs, with none being independent.
To comply with recommendations of the committee, these 407 companies would have
to add independent directors in their SRCs.

172 Regulation 20 of the SEBI Listing Regulations as amended by the SEBI Listing Amendment Regulations 2018.
173 The SEBI Listing Regulations outline that the SRC shall consider and resolve the grievances of the security holders
of the listed companies including complaints related to transfer of shares, non-receipt of annual report and non-
receipt of declared dividends. The SEBI Listing Amendment Regulations 2018 have enhanced the role of the SRC.
174Inserted as Regulation 20(3A) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.
175 Inserted as Regulation 20(2A) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations
2018. This was recommended under the Report of the Committee on Corporate Governance, Chapter III Para
1 and 5, available at http://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-corporate-
governance_36177.html. The MCA has not expressed any comments on this recommendation.

Corporate Social Responsibility Committee Practices
This section discusses the composition and functions of the Corporate Social Responsibility
Committee (CSR Committee) and related practices in NIFTY 500 companies.
Size and composition of the C S R Committee

CONSTITUTION OF THE CSR COMMITTEE
Every company with net worth of INR 5 billion or more, turnover of INR 10 billion or more,
or a net profit of INR 50 million or more during any financial year is mandated to constitute
a CSR Committee of the board consisting of three or more directors, out of which at least
one director shall be an independent director.176 The composition of the CSR Committee is
required to be disclosed in the board’s report under section 134(3) of the Act.177
COMPOSITION AND SIZE OF THE CSRCOMMITTEE

As discussed above, the CSR Committee is to be constituted of three or more directors,
out of which at least one director must be an independent director.
Figures 7.1a and 7.1b both indicate that across industries and annual revenue slabs in the
NIFTY 500, the average the size of the CSR Committee is threedirectors.
Figure 7.1a
C SR Committee Size, by Industry
Number of C S R committee seats
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)
4.2 3.7 3.8 3.8
3.4 3.3 3.3 3.2 3.6 3.6
2.8
Figure 7.1b
C SR Committee Size, by Company Size
Number of C S R committee seats
(n=4) (n=15) (n=38) (n=227) (n=212)
3.4 3.3 3.5
2.8 2.8


Executive and nonexecutive directors on the C S R Committee
NONEXECUTIVE DIRECTORS ON CSR COMMITTEE
Figure 7.2a indicates that in across industries in the NIFTY 500, nonexecutive directors
form approximately 62 percent of the directors serving on CSRCommittees.
As per Figure 7.2b, for companies with annual revenue up to INR 2.5 billion, as high as
90 percent of the members of the CSR Committees are nonexecutive directors. For all
other revenue groups, 62 percent of the directors on the CSR Committees are nonex-
ecutive, on average.
Figure 7.2a
Executive and Nonexecutive Directors on C S R Committee, by Industry
Percent of total

Energy (n=17) 42.9 57.1

Materials (n=81) 37.2 62.8
Real estate (n=22) 39.8 60.2
Utilities (n=16) 40.0 60.0
Figure 7.2b
Executive and Nonexecutive Directors on C S R Committee, by Company Size
Percent of total
Under 2.5 billion (n=4) 9.1 90.9
2.5 to 5 billion (n=15) 33.3 66.7
5 to 10 billion (n=38) 39.2 60.8
10 to 50 billion (n=227) 39.5 60.5

Independent directors on C S R Committee
Figure 7.3a indicates that in the energy sector, the percentage of independent directors
(of total directors) serving on CSR Committees is the lowest, at 39 percent. The highest
percentage of independent directors serving on CSR Committees is in the financial and
real estate sectors, at 52 percent.
Figure 7.3b indicates that on average across revenue groups, 45 percent of the directors
on CSR Committees areindependent.
Figure 7.3a
Independent Directors on C SR Committee, by Industry
(n=86) (n=39) (n=17) (n=77) (n=41) (n=82) (n=30) (n=81) (n=22) (n=9) (n=16)

75.8% 73.3 69.4 76.4 77.8 73.0 67.7 73.4 86.0 56.5 75.0

43.1% 47.5 39.7 51.9 41.2 46.7 43.8 46.1 51.8 40.6 45.0
Figure 7.3b
Independent Directors on C SR Committee, by Company Size
(n=4) (n=15) (n=38) (n=227) (n=212)
50.0% 60.7 78.5 76.2 72.6

45.5% 40.5 47.7 46.1 45.4
Note: For Figures 7.3a and 7.3b, for two directors, the status of independence is not known, and hence these directors have not been included
in the above analysis. Further, for Figure 7.3b, for four companies, i.e. nine directors, the range of annual revenue of the company is not known,
and hence these are not included in the analysis above.

Independent C S R Committee chairperson
Figure 7.4a indicates that companies in the telecommunications services sector have the
lowest percentage of independent CSR Committee chairpersons at 25 percent, while
companies in the energy sector have the highest percentage at 79 percent.
In terms of companies classified by annual revenue, Figure 7.4b indicates that companies
with annual revenue below INR 2.5 billion, have only 33 percent CSR Committee chair-
persons who are independent. In all other companies, on average, 51 percent of CSR
Committee chairpersons are independent.
Figure 7.4a
Independent C S R Committee Chairperson, by Industry
Percent of total
Company has an independent C S R committee chairperson
C S R committee chairperson does not meet independence standard

Energy (n=17) 78.6 21.4

Materials (n=81) 57.9 42.1
Real estate (n=22) 30.4 69.6
Utilities (n=16) 62.5 37.5
Figure 7.4b
Independent C S R Committee Chairperson, by Company Size Note: For Figures 7.4a and 7.4b, information is
Percent of total available for 442 chairpersons of corporate social
responsibility committees. Out of these, the
Annual revenue, in Rupees status of independence of one chairperson
Under 2.5 billion (n=4) 33.3% 66.7 is not known, and accordingly the chairperson
has not been included in this analysis. Further,
2.5 to 5 billion (n=15) 50.0 50.0
for Figure 7.4b, for 4 companies, i.e. for four
5 to 10 billion (n=38) 51.5 48.5 corporate social responsibility committee chair-
10 to 50 billion (n=227) 49.3 50.7 persons, the range of annual revenue is not known,
and hence these chairpersons have not been
Greater than 50 billion (n=212) 53.6 45.9 included in this analysis.

Role of the C S R Committee
In terms of section 135(3) of the Act, the CSR committee shall undertake the
following functions:
a Formulate and recommend to the board a corporate social responsibility policy

which shall indicate the activities to be undertaken by the company as specified in
Schedule VII of the Act;
b Recommend the amount of expenditure to be incurred on the above activities; and
c Monitor the corporate social responsibility policy of the company from time
to time.
After taking into account the CSR Committee’s recommendations, the board approves
the corporate social responsibility policy and is required to disclose the contents of the
policy in its report and also publish it on the website of the company. It must also ensure
compliance by the company with the policy and the activities recommended or outlined
therein.178 The board must also ensure that the company spends, in every financial year, at
least two percent of the average net profits of the company made during the three
immediately preceding financial years, in pursuance of its corporate social responsibility
policy. While doing so, the Act provides that the company shall give preference to the
local area and areas around it where it operates. In the event the company fails to spend
such amounts in terms of its policy, the board’s report under section 134(3) of the Act
must necessarily set out the reasons for the same.179 Further, the Companies (Corporate
Social Responsibility Policy) Rules, 2014 as amended from time to time provide for further
compliances in this regard.


Part III
Managerial Remuneration

Managerial Remuneration
This section deals with managerial compensation practices that have been mandated
under the Act and the rules thereunder and discusses the industry practices related to
directors’ remuneration.
Remuneration payable to directors of a company, including any managing or whole-time

director is computed in accordance with the provisions of the Act and the rules made
thereunder.180 It is determined by the articles of the company or by way of a resolution. In
certain cases, if the articles of the company so require, it may be done by way of a special
resolution passed by the company in a general meeting.181 Under the scheme of the Act,
managerial compensation is split into multiple components such as (i) remuneration, that
is akin to salary drawn by the director; (ii) sitting fee, which is payable for attendance of
meetings of the board and/or committees; (iii) fees for services rendered by the director
to the company in any other capacity, not being services of a professional nature; and (iv)
stock options/equity shares. These components are discussed in greater detail below.
Overall maximum managerial remuneration

CALCULATION OF REMUNERATION IN PROFIT-MAKING COMPANIES
Executive directors
In accordance with the provisions of the Act, the total managerial remuneration payable
by a public company, to its directors, including to a managing director, whole-time
director and manager, in respect of any financial year, is capped at 11 percent of the net
profits of that company for that financial year. While computing such net profits, the
remuneration of the directors is not to be deducted from the gross profits.182 The Act
stipulates the manner in which such net profits are to be calculated.183 Subject to further
compliances under the Act,184 the company in a general meeting may permit the payment
of remuneration in excess of 11 percent of its net profits.185
The remuneration payable to any one managing director or whole-time director or manager
is capped at five percent of the net profits of the company. In the event that there is more
than one such director, then up to a maximum of ten percent of the net profits is permitted
to be paid out as remuneration to all such directors and manager collectively.
Nonexecutive directors
For directors who are neither managing directors nor whole-time directors, the remuner-
ation cannot exceed one percent of the net profits of the company if there is a managing
or whole-time director or manager or three percent of the net profits in any other case.186
180 No corresponding provisions exist in the SEBI Listing Regulations.

184 Schedule V of the Companies Act, 2013.
185Proviso to Section 197(1) of the Companies Act, 2013.

For any payments exceeding any of these limits, the approval of the company in a general
meeting is required.187
The SEBI Listing Regulations mandate that the board of directors shall recommend all fees
or compensation to be paid to nonexecutive directors, including independent directors.
These fees or compensation must be approved by the shareholders in general meeting.188
Calculation of remuneration in companies that have no or inadequate profits

If, in any financial year, a company has no profits or its profits are inadequate, the company
shall not pay to its directors, including any managing or whole-time director or manager by
way of remuneration any sum, except in accordance with the provisions of Schedule V of the
Act, and if it is not able to comply with such provisions, then only with the previous approval
of the Central Government.189 This applies to both executive and nonexecutive directors.
In both the above scenarios, the remuneration for which the caps have been provided
does not include any sitting fees that are paid to directors, either for attending board
or committee meetings or for any other purpose as may be determined by the board of
directors.190 The remuneration computed in the manner specified above may either be
paid to the director as a salary on a monthly payment basis or as a percentage of the
net profits. It may even be a combination of a part amount on a fixed monthly payment
basis and part pegged at a percentage of the net profits.191 The manner of computing net
profits is stipulated under section 198 of the Act.
Sitting fees
The percentages for computation of overall maximum managerial remuneration as set
out above are exclusive of any fees payable to directors for attending board meetings or
committee meetings or for any other purpose as decided by the board of directors. Such
fees are typically known as “sitting fees,” fees payable per attendance, and should not
exceed INR 1 lakh for every board and/or committee meeting attended. Independent
directors and women directors are to be paid their sitting fees at par with other directors
and not less.192 The requirement under the SEBI Listing Regulations of obtaining approval
of shareholders in general meeting does not apply to the payment of sitting fees to
nonexecutive directors, if made within the limits prescribed under the Act for payment of
sitting fees without approval of the Central Government.193 The approval of the share-
holders by special resolution is required to be obtained every year in which the annual
remuneration payable to a single nonexecutive director exceeds 50 percent of the total
annual remuneration payable to all nonexecutive directors, providing the details of the
remuneration thereof.194
187 The Companies (Amendment)Act,2017, which is yet to be notified, has proposed that this be done by way of a
special resolution.
188 Regulation 17(6)(a) of the SEBI Listing Regulations.
192Rule 4 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
194 Inserted as Regulation 17(6)(ca) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.

Figure 8.1a
Remuneration – Cash Components, by Industry Salary
In Rupees lacs Commission
Consumer C onsumer H ealth Sitting fees
discretionary staples Energ y Financials care Industrials
(n=86) (n=39) (n=17) (n=77) (n= 41) (n=82) Other
109.7
91.8 95.5
66.9
55.9 57.1
42.3
35.8
26.9 26.1
17.3
2.6 2.7 2.6 5.2 4.3 0.2 3.2 0.3 2.0 0
0 0 0
Information Telecommunication
technolog y Materials Real estate services Utilities
(n=30) (n=81) (n=22) (n=9) (n=16)
92.4
63.3 59.4
51.0
37.5 36.0 35.7
18.8 20.5 19.3
1.7 6.9 2.1 0.3 2.3 0.7 2.5 2.7
0 0
Figure 8.1b
Remuneration – Cash Components, by Company Size
In Rupees lacs
Annual revenue:
(n=4) (n=15) (n=38) (n=227) (n=212)
80.9
58.9
44.9 42.3
20.7 25.5
14.2
1.9 0.3 2.1 5.1 1.3 1.8 0.6 2.4 0.2 3.1 0.9
0 0
Figure 8.1a indicates that the average total remuneration for directors is the least in
companies in the energy sector followed by thefinancials sector. The highest average total
remuneration is paid to directors in the healthcare sector. According to our data, directors
in the healthcare sector draw the highest salaries in comparison with the other sectors.
This sector has reported the highest sitting fees and commissions as well. In terms of the
industry average, the lowest salaries are paid to directors in the enery and utilities sectors.
Not all of the constituent companies in these sectors are private players, indicating that
different compensation standards prevail in government companies and private ones.
Figure 8.1b shows that the total compensation paid to directors increases with annual revenue.
Stock options
With the exception of independent directors, all other directors may receive stock options
as a part of their overall remuneration. Independent directors may receive sitting fees,
reimbursement of expenses for participation in board and/or committee meetings and
profit-related commissions as approved by the members, but no stock options may
be granted to them.195
195 § 197(7) of the Companies Act, 2013 and Regulation 17(6)(d) of the SEBI Listing Regulations.

In the shareholders’ approval required to be obtained under the SEBI Listing Regulations,
it is necessary to specify the limits for the maximum number of stock options that may be
granted to nonexecutive directors, in any financial year and in aggregate.196
The Companies (Amendment) Act, 2017 has proposed the inclusion of provisions for refunds
of excess remuneration by directors to the company and until such refund, holding such
excess amounts in trust for the company.197 The provisions of section 197 do not apply to
government companies.198
Figure 9.1a indicates that the maximum number of shares, forming part of the noncash
components of managerial remuneration, have been allotted to directors in the healthcare
sector. The lowest may be noted in the energy sector where, in addition, no employee
stock option plans (ESOPs) have been issued to directors. The highest number of ESOPs
on average is in companies in the consumer staples sector.
In companies having annual revenue between INR 5 billion to INR 10 billion, the highest
number of shares have been allotted to directors, on average. However, companies in this
bracket have issued the least number of ESOPs. The lowest is seen in companies with
annual revenue between INR 2.5 billion to INR 5 billion. The maximum number of ESOPs
was issued by companies having annual revenue under INR 2.5 billion.
Figure 9.1a
Remuneration – Shares and ESOPs, by Industry
Consumer Consumer Information Real Telecommunication

discretionary staples Energy Financials Healthcare Industrials technology Materials estate services Utilities
n=86 n=39 n=17 n=77 n=41 n=82 n=30 n=81 n=22 n=9 n=16
Shares 1,897,291 1,648,644 105,056 1,208,941 5,173,518 1,260,064 925,447 797,803 3,860,493 2,771,002 154,753
E S OP s 17,925 352,623 0 47,244 979 8,319 35,291 15,493 804 28,144 11,435
Figure 9.1b
Remuneration – Shares and ESOPs, by Company Size
Greater
Under 2.5 to 5 to 10 to than
n=4 n=15 n=38 n=227 n=212
Shares 1,433,115 1,178,509 2,061,360 1,665,347 1,580,905
E S OP s 171,564 22,127 1,696 71,951 23,823
196 Regulation 17(6)(c) of the SEBI Listing Regulations.

197 This provision of The Companies (Amendment) Act, 2017 is yet to be notified.
198 Ministry of Corporate Affairs, Notification G.S.R. 463(E) dated 5thJune,2015.

Disclosures
The board’s report of every listed company is required to disclose, inter alia, the following:199
a. The ratio of the remuneration of each director to the medianremuneration

of the employees of the company for the financialyear;
b. The percentage increase in remuneration of each director, chief financial officer,

CEO, company secretary, or manager, if any, in the financial year; and
c. The average percentile increase already made in the salaries of employees
other than the managerial personnel in the last financial year, its comparison
with the percentile increase in the managerial remuneration and justification
thereof, and disclosure of any exceptional circumstances for increases in the
managerial remuneration.
The Companies (Amendment) Act, 2017 has proposed that the auditor’s report should
contain a statement as to whether the remuneration paid by the company to its directors
is in accordance with the provisions of section 197 of the Act and whether any remuner-
ation paid to any director is in excess thereof.200
Recommendations of the Committee on Corporate Governance

REMUNERATION OF EXECUTIVE PROMOTER DIRECTORS
In the opinion of the Committee on Corporate Governance, there have been several cases
where disproportionate payments have been made to executive promoter directors in
comparison with other executive directors and that the same should thus be subject
to greater scrutiny by shareholders. Accordingly, in terms of the recommendation of the
Committee on Corporate Governance,201 SEBI has mandated that the shareholders must
approve, by way of a special resolution in a general meeting, the fees/compensation to
be paid to executive directors who are promoters or members of the promoter group
if (i) such fees/compensation payable annually to such a director exceeds INR 50 million
or two and half percent of the net profits of the listed company, whichever is higher,
or (ii) in case of more than one such director, the aggregate annual fees/compensation
payable to such director is greater than five percent of the net profits of the company.
Further, such approval of the shareholders shall be valid only until the expiry of the
term of the director. 202
199 Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
200 This provision of The Companies (Amendment) Act, 2017 is yet to be notified.
201 Report of the Committee on Corporate Governance, Chapter V Para 6, available at http://www.sebi.gov.in/
reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html. The view of the MCA is
that this provision if introduced ought to be subject to the overarching provisions of section 197 and Schedule V
of the Companies Act, 2013.
202 Inserted as Regulation 17(6)(e) of the SEBI Listing Regulations by the SEBI Listing Amendment Regulations 2018.

In meeting the terms of SEBI’s new mandate, the compensation
payable to several directors across NSE-listed companies would need
to be ratified by shareholders.
In 2016–17, there were 171 executive promoter directors in 116 companies who earned
remuneration of more than INR 50 million.
REMUNERATION TO NONEXECUTIVE DIRECTORS

The Committee on Corporate Governance suggested that the approval of shareholders
ought to be obtained every year in which the annual remuneration payable to a single
nonexecutive director exceeds 50 percent of the total annual remuneration payable to
all nonexecutive directors, giving details of the remuneration thereof. This was based on
the Committee’s observation that certain nonexecutive directors (generally promoter
directors) were receiving disproportionate remuneration from the total pool available
vis-à-vis all other nonexecutive directors. However, the Committee clarified that the
promoter ought to be allowed to vote.203
It has been noted that in several NSE-listed companies, certain

nonexecutive directors indeed receive very high compensation in
comparison with the other nonexecutive directors on the same board.
In 2016–17, in 183 companies (11 percent of the NSE-listed companies), the remuneration
paid to a single nonexecutive director exceeded 50 percent of the total remuneration
paid to all nonexecutive directors combined.
MINIMUM COMPENSATION TO INDEPENDENT DIRECTORS

Citing the need to make the post of independent directors attractive for competent
persons to come forth and to ensure that the remuneration is commensurate with the
expertise that they bring, the Committee on Corporate Governance has proposed
detailed provisions for minimum compensation for independent directors.204
203 Report of the Committee on Corporate Governance, Chapter V Para 7, available at http://www.sebi.gov.in/
that this provision if introduced ought to be subject to the overarching provisions of section 197 and Schedule V
of the Companies Act, 2013.
204 Report of the Committee on Corporate Governance, Chapter II Para 3, available at http://www.sebi.gov.in/
that there is no requirement to stipulate minimum compensation levels for independent directors.

If the recommendation of the Committee on Corporate Governance
were to be implemented, several directors would have to be paid
higher compensation.
For as many as 3,755 of the 5,686 independent directors (or 66 percent of the
independent directors on NSE-listed companies) on boards from April 1, 2016 to March
31, 2017 (excluding all mid-year appointments and cessations), remuneration received was
less than INR 0.5 million each. Had requirements for minimum compensation been imple-
mented in 2016–17 for all NSE-listed companies, an additional INR 1.32 billion would have
had to be paid to independentdirectors in total.

About the Authors
Matteo Tonello is vice president and managing director at The Conference Board. In
his role, Tonello advises members of The Conference Board on issues of corporate
governance, risk management, corporate sustainability, and citizenship. He regularly
participates as a speaker and moderator in educational programs on best practices and
conducts analyses and research in collaboration with leading corporations, institutional
investors, and professional firms. He is the author of several publications, including
Corporate Governance Handbook: Legal Standards and Board Practices, and annual
benchmarking reports on director compensation and board practices, C E O succession
practices, proxy voting, and corporate sustainability practices.
Tonello was named by the National Association of Corporate Directors (NACD) to the
Directorship 100, a list of the most influential experts in corporate governance. He serves
on the Deutsche Telekom’s board of directors’ advisory panel on ethics and corporate
culture and is a member of the Network for Sustainable Financial Markets. Previously, he
served on the Advisory Council of the Sustainability Accounting Standards Board (SASB).
He also was the co-chair of The Conference Board Expert Committee on Shareholder
Activism and a member of the technical advisory board to The Conference Board Task
Force on Executive Compensation. In January 2016, Tonello co-founded The Directors’
Collective in India, a research and educational initiative for board members of Indian
public companies. Prior to joining The Conference Board, he practiced corporate law at
Davis Polk & Wardwell.
Tonello is a graduate of Harvard Law School and the University of Bologna.
Manali Paranjpe is a research associate with The Conference Board in India, where she
conducts projects on corporate governance, risk management, and sustainability issues.
As a qualified advocate in India, enrolled as a solicitor with the Bombay Incorporated
Law Society, Ms. Paranjpe also practices law at MDP & Partners, Advocates & Solicitors,
Mumbai, focusing on matters of real estate, banking and capital markets, and dispute
resolution, in addition to general corporate law. She received her LLB degree from
Government Law College, Mumbai.
Acknowledgments
The authors would like to thank Afra Afsharipour, professor of law and Martin Luther
King, Jr. Hall Research Scholar at the University of California, Davis, School of Law,
for her invaluable insight and guidance in the preparation of this report. The authors
would also like to thank Mritunjay Kapur, partner and national head, strategy and
markets and technology, media, and telecom lead; Pankaj Arora, partner, governance,
risk, and compliance services of KPMG India; and Sanjay Kapoor of Russell Reynolds
Associates for their valuable support. The authors are grateful to Pranav Haldea, Ashish
Agarwal, and Vaibhav Gosain of PRIME Database Group for compiling the data for the
analysis in the report.

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C E O and Executive Compensation Practices: 2017 Edition
Director Compensation and Board Practices: 2013 Edition
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2018 India Edition

In partnership with: In collaboration with:

6 Using This Report

PART II: B O A R D MEETINGS A N D B O AR D C O M M I T TEES

49 Audit Committee Practices

64 Stakeholder Relationship Committee Practices

69 Corporate Social Responsibility Committee Practices

PART III: M ANAGE R I AL REMUNERATION

82 A B O U T T H E A U T H O RS / A CKN OWLEDG M ENTS

Source: The Directors’ Collective/PRIME Database Group, 2018.

6 cor p or a te b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

This report is divided into three parts:

Information technology 30 6 45.4 (n=227)

Source: The Directors’ Collective/PRIME Database

www.conferenceboard.org c o r p o r ate boa r d practices: 2018 i n d i a edition 7

The study also includes an analysis of the following:

8 cor p or a te b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

Companies with higher annual revenue have reported larger boards.

www.conferenceboard.org c o r p o r ate boa r d practices: 2018 i n d i a edition 9

Boards of companies in the energy, financials, telecommunication services, and utilities

10 c o r p o r a t e b oa r d practices: 2018 i n d i a edition www.conferenceboard.org

No nominee directors were reported to be serving on the boards of companies having

No company is permitted to appoint or continue the employment of any person as

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 11

Less than 20 percent of NIFTY 500 companies have an independent chairperson.

12 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

The majority of the directors serving on stakeholder relationship committees are

While the composition of the stakeholder relationship committee may be at the

Average managerial remuneration is highest in the healthcare sector.

Higher total compensation is paid to directors in larger companies.

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 13

14 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

1 § 2(10) of the Companies Act, 2013.

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 15

Source: The Directors’ Collective/PRIME Database Group, 2018.

In the opinion of the Committee on Corporate Governance, there ought to be a minimum

7 Report of the Committee on Corporate Governance, Chapter I Para 1, available at http://www.sebi.gov.in/

16 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

Source: PRIME Database Group, October 2017

Executive and nonexecutive directors

10 § 2(54) of the Companies Act, 2013.

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 17

Consumer discretionary (n=86) 25.9% 73.9

Percentages may not add up to 100 due to rounding.

Source: The Directors’ Collective/PRIME Database Group, 2018.

18 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

16 Rule 4 of the Companies (Appointment and Qualifications of Directors) Rules,2014.

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 19

An independent director in relation to a company, [means a director other than a

a. who, in the opinion of the board of directors of the company, is a person of

c. [who [apart from receiving director’s remuneration]24 has or had no [material]

d. none of whose relatives—

20 c o r p o r a t e b oa r d practices: 2018 i n d i a e d i t i o n www.conferenceboard.org

e. who, neither himself/herself nor any of his/her relatives—

(ii)is or has been an employee or proprietor or a partner, in any of the three

(A)a ﬁrm of auditors or company secretaries in practice or cost auditors of

(iv)is a chief executive or director, by whatever name called, of any nonproﬁt

[(v) is a material supplier, service provider or customer or a lessor or lessee of the

f. who possesses such other qualiﬁcations as may be prescribed.

27 As amended by the Companies (Amendment) Act, 2017.

www.conferenceboard.org cor p or a te b oa r d practices: 2018 i n d i a edition 21

h [who is not less than 21 years of age.]32