BOARD OF DIRECTORS

A. APPOINTMENT OF DIRECTORS
A. 1 Appointments to the Board

(i) Companies should issue formal letters of appointment to Non-Executive Directors (NEDs) and Independent Directors - as is done by them while appointing employees and Executive Directors. The letter should specify:

• The term of the appointment;


• The expectation of the Board from the appointed director; the Board-level committee(s) in which the director is expected to serve and its tasks;


• The fiduciary duties that come with such an appointment alongwith accompanying liabilities;


• Provision for Directors and Officers (D&O) insurance, if any;


• The Code of Business Ethics that the company expects its directors and employees to follow;


• The list of actions that a director should not do while functioning as such in the company; and

The remuneration, including sitting fees and stock options etc., if any.

(ii) Such formal letter should form a part of the disclosure to shareholders at the time of the ratification of his/her appointment or re-appointment to the Board. This letter should also be placed by the company on its website, if any, and in case the company is a listed company, also on the website of the stock exchange where the securities of the company are listed.

A.2 Separation of Offices of Chairman & Chief Executive Officer

To prevent unfettered decision making power with a single individual, there should be a clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director/Chief Executive Officer (CEO). The roles and offices of Chairman and CEO should be separated, as far as possible, to promote balance of power.

A.3 Nomination Committee

(i) The companies may have a Nomination Committee comprising of majority of Independent Directors, including its Chairman. This Committee should consider:

u proposals for searching, evaluating, and recommending appropriate Independent Directors and Non-Executive Directors [NEDs], based on an objective and transparent set of guidelines which should be disclosed and should, inter alia, include the criteria for determining qualifications, positive attributes, independence of a director and availability of time with him or her to devote to the job;

u determining processes for evaluating the skill, knowledge, experience and effectiveness of individual directors as well as the Board as a whole.

(ii) With a view to enable Board to take proper and reasoned decisions, Nomination Committee should ensure that the Board comprises of a balanced combination of Executive Directors and Non-Executive Directors.

(iii) The Nomination Committee should also evaluate and recommend the appointment of Executive Directors.

(iv) A separate section in the Annual Report should outline the guidelines being followed by the Nomination Committee and the role and work done by it during the year under consideration.

A.4 Number of Companies in which an Individual may become a Director

(i) For reckoning the maximum limit of directorships, the following categories of companies should be included:—

• public limited companies,


• private companies that are either holding or subsidiary companies of public companies

(ii) In case an individual is a Managing Director or Whole-time Director in a public company the maximum number of companies in which such an individual can serve as a Non-Executive Director or Independent Director should be restricted to seven.

B. INDEPENDENT DIRECTORS

B.1 Attributes for Independent Directors

(i) The Board should put in place a policy for specifying positive attributes of Independent Directors such as integrity, experience and expertise, foresight, managerial qualities and ability to read and understand financial statements. Disclosure about such policy should be made by the Board in its report to the shareholders. Such a policy may be subject to approval by shareholders.

(ii) All Independent Directors should provide a detailed Certificate of Independence at the time of their appointment, and thereafter annually. This certificate should be placed by the company on its website, if any, and in case the company is a listed company, also on the website of the stock exchange where the securities of the company are listed.

B.2 Tenure for Independent Director

(i) An Individual may not remain as an Independent Director in a company for more than six years.

(ii) A period of three years should elapse before such an individual is inducted in the same company in any capacity.

(iii) No individual may be allowed to have more than three tenures as Independent Director in the manner suggested in ‘i’ and ‘ii’ above.

(iv) The maximum number of public companies in which an individual may serve as an Independent Director should be restricted to seven.

B.3 Independent Directors to have the Option and Freedom to meet Company Management periodically

(i) In order to enable Independent Directors to perform their functions effectively, they should have the option and freedom to interact with the company management periodically.

(ii) Independent Directors should be provided with adequate independent office space and other resources and support by the companies including the power to have access to additional information to enable them to study and analyze various information and data provided by the company management.

C. REMUNERATION OF DIRECTORS

C.1 Remuneration

C.1.1 Guiding Principles-Linking Corporate and Individual Performance

(i) The companies should ensure that 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, it should also be ensured that relationship of remuneration to performance is clear. Incentive schemes should be designed around appropriate performance benchmarks and provide rewards for materially improved company performance. Benchmarks for performance laid down by the company should be disclosed to the members annually.

(ii) Remuneration Policy for the members of the Board and Key Executives should be clearly laid down and disclosed. Remuneration packages should involve a balance between fixed and incentive pay, reflecting short and long term performance objectives appropriate to the company’s circumstances and goal.

(iii) The performance-related elements of remuneration should form a significant proportion of the total remuneration package of Executive Directors and should be designed to align their interests with those of shareholders and to give these Directors keen incentives to perform at the highest levels.

C.1.2 Remuneration of Non-Executive Directors (NEDs):

(i) The companies should have the option of giving a fixed contractual remuneration, not linked to profits, to NEDs. The companies should have the option to:

(a) Pay a fixed contractual remuneration to its NEDs, subject to an appropriate ceiling depending on the size of the company; or

(b) Pay up to an appropriate per cent of the net profits of the company.

(ii) The choice should be uniform for all NEDs, i.e. some should not be paid a commission on profits while others are paid a fixed amount.

(iii) If the option chosen is ‘i(a)’ above, then the NEDs should not be eligible for any commission on profits.

(iv) If stock options are granted as a form of payment to NEDs, then these should be held by the concerned director until three years of his exit from the Board.

C.1.3 Structure of Compensation to NEDs

(i) The companies may use the following manner in structuring remuneration to NEDs:

• Fixed component : This should be relatively low, so as to align NEDs to a greater share of variable pay. These should not be more than one-third of the total remuneration package.


• Variable component : Based on attendance of Board and Committee meetings (at least 75% of all meetings should be an eligibility pre-condition).


• Additional variable payment(s) for being:


• the Chairman of the Board, especially if he/she is a non-executive chairman


• the Chairman of the Audit Committee and/or other committees members of Board committees.

(ii) If such a structure (or any similar structure) of remuneration is adopted by the Board, it should be disclosed to the shareholders in the Annual Report of the company.

C.1.4 Remuneration of Independent Directors (IDs)

(i) In order to attract, retain and motivate Independent Directors of quality to contribute to the company, they should be paid adequate sitting fees which may depend upon the twin criteria of Net Worth and Turnover of companies.

(ii) The IDs may not be allowed to be paid stock options or profit based commissions, so that their independence is not compromised.

C.2 Remuneration Committee

(i) Companies should have Remuneration Committee of the Board. This Committee should comprise of at least three members, majority of whom should be non executive directors with at least one being an Independent Director.

(ii) This Committee should have responsibility for determining the remuneration for all executive directors and the executive chairman, including any compensation payments, such as retirement benefits or stock options. It should be ensured that no director is involved in deciding his or her own remuneration.

(iii) This Committee should also determine principles, criteria and the basis of remuneration policy of the company which should be disclosed to shareholders and their comments, if any, considered suitably. Whenever, there is any deviation from such policy, the justification/reasons should also be indicated/disclosed adequately(iv) This Committee should also recommend and monitor the level and structure of pay for senior management, i.e. one level below the Board.

(v) This Committee should make available its terms of reference, its role, the authority delegated to it by the Board, and what it has done for the year under review to the shareholders in the Annual Report.