CII launches guidelines on independent directors and board evaluation to strengthen corporate governance

New Delhi [India], February 5 : The Confederation of Indian Industry (CII) has taken a significant stride in reinforcing corporate governance by introducing the 'CII Guidelines on Appointment of Independent Directors and Process of Board Evaluation.'
The comprehensive guidebook serves as a valuable resource, offering insights into the appointment of independent directors and emphasizing the importance of a rigorous board evaluation process.
The CII Guidelines, unveiled on Monday encapsulate a spectrum of essential aspects related to the role and responsibilities of independent directors.
The guidelines delve into critical areas such as appointment and succession planning, Diversity, Equity and Inclusion (DEI), the necessity for indemnity and insurance, and the compensation framework for independent directors.
Recognizing the evolving landscape, the guidelines outline how the responsibilities of independent directors have expanded to include crisis and risk management, internal controls, standards of conduct, and sustainability, in addition to traditional roles in strategy, finance, and audit.
Regarding the selection process for independent directors, the CII Guidelines provide a detailed framework covering phases such as diagnosis and definition, director identification, candidate engagement, decision-making, and implementation.
Emphasis is placed on assembling boards with diverse knowledge, skills, experiences, and backgrounds to contribute to social initiatives, stakeholder engagement, human capital management, and DEI initiatives, thereby supporting the Environmental, Social, and Governance (ESG) journey.
The guidelines stress the importance of succession planning as an ongoing process, recommending a continuous review to identify evolving needs.
Succession planning aligns with the company's strategy, prioritizing skills, experiences, and criteria essential for director and committee roles.
Addressing concerns related to personal liability, the CII Guidelines advocate for creating legal safeguards to maintain a balance between risk and rewards for independent directors.
The decriminalization of civil duties is highlighted as crucial to preserving trust in the institution of independent directors.
The guidelines also stress the need for indemnity and/or insurance, formalized through appropriate written agreements.
The document outlines the board evaluation process, emphasizing the importance of regular reviews, updates, and approvals of questionnaires and parameters by the Board or Nomination and Remuneration Committee (NRC) every three years.
In cases where the board evaluation of an independent director is unsatisfactory, the guidelines recommend a face-to-face discussion with the Chairman of NRC to provide constructive feedback.
R Dinesh, President of CII, emphasized the pivotal role of independent directors and the board evaluation process in promoting harmony, transparency, and sustained success within organizations.
He noted the need for clear definitions of roles and responsibilities to avoid conflicts, especially considering the diverse setups across various companies.
Sanjiv Bajaj, Chairman of CII Corporate Governance Council, highlighted the socio-strategic role of independent directors and stressed the importance of commensurate compensation to reflect their heightened responsibilities, strategic inputs, and risk-bearing capacities.
Chandrajit Banerjee, Director General of CII, expressed optimism about the guidelines becoming a strategic tool for organizations committed to fostering a culture of excellence in governance.
The compilation of ten forward-looking guidelines aims to facilitate compliance and contribute to the ease of doing business.
Sanjeev Krishan, Chairman of CII Sub-group on Independent Directors, and Chairman of PwC in India, underlined the corporate shift toward enhancing boards with members from diverse backgrounds.
He emphasized the increasing reliance on the viewpoints of independent directors and the establishment of continuous evaluation processes aligned with long-term strategy and commitment.
The launch of these guidelines marks a significant step towards enhancing corporate governance practices in India, providing organizations with a roadmap to navigate the complexities of director appointments and board evaluations effectively.