SEBI’s LODR, 2015 Regulation 25 (3) read with Schedule IV (VII) (1) of the Companies Act, 2013 requires all equity listed companies and unlisted companies having Independent Directors to schedule a meeting of Independent Directors of the company to meet without the presence of non-independent directors and members of management team at least once in an year. Further, Regulation 25 (4) read with Schedule IV (VII) (3) of the Companies Act, 2013 requires a review of the performance of non-independent directors, the board as a whole and review of the performance of the chairperson taking the views of executive and non-executive directors and the quantity, quality and timeliness of the information flow between the management and the board of directors.
While instances of companies reporting non-compliance with this requirement is rare, a question that often begs an answer is the value derived from this meeting. Is it a ritualistic checklist to be ticked off by the company or do companies realize any material benefit from this Independent Directors Meeting? We have formulated five simple questions that will enable you to assess for yourself if your company is in position to realize significant benefits from this Independent Directors meeting.
- Are sitting fees paid to the directors who attend this sub-committee meeting?
Independent directors are compensated by payment of sitting fees and commission on profits. Companies fix a sitting fee to be paid to the directors for attending board meeting and sub-committee meetings. A recent trend among Nifty50 companies is to pay sitting fees that varies for different sub-committees based on its importance. In this regard, companies have placed Audit Committee and Nomination & Remuneration Committee at the top and Stakeholders Committee at the bottom of the hierarchy. Many companies do not pay any sitting fees for attending the meeting of independent directors which reflects the absence of perceived value addition.
- Is adequate time allocated for Independent Directors Meeting?
This meeting is required to consider at a minimum three items in its agenda, which includes evaluation of the board, performance of non-independent directors and the chairperson and timeliness, quantity, and quality of information flow to the board. Given the minimum stipulated agenda, one can gauge whether adequate time has been allocated for the meeting, which will be longer for companies with large number of Independent Directors.
- Is the agenda/notice accompanied by supporting documents that provide adequate information for the independent directors for their deliberations?
As the directors meet to assess the quantity, quality, and timeliness of information flow to the board, a basic parameter to consider is the quality/adequacy of information provided to the members for their deliberations in this meeting of Independent Directors. Are dates of the board and sub-committee meetings, along with dates on which the agenda/notice with supporting documents for the agenda items were circulated, provided to the committee or the Board? Further for the evaluation of board, non-independent directors and the chairperson, the nature of the information like attendance records and tools or professional support provided is a key indicator of the value that can be gained from this meeting.
- Are minutes of the meeting prepared and circulated to the members present in the meeting?
Deliberations of the board and sub-committees are captured for institutional memory by minuting them and setting up a mechanism for tracking the implementation of the decisions made. Given this need, minutes for this meeting being prepared and circulated to the members of the committee and its implementation being tracked is a key evidence to be considered.
- Are the Board of Directors apprised of the deliberations in the meeting of Independent Directors?
Independent directors have a non-executive role. Hence any decision taken by them is implemented through non-independent directors or the management team. For effective implementation clear communication of the task and effective feedback is essential. Hence a formal system of the Lead Independent Director briefing the Board of Directors of the deliberations and defining actions is another key indicator of value-add.