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India Inc’s Board Sizes Decrease Amid Heightened Governance Scrutiny

Amid increasing scrutiny on governance issues, corporate boards in India are witnessing a reduction in size, according to a report by Excellence Enablers, backed by former SEBI Chairman M Damodaran.

In fiscal years FY’18 and FY’19, the range of board members varied from 4 to 22. However, the maximum board size has contracted to 16 by FY23.

The report underscores the importance of ensuring adequate board membership to effectively constitute mandatory board committees. With five required board committees, sufficient members are needed to prevent overlap among committee memberships.

Highlighting the essence of good corporate governance, the report emphasizes the significance of voluntary adherence to governance best practices. Entities that proactively adopt governance measures often influence regulatory standards for the broader business community.

Under the Companies Act, 2013, public companies must have a minimum of three directors, while private companies require at least two directors. The maximum limit for board size is fifteen directors.

SEBI mandates that listed public companies appoint one-third of their board as independent directors, except for Public Sector Undertakings (PSUs). Additionally, if the chairperson is a non-executive director, one-third of the board must comprise independent directors. In cases where there’s no regular non-executive chairperson, at least half of the board should consist of independent directors.

As of March-end 2023, six companies were found to be non-compliant with independent director norms.

The report stresses the importance of maintaining a balanced mix of executive and non-executive directors on boards to leverage diverse perspectives and experience. It cautions against combining the roles of Chairman and MD/CEO, highlighting the potential conflict of interest and the adverse impact on corporate governance.

Moreover, the report recommends making the appointment of a lead independent director mandatory for boards chaired by executives to ensure effective governance oversight.

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