Board Diversity: A MANDATE FOR LISTED ENTITIES

 


Diversity is a key factor that is receiving increasing attention from regulators, investors, and other stakeholders. Regulation 17 (1) of the Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, which mandates the composition of the board of directors of a listed entity. The regulation specifies that the board of directors must have an optimal combination of executive and non-executive directors, with at least one woman director. Additionally, not less than 50% of the board of directors must comprise of non-executive directors.

The regulation further states that the top 1000 listed entities must have at least one independent woman director. This requirement is in addition to having an optimal combination of executive and non-executive directors. The top 1000 entities are determined based on their market capitalization as at the end of the immediate previous financial year.

Furthermore, if the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors must comprise of independent directors. If the listed entity does not have a regular non-executive chairperson, at least half of the board of directors must comprise of independent directors. In the latter case, if the regular non-executive chairperson is a promoter of the listed entity or related to any promoter or person occupying management positions at the level of the board of directors or at one level below the board of directors, at least half of the board of directors of the listed entity must consist of independent directors.

In addition, the board of directors of the top 2000 listed entities must comprise of not less than six directors, with effect from April 1, 2020. The top 2000 entities are determined based on their market capitalization as at the end of the immediate previous financial year.

If the listed company has outstanding SR equity shares, at least half of the board of directors must comprise of independent directors and no listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of seventy-five years unless a special resolution is passed to that effect. The explanatory statement annexed to the notice for such a motion must indicate the justification for appointing such a person.

The listed entity shall ensure that the approval of shareholders for appointment or re-appointment of a person on the board of directors or as a manager is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier. A public sector company must ensure that the approval of the shareholders for appointment or re-appointment of a person on the board of directors or as a manager is taken at the next general meeting.

If a person, including a managing director or a whole-time director or a manager, was earlier rejected by the shareholders at a general meeting, the appointment or re-appointment of such a person must be done only with the prior approval of the shareholders. The statement referred to under sub-section (1) of section 102 of the Companies Act, 2013, annexed to the notice to the shareholders, for considering the appointment or re-appointment of such a person earlier rejected by the shareholders must contain a detailed explanation and justification by the Nomination and Remuneration Committee and the Board of directors for recommending such a person for appointment or re-appointment.

 

Regulation 17 (1) is significant for listed entities in India as it ensures that the board of directors is composed of individuals with diverse backgrounds and expertise. The provision mandates that the board of directors must comprise of a mix of executive and non-executive directors, with at least one woman director.

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