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CORPORATE GOVERNANCE: WHAT IT IS AND WHY IT MATTERS?

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I. 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
GUIDELINES
10 VOLUNTARY GUIDELINES
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:
• 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;
• 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.

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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.
VOLUNTARY GUIDELINES 11
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 pubic 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.
12 VOLUNTARY GUIDELINES
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

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I. BOARD OF DIRECTORS A. APPOINTMENT OF DIRECTORS A.1 Appointments to the Board i. Companies should issue formal letters of appointment to NonExecutive 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 GUIDELINE ...
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