Evolution Of Performance Of Board Of Directors

Evolution is a process through which a company access performance, ability, virtues and eligibilities of its Board of members. Evolution is a process based on some fixed parameters on which performance of Board members are accessed.

Performance evaluation is the process of evaluating how effectively employees are fulfilling their job responsibilities and contributing to the accomplishment of organizational goals.

To appraise performance effectively, a manager must be aware of the specific expectation for a job, monitor the employee's behaviour and results, compare the observed behaviour and results to expectations and measure the match between them.

Performance evaluations are extremely important to an organization, although they may be difficult to conduct. They tell organizations whether their selection methods are right.

Definition of Performance Evaluation

• Performance evaluation means many things to many people. It is a measurement process; it is an exercise in observation and judgment; it is a feedback process.
• It is a control device, which is used by the organization to accomplish its predetermined goals.
• Performance refers to an employee's accomplishment of assigned tasks. Performance means doing a job effectively and efficiently.
• Performance evaluation is the process by which manager or consultant examines and evaluates an employee's work behaviour by comparing it with present standards, documents the results of the comparison and uses the results to provide feedback to the employees to show where improvements are needed and why.
• Performance evaluation is that part of the performance assessment and management process in which an employee's contribution to the organization during a specified period is assessed.
• Performance evaluation is the assessment of an individual's performance in a systematic way.
• Such appraisal also has been called employee rating, employee evaluation, performance review, performance evaluation, and results appraisal. It is widely used for administering wages and salaries, giving performance feedback, and identifying individual employee strengths and weaknesses.
• Performance evaluation is a systematic process of evaluating how well employees are performing their jobs. The appraisal is based on results obtained by the employee in his/her job, not on the employee's personality characteristics.
• It is a developmental tool used for all-round development of the employee and the organization. The performance is measured against such factors as job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgment, versatility, and health. Assessment should be confined to the past as well as potential performance also.
• Performance evaluation is a system of review and evaluation of an individual or team's job performance. An effective system assesses accomplishments and evolves plans for development.
• Performance management is a process that significantly affects organizational success by having managers and employees work together to set expectations, review results, and reward performance.
• Its goal is to provide an accurate picture of past and/or future employee performance. To achieve this, performance standards are established.
• 'Performance evaluation is the systemic evaluation of the individual respect for this performance on the job and his potential for development.' - Beach

Same as companies are evaluating performance of their employees for their appraisal, there is need to evaluate performance of their Board of Directors also.

The Schedule IV of the Companies Act, 2013 provided that Independent Directors of the Companies shall meet at least once in a year to evaluate performance of other independent directors.

NEED FOR BOARD EVALUATION

The purpose can be as follows

• Improving the performance of Board towards Corporate Goals and Objectives.
• Assessing the balance of skills,knowledge and experience on the Board.
• Identifying the areas of concern and areas to be focused for improvement.
• Identifying and creating awareness about the role of Director individually and collectively as Board.
• Building Teamwork among Board of Directors.
• Effective Co-ordination between Board and management.
• Overall growth of the Organisation.

EVOLUTION PROCESS

LETS' DISCUSSION PROVISIONS OF BOARD EVALUATION UNDER VARIOUS ACTS

1. THE COMPANIES ACT, 2013

(i) Requirements of Schedule IV; ' Code for Independent Directors', provides that the Independent Directors shall bring an objective view in evaluation and performance of the Board and the Management.

(ii) The Independent Directors shall meet at least once in a year without attendance of Non-Independent Directors and members of the Management. All Independent Directors strive to be present at the meeting and meeting shall.

• Review the performance of Non-Independent Directors and the Board as a whole.
• Review the performance of the Chairman of the company, considering the views of executive directors and non-executive directors.
• Assess the quality, quantity, and timelines of flow of information between the company management and the Board that is necessary for the Board to perform their duties effectively and reasonably.

The performance of Independent Directors should be assessed by the Board of Directors as a whole. The Independent Director,whose performance being evaluated should not participate in the Board Meeting and engagement of Independent Directors with the company should be extended based on results of his evaluation.

(iii) Section 134(3)(p) of the Companies Act, 2013 provides that there should be a formal Annual Evaluation of Board of its own performance and that of committee and Individual Directors. Rule 8(4) of the Companies ( Accounts) Rules, 2014 mandated Annual Evaluation of Performance of Board, Committees, and Individual Directors for.

1. Every Listed Company and
2. Every other Public Company having Paid-up Share Capital of 25 Crores or more calculated at the end of the preceding financial year.

The above company should include a Report in its Board Report and a Statement indicating the way Formal Annual Evaluation has been made by the Board of its own performance and that of its committee and Individual Directors.

(iv) Section 178( 2) states that the Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every directors' performance.

2. PROVISIONS UNDER SEBI(LODR) REGULATIONS,2015

Asides Companies Act, 2013 and Insurance Act, 1938, The SEBI ( LODR) Regulations, 2015 also contains some regulations for Evaluation of Performance of Board of Directors as follows.

Regulation 4- Kay Function of Board of Directors includes monitoring and reviewing board of directors' evaluation framework

Regulation 17- The Performance Evaluation of Independent Directors shall be done by the entire Board of Directors.

Provided that in the above evaluation the directors who are subject to evaluation shall not participate.

Part D-of Schedule II - provides the role of Nomination and Remuneration Committee.

• The formulation of criteria for evaluation of performance of Independent Directors and the Board of Directors.
• Whether to extend or continue the term of appointment of the Independent Director, on the basis of the report of performance evaluation of Independent Directors.

IMPORTANT STEPS FOR EVALUATION PROCESS

• To develop a methodology for evaluation. It may be different for different companies based on their types of management and constitution of Board.
• As a good practice, the company may also develop a Policy on Board Evaluation.
• Ideally, evaluation process could commence each year ( during last quarter) to evaluate the performance of concerned body or individual in the succeeding year.
• It is a good practice that each director is given a copy of the form for assessing the overall performance Board/Committees/Directors/Chairperson/Managing Director/Whole Time Director/Executive Director/Independent Director, as the case may be sufficiently in advance, so that he become aware the evaluation process and well as the parameters on which performance will be evaluated;
• The forms which include a set of questions, should have a rating mechanism or subjective questions,which may be analysed by the Nomination and Remuneration Committee.
• Ideally Nomination and Remuneration Committee should compile the feedback and comments in the evaluation forms and appropriately review the same.
• Thereafter the consolidated feedback and comments along with its recommendation be placed before the Board.

COMPONENT OF BOARD APPRAISAL.

1) Evaluation of the Board as a whole.

• Internally
• Externally (by an expert).

2) Evaluation of Individual Directors (Independent, Executive, Non-Executive, MD,WTD etc).

• Self-evaluation.
• Peer to Peer evaluation.
• External (by an expert).

3) Evaluation of Committee

• Internal( by Board).
• Externally (by an expert).

4) Evaluation of a Chairperson.

4. All Directors.
5. Externally (by an expert).

CONCLUSION

Today we are in modern and fast changing era. Technology has brought tremendous changes in the way of doing business as well as development of an organisation. Todays' your performance in workplace is important, not your looks,knowledge etc. the way you perform the work assigned is the most important. The performance evaluation process is a process through which we assess performance of management, Board, Employees etc., it important as well as essential for every organisation. The performance evaluation acts a way to motivate all stakeholders of an organisation and through this process we assess, the quality of workforce an organisation has and the requirement to develop this workforce for achievement of goals.

DISCLAIMER: The above write up is only for knowledge of readers. The author does not express any opinion or suggestion on above mentioned topic. The readers should not consider above write up as an advice and view of author. You are requested to take advise of expert, before acting on any part of write up.