Compulsory annual evaluation of a company's board will help boost accountability and transparency but the move might face initial hurdles such as reluctance in sharing fair views, says a PwC report.
The Companies Act, 2013 mandates an annual evaluation of the board, its committees and individual directors, while Sebi has also put in place similar provisions for listed firms.
"Evaluation of the board's performance is a significant step towards increased accountability and transparency, given that the board wields significant authority and is trusted to act in the best interest of shareholders," PwC said.
According to the global consulting firm, the philosophy behind performance evaluation is to help the board optimise its performance, which in turn, would aid the overall growth of the organisation.
"The process may encounter initial hurdles such as reluctance in sharing fair views, difficulty in ensuring transparency and building trust," it said.
The new provision under the Companies Act came into effect from April 1, 2014.
Given the confidentiality and sensitivity associated, corporates are treading with caution in the first year and taking measured steps to comply with the law, the report said.
"However, perhaps in another two to three years, when the process and concept have matured, a more robust approach may evolve," it added.
Corporates have the flexibility to choose the evaluation modes, tools and techniques that suit them best.
"India Inc should make the most of this opportunity by not treating it as a mere compliance exercise. One hopes that the entire process will be used constructively as a developmental tool to bolster the governance quotient," the report said.
