Board of Directors Evaluation - The 2026 India Rules
Board evaluation is mandatory under the Companies Act 2013 and SEBI LODR. What the rules require, what a good evaluation surfaces, and where boards fall short.
Board of directors evaluation is mandatory for Indian listed companies under Section 134(3)(p) of the Companies Act 2013 and Regulations 17(10) and 25(4) of SEBI LODR. The board as a whole, each committee, every individual director and the chairperson must be assessed annually, and the manner of assessment disclosed in the directors' report. Compliance is close to universal. Candour is not.
What does Indian law require on board evaluation?
Indian law imposes board evaluation through four instruments. The Companies Act 2013 creates the obligation and the disclosure duty. SEBI LODR extends it to listed entities and fixes who evaluates whom. Schedule IV governs the independent directors' private meeting. SEBI's Guidance Note on Board Evaluation, issued in January 2017, supplies the method.
The provisions a company secretary will cite, and a board should be able to recognise:
- Section 134(3)(p), Companies Act 2013. The directors' report of a listed company must carry a statement indicating the manner in which formal annual evaluation of the performance of the board, its committees and individual directors has been made.
- Section 178(2), Companies Act 2013. The Nomination and Remuneration Committee shall specify the manner for effective evaluation of performance of the board, its committees and individual directors, to be carried out either by the board, by the committee itself, or by an independent external agency, and shall review its implementation and compliance.
- Regulation 4(2)(f), SEBI LODR. Monitoring and reviewing the board evaluation framework is a named responsibility of the board.
- Regulation 17(10), SEBI LODR. Performance evaluation of independent directors is done by the entire board of directors, and a director who is subject to evaluation does not participate in it.
- Regulations 25(3) and 25(4), SEBI LODR. Independent directors must hold at least one meeting a year without non-independent directors or management present, and at that meeting review the performance of non-independent directors and of the board as a whole, and review the performance of the chairperson taking the views of executive and non-executive directors into account.
- Schedule II Part D, SEBI LODR. The Nomination and Remuneration Committee formulates the criteria for evaluating the performance of independent directors and of the board.
- Schedule V Part C, SEBI LODR. The corporate governance report in the annual report must disclose the performance evaluation criteria for independent directors.
Schedule IV of the Companies Act 2013 adds one requirement boards routinely overlook. At the independent directors' separate meeting, they must assess the quality, quantity and timeliness of the flow of information between management and the board. A board that cannot govern because it is fed the wrong papers is a finding, and the law asks for it explicitly.
One carve-out matters. A government company whose directors are evaluated by the administratively responsible ministry or department under its own methodology is exempt from the Section 134(3)(p) statement, under MCA notification GSR 463(E) dated 5 June 2015. Most public sector undertakings use it, which is why PSU disclosure in this area is thin.
Who evaluates whom, and who leaves the room?
Board evaluation in India is not one exercise but three, run by different people. The entire board evaluates each independent director. The Nomination and Remuneration Committee sets the criteria everyone is measured against. The independent directors, meeting alone, evaluate the chairperson, the non-independent directors and the board as a whole.
The recusal rule is the part that gets fudged. Regulation 17(10) says the director under evaluation shall not participate in that evaluation. In practice this means an independent director cannot sit in the room while the board discusses their own contribution, and it means the chairperson does not chair the session that assesses the chairperson.
The independent directors' meeting is the only forum in the Indian framework where management is structurally absent. It is therefore the only place where the questions that matter can be asked without cost. Boards that treat it as a fifteen-minute formality before lunch have given away the single most valuable governance tool the Companies Act handed them.
What do Indian boards actually disclose?
Indian boards disclose the process and almost never the outcome. In the fourth NSE and IiAS study of board evaluation disclosures and practices, covering FY20 across the Nifty 50 and Nifty Midcap 50, 88 of 100 companies disclosed that the entire board had been evaluated, but only 11 disclosed the result and only 8 disclosed an action plan.
The rest of that picture, from the same study:
- Individual directors were evaluated at 89 of 100 companies, board committees at 84, the entire board at 88 and the chairperson at 78. Chairperson evaluation was the largest improvement, up from 63 companies in FY17.
- Thirty-eight companies improved their disclosure levels between FY17 and FY20. Five weakened. Fifty-four made no change at all.
- Eleven companies used an external professional to support the evaluation, the same number as FY17. The study notes that in most cases the external agency acted as a facilitator or platform provider rather than as the evaluator.
These figures are for FY20 and were published in June 2021, so read them as the direction of travel rather than today's position. The structural point holds regardless: the regulation asks companies to disclose the manner of evaluation, not its findings, and companies have disclosed exactly what was asked and no more.
The NSE and IiAS authors make the sharper observation themselves. Disclosure of results and of an action plan is accepted practice in several markets and is not required in India, yet the exercise only becomes real at the point where someone writes down what was wrong and what will change.
Why do most board evaluations find nothing?
Board evaluations find nothing because the people conducting them sit in the same room every quarter. Collegiality is not a flaw in a board; it is what makes a board function. It is also what makes candid peer assessment almost impossible without a deliberate structure that forces the issue.
The scale of the gap is now measurable, though the cleanest recent data is American. PwC's 2025 Annual Corporate Directors Survey, published on 1 October 2025 and drawn from more than 600 US public company directors, found that 55 per cent of directors said at least one of their fellow board members should be replaced. That is the highest level in the survey's history and the first time a majority has said so.
The same survey found 78 per cent of directors saying their board assessments do not capture the full picture, and nearly three quarters saying their boards skip individual director reviews altogether. Only 32 per cent of executives believed their board had the right mix of skills. A third of directors said long tenure was contributing to underperformance, and nearly one in five said their board simply waits for a director to reach retirement age.
Read those two findings together and the problem is exact. A majority of directors privately believe a colleague should go. Three quarters of boards run a process that has no mechanism for saying so.
Nawshir Mirza, a former partner at S R Batliboi and Co who has served as an independent director on several listed Indian companies, sets out the simplest workable fix in the NSE and IiAS handbook. Ask each director to assess their peers on three questions only: what does the director do well, what can the director do better, and what should the director stop doing. The chairperson collates the responses and delivers the outcome in a one-to-one conversation, without breaching confidentiality.
Three questions, asked properly, will out-perform a forty-item scoring matrix that every director completes in eight minutes on the morning of the meeting.
What does a useful board evaluation actually surface?
A useful board evaluation produces findings a board can act on within ninety days. It tests the board against the strategy of the next three years rather than the last three, and it names things. A score of 4.2 out of 5 on board effectiveness is not a finding. A statement that the board has nobody who has taken a business through a regulated market entry is.
The questions worth asking:
- Does the board's skills mix match where the company is going? A manufacturing group entering three export markets and a domestic business preparing for an IPO need different boards, and neither needs the board that got them here.
- Is the chairperson effective, separately from being respected? These are different questions, and in promoter-led companies they are routinely conflated.
- Is the information flow adequate? Schedule IV requires this assessment. Board packs arriving forty-eight hours before a meeting, running to four hundred pages, with no decision framing, is a governance finding.
- Are the committees carrying the load they should? The audit committee is usually overloaded and the Nomination and Remuneration Committee usually underused.
- Is there succession readiness for the chairperson, the CEO and each committee chair? Evaluation without a succession consequence is an opinion survey.
- Which director no longer contributes? If the evaluation cannot produce this answer in the years when it is true, it is not an evaluation.
In our work on board and independent director mandates, the evaluations that change anything are the ones whose output reads like a brief. When a board can say it needs a director with operating experience in a specific sector, at a specific scale, who has sat through a specific kind of transition, the search becomes tractable. When the output is a set of averaged scores, the next appointment is made from the chairperson's address book, and the same gap reappears three years later. The same logic governs building a CEO succession bench before the seat opens.
When should a board bring in an external evaluator?
A board should bring in an external evaluator when the questions worth asking are questions the chairperson cannot ask. Section 178(2) of the Companies Act expressly permits evaluation by an independent external agency, and 11 of the 100 largest and mid-cap Indian companies used one in FY20. The UK Corporate Governance Code expects FTSE 350 boards to use an externally facilitated evaluation at least every three years, a benchmark the NSE and IiAS handbook holds up against Indian practice.
PwC found that boards bringing in external facilitators report stronger assessment outcomes. That is a self-reported measure and should be treated as such, but it points the same way as the structural argument.
The situations that genuinely warrant an external evaluation:
- The chairperson is a member of the promoter family. Roughly two in three Indian listed companies are family-controlled, and in those boards the person who would ordinarily run the evaluation is the person most in need of it.
- The company has just been through a CEO transition, a governance failure, an auditor resignation or a regulatory action.
- Chairperson succession is within two years.
- The board has never had an evaluation that produced a written action plan.
- The evaluation is the first since listing, when board composition changed faster than the board's working habits did.
What should a board do with the evaluation results?
A board should convert evaluation findings into three decisions: what changes in how the board works, what changes in board composition, and what the company will say publicly. Anything short of that is a compliance artefact.
The mechanics matter more than the format. The chairperson holds a one-to-one with each director rather than circulating a summary. The Nomination and Remuneration Committee, which set the criteria under Schedule II Part D, owns the follow-through and links reappointment recommendations to what the evaluation found. Where a reappointment is contested or a new name is in playpersona due diligence on the candidate's actual record is what turns a reference conversation into evidence, and a governance advisory engagement is the right vehicle where the board wants the work facilitated rather than marked. The NSE and IiAS study noted early signs that Indian director reappointments were starting to turn on evaluation outcomes, and called it a good outcome if it gained currency.
Disclosure is the last step and the one Indian boards skip. Nothing in the Companies Act or SEBI LODR requires a company to publish what the evaluation found. Eleven companies out of a hundred did it anyway. A board that publishes a finding and an action plan is making a costly signal, which is precisely why investors read it. Where the finding points to a fresh appointment, the mechanics of appointing an independent director in India are the next question; where it points to a composition gap on gender, the pipeline reality for women on Indian boards is a harder problem than the rule itself.