Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Board Structure, Directors and Their Roles in Governance

Updated 11 October 2026

Board structure is the mix of executive, non-executive, independent and woman directors, plus the committees that do focused work. Good governance needs a balanced board, independent oversight and directors who act in good faith for the company. In exams, state the rule, apply it to the facts, then conclude.

Understand Board Structure, Directors and Their Roles

A company is run by its board of directors. Shareholders own the company but do not manage it day to day. They appoint the board, and the board is accountable to them and to other stakeholders. Governance is largely about making that board strong, balanced and answerable.

Structure matters because power concentrated in one person or family is risky. So law asks for a mix. Executive directors work full time in management. Non-executive directors do not. Independent directors have no material link with the company, promoters or management, so they can judge matters objectively. The Companies Act, 2013 and SEBI LODR (for listed companies) set minimum numbers, a woman director requirement and rules on who qualifies as independent.

Boards also work through committees. Specialised work such as audit, pay, stakeholder grievances, CSR and risk is given to smaller groups, usually led by independent directors. Committees give depth and reduce conflicts of interest. The full board stays responsible for their decisions.

Directors have duties of their own. They must act in good faith, with due care, skill and diligence, avoid conflicts of interest and not make undue gain. They act in the best interests of the company, its employees, shareholders, community and the environment. Independent directors carry extra duties, such as guarding minority interests and scrutinising performance.

For your paper, remember the logic: balance, independence, specialised committees and personal accountability. Specific numbers come from the Act and LODR, so check the current text before the exam.

Key rules to remember

Independent directors in a listed company (SEBI LODR): If the chairperson is non-executive and is not related to a promoter or to persons occupying management positions at board level or one level below the board: at least 1/3 of the board must be independent. Otherwise (executive chairperson, or a non-executive chairperson who is a promoter, is related to a promoter, or holds a senior management position): at least 1/2 of the board must be independent.; Under Regulation 17 of LODR. Companies Act, 2013 separately requires at least one-third independent directors for specified listed companies.
Minimum board strength and women director: Top 1,000 listed entities by market capitalisation: at least 6 directors, including at least one independent woman director. All listed entities: at least one woman director.; Verify the current thresholds in the text before the exam. The Companies Act, 2013 also requires a woman director for prescribed classes.
Maximum directorships: Companies Act, section 165: a person can be a director in a maximum of 20 companies, of which at most 10 may be public companies. For the limit of 10, a private company that is a holding or subsidiary company of a public company is counted as a public company. LODR Regulation 17A: a person can be a director in a maximum of 8 listed entities, and an independent director in a maximum of 7 listed entities (3 if serving as a whole-time director in any listed entity).; Learn the two limits separately. The Companies Act counts companies generally, including private companies, while LODR counts listed entities only.
Independent director tenure: Up to 2 consecutive terms of 5 years each. After two terms, the person is not eligible for reappointment until 3 years have passed, and during that gap must not be associated with the company in any capacity, directly or indirectly.; Under LODR, appointment of an independent director needs a special resolution of shareholders. Under section 149(10) of the Companies Act, 2013, reappointment for a second term also needs a special resolution.
Audit Committee composition (listed): At least 3 directors; under LODR Regulation 18 at least two-thirds of members must be independent directors (Companies Act s.177 requires a minimum of three directors, with independent directors forming a majority); Chairperson is an independent director. Quorum: the greater of two members or one-third of the members, with at least two independent directors present.; LODR is stricter than the Act, so apply two-thirds for listed entities. Check the quorum in two parts: the number of members present, and at least two of them independent.
Nomination and Remuneration Committee: At least 3 directors, all non-executive, with at least one-half independent directors (Regulation 19 of LODR). Section 178 of the Companies Act, 2013 also requires three or more non-executive directors, at least one-half of them independent.; Under LODR Regulation 19, the Chairperson must be an independent director. State both sources; the composition rule is the same under the Act and LODR.
Stakeholders Relationship Committee: At least 3 directors, including at least one independent director; Chairperson is a non-executive director (Regulation 20 of LODR). Section 178(5) of the Companies Act, 2013 applies to companies with more than 1,000 shareholders, debenture holders, deposit holders and other security holders; LODR applies to listed entities.; Handles grievances of security holders. Quote the minimum of three directors along with the independent director and chairperson conditions, and state which source applies to the company in the question.
Directors' duties: Section 166 of the Companies Act, 2013; Good faith, due care, no conflict, no undue gain, no assignment of the office.

How to solve Board Structure, Directors and Their Roles questions

Most questions on this topic are case-based. Use the same flow each time so you do not miss marks.

1Read the facts and mark who is involved: the company type (listed or unlisted), the director type and the issue.
2Identify the question being asked: composition, independence, committee, or duty.
3State the rule in plain words with its source, for example Companies Act, 2013 or SEBI LODR.
4Apply the rule to the numbers or facts given. Count directors, check tenure, check relationships.
5Test each exception or condition, such as chairperson type or company class.
6Conclude clearly: compliant or not, and why.
7Add the practical step: board resolution, disclosure, filing, or appointment to fix the gap.

Quickest way: Rule, apply, conclude in three lines

When to use it: When you have less than ten minutes for a short case question.

Write the governing rule and its source in one line.
Do the arithmetic or fact check in one or two lines. Write the figures.
End with a one-line conclusion and one corrective action.

Common mistakes in Board Structure, Directors and Their Roles

Mixing up the Companies Act and LODR thresholds
Both cover independent directors and committees with different numbers and applicability.
Fix: Write the source with every rule. Keep a two-column revision sheet.
Ignoring who is the chairperson when counting independent directors
Students memorise one-third and forget the one-half case.
Fix: Always ask first: is the chairperson executive or related to the promoter?
Treating independent directors as only 'outsiders'
The definition depends on lack of pecuniary relationship and other conditions, not just being non-executive.
Fix: Tick the criteria: no promoter link, no material dealings, not an employee in recent years, not related to directors.
Saying committees take over board responsibility
Delegation is confused with transfer of liability.
Fix: State that the board remains collectively accountable for committee work.
Listing duties without applying them
Students recall Section 166 as a list.
Fix: Link each duty to a fact, for example a director dealing with his own firm is a conflict of interest.
Rounding board counts wrongly
One-third or one-half of the board can produce fractions.
Fix: If a fraction arises, round up to the next whole number, then check the result.

Worked examples

Example 1

Surya Textiles Ltd is a listed company with a non-executive chairperson who is not related to the promoters. It has 9 directors. How many must be independent directors under SEBI LODR?

Show the solution

The rule: where the chairperson is non-executive, at least one-third of the board must be independent directors.
One-third of 9 = 3.
The chairperson is non-executive, so the one-third rule applies and the one-half rule does not.
The board therefore needs at least 3 independent directors.

Answer: At least 3 of the 9 directors must be independent. If it has only 2, it must appoint one more within the time LODR permits.

Example 2

Meera has served as an independent director of Kaveri Foods Ltd for two consecutive terms of 5 years each. The board wants to reappoint her for a third term immediately. Advise.

Show the solution

Rule: an independent director may hold office for up to two consecutive terms of five years each.
Meera has completed ten years, so she has used both terms.
A further term needs a gap. The law requires a cooling-off period of three years before she can be appointed again, and during that time she must not be associated with the company in any capacity, directly or indirectly.
Immediate reappointment is therefore not allowed.

Answer: The board cannot reappoint Meera immediately. She may be considered only after a three-year cooling-off period, during which she must not be associated with the company in any capacity, and subject to the other eligibility conditions.

Exam tips

Always name the source of each rule, because the paper tests Companies Act and LODR separately.
Show the arithmetic for board counts and committee strength; marks follow the working.
In committee questions, give composition, chairperson, quorum and role. Examiners look for all four.
Close case answers with a practical compliance step, such as a board resolution or stock exchange intimation.
Check the latest amendments to LODR before the exam, as thresholds change.

Practice questions from Conceptual Framework of Corporate Governance

Board Structure, Directors and Their Roles: frequently asked questions

What is the role of independent directors in corporate governance?

They bring an objective view, protect minority shareholders and check related party dealings and performance. They also sit on key committees such as audit and nomination and remuneration.

Which board committees are mandatory for listed companies under SEBI LODR?

Audit, Nomination and Remuneration, Stakeholders Relationship and Risk Management are required for listed entities that fall within the stated criteria. Some, such as the Risk Management Committee, apply to a class of top listed entities only.

How is a board structured for good governance?

It has a balanced mix of executive, non-executive and independent directors, including women. It has a clear chairperson role and committees led by independent members. It also has regular evaluation of performance.

What are the main duties of directors?

Section 166 of the Companies Act, 2013 requires directors to act in good faith, exercise due care and skill, avoid conflicts of interest and not make undue gain. They must also consider stakeholders and the environment.