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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

A listed Indian company has a board of 12 directors. Its nomination committee is reviewing board composition against a good-practice approach of having at least half of the board independent. Currently there are 4 executive directors, 2 promoter non-executive directors, and 6 directors who qualify as independent. Two executive directors retire and are not replaced, and one additional independent director is appointed. What is the resulting proportion of independent directors, and does it meet the half-board benchmark?

The board becomes 11 directors after two retirements and one independent appointment, of whom 7 are independent. That is 7 out of 11, about 64%, which exceeds the half-board benchmark. Wrong options ignore the new appointment or mishandle the board size.

  1. A7 of 11, about 64%, meeting the benchmarkCorrect
  2. B7 of 12, about 58%, meeting the benchmark
  3. C6 of 10, 60%, meeting the benchmark
  4. D7 of 10, 70%, meeting the benchmark
  5. 6 of 11, about 55%, meeting the benchmark

Explanation

Initial: 4+2+6 = 12. After two retirements without replacement the board is 10, then adding one independent gives 11. Independents number 7, so 7/11 = 63.6%, which exceeds 50%. Option 6 of 11 forgets the new independent; 7 of 12 assumes a replacement for the retirees.

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