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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Effectiveness and Building Better Boards

Ganga Steels Ltd, a listed public company, has an NRC of five non-executive directors, two of whom are independent. The Board plans to rely on this NRC to run the annual board evaluation. Assessing only the composition rule in section 178(1), what is the position?

The NRC is non-compliant. Section 178(1) requires three or more non-executive directors with not less than one-half independent; for five members that means at least 2.5, so three independent directors are needed, and only two exist.

  1. ACompliant, because all members are non-executive
  2. BCompliant, because three or more members suffice
  3. CNon-compliant, because at least three members must be independent
  4. DNon-compliant, because not less than one-half of the members must be independent directors and two of five is below thatCorrect

Explanation

Section 178(1) needs three or more non-executive directors with not less than one-half independent. One-half of five is 2.5, so at least three must be independent; two falls short. Being non-executive and having at least three members is necessary but not sufficient. Option three overstates by requiring a majority-type test rather than one-half, though it gives the same number here, it misstates the rule.

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