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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board's Accountability on ESG

Meridian Chemicals Ltd proposes to appoint Mr. Arjun as an independent director with ESG expertise. Mr. Arjun's firm earned consulting fees from the company that were a significant part of the firm's turnover in the last two financial years. Which view is correct about his appointment?

His independence is compromised because his firm has a material pecuniary relationship with the company through significant consulting fees. Independent directors must avoid such relationships. ESG expertise, unanimous board approval or lack of shareholding cannot override the independence criteria.

  1. AHe is eligible as long as he has environmental expertise
  2. BHe is eligible if the board unanimously approves him
  3. CHe is eligible if he holds no shares in the company
  4. DHis independence is compromised because of a material pecuniary relationship with the companyCorrect

Explanation

Independent directors must not have a material pecuniary relationship with the company; for firms in which they are partners, consulting fees beyond the prescribed threshold of turnover disqualify independence. Expertise, board approval or shareholding status do not cure this. Hence independence is compromised.

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