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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Committees

Nirmal Textiles Ltd, a listed public company, has a Board chairperson, Mr Rao, who is an executive director. The Board forms its Nomination and Remuneration Committee with Mr Rao and four non-executive directors, two of them independent. It wants Mr Rao to chair it. Applying section 178, what is the position?

Mr Rao may be appointed a member but cannot chair the Nomination and Remuneration Committee. Under section 178(1) the committee needs three or more non-executive directors, at least one-half independent, so two independents among five members also falls short of the requirement.

  1. AValid, since an executive chairperson may chair any Board committee
  2. BInvalid, as the committee needs all members independent and Mr Rao cannot be a member
  3. CValid only if Mr Rao is elected chair by the general meeting
  4. DMr Rao may be a member, but cannot chair the committee; also, the committee has fewer than one-half independent directors if Mr Rao counts as a memberCorrect

Explanation

Section 178(1) requires three or more non-executive directors, not less than one-half independent. The proviso lets the chairperson, executive or non-executive, be a member but not chair. Mr Rao as an executive director is not a non-executive director, and two independents out of five members is below one-half, so the composition and the chairing both fail. Distractor 'all independent' overstates the rule.

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