Cos planning IPOs told to drop director nomination rights

economictimes.indiatimes.com:

Securities and Exchange Board of India (Sebi) is asking companies planning initial public offers (IPOs) to remove director nomination rights provided to promoters and investor shareholders from the articles of association. They have to instead seek shareholder approval for such rights after listing, said sources aware of the development. The move is aimed at strengthening corporate governance.

While all other special rights held by shareholders cease to exist when a company goes public, the right to nominate directors to the board had thus far been allowed by Sebi. Market experts said the move was of a piece with Sebi's recent efforts to curb misuse of board positions in listed companies. Sebi «had released a discussion paper in February where this issue of board permanency was raised after a few cases of promoters and founders enjoying board permanency were highlighted in the media,» said Pranav Haldea, managing director of Prime Database group.

«This proposal was subsequently approved by the Sebi board in March. It has been done primarily in the interest of good corporate governance that whoever sits on the board should obtain periodic approval of shareholders,» said Haldea. With the latest move, all pre-existing special rights of promoters or investor shareholders will be extinguished at the time of listing.