Checkout Budget Highlights 2023Capital markets regulator Securities and Exchange Board of India (SEBI) is looking to curb the power enjoyed by certain stakeholders. In a proposal made on February 21, SEBI suggested a regulatory framework that will end the perpetual directorship enjoyed by some stakeholders.
The stakeholders’ seat at the board of directors at listed companies will be subject to occasional approval—about once every five years, SEBI has proposed. This move will embolden corporate governance.
Institutional shareholders are getting increasingly concerned about the special rights that are being extended to promoters, founders and other favoured body corporates of the companies.
SEBI has also proposed to regulate the agreements that bind a stakeholder as a permanent board member at listed firms.
At present, shareholder agreements give certain stakeholders the leverage to continue to enjoy nomination rights even after their holding in the company is significantly diluted, the regulator said.
Getting a board seat as a director who cannot retire by rotation, or simply adding a clause to the Articles of Association demanding such rights, ensures permanent rights to the stakeholders in question.
It is these disproportionate rights that SEBI aims to overhaul.
The new proposal also includes possible measures to mitigate the sale, disposal or lease of assets of a listed company outside the “Scheme of Arrangement” framework designed to protect the interests of minority shareholders.
The proposal is open to public feedback until March 7.