In order to stop the practice of occupying permanent directorship in a company, the capital markets regulator Sebi Tuesday proposed that the listed entities should take shareholders approval at least once in 5 years for the appointment of directors to serve on their board. It said not all directors serving on the board of listed entities may be subject to retirement by rotation and there may be some directors who are appointed to the board of a listed entity without a defined tenure and not liable to retirement by rotation. “In the interest of good corporate governance at listed entities, all directors appointed to the board of a listed entity need to go through periodic shareholders’ approval process, thereby providing legitimacy to the director to continue to serve on the board,” Sebi proposed in a consultation paper on strengthening corporate governance at listed entities by empowering shareholders. As on March 31, 2024, if there is any director serving on the board of a listed entity without his / her appointment or re-appointment being subject to shareholders’ approval during the last five years i.e., from April 1, 2019, the listed entity shall take shareholders’ approval in the first general meeting to be held after April 1, 2024, for his / her continuation on the board of the listed entity, the markets regulator said. Apart from the issue of board permanency, Sebi also recommended certain norms related to special rights granted to certain shareholders; sale, disposal or lease of assets of a listed entity outside the 'scheme of arrangement’ framework and on agreements binding listed entities. Sebi said to attract investments in a company prior to listing, special rights are offered by the company to its pre-IPO investors and the promoters. These special rights are included in the shareholders agreement (SHAs) executed between the company and the pre-IPO investors / promoters. “In order to address the issue of certain shareholders enjoying special rights perpetually, it is proposed that any special right (existing / proposed) granted to a shareholder of a listed entity shall be subject to shareholder approval once in every 5 years from the date of grant of such special rights,” Sebi proposed.
