| The move opens a debate on the role of independent directors nominated by institutions. | ||||||||||||||||||
| "The independent directors are not independent of us. They are an extension of the organisation. These shares do not belong to them and we can get them replaced with new persons whenever we want," said a top GIC official. | ||||||||||||||||||
"It applies to all our nominated directors "" retired or otherwise," he added.
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| The FIs swung into action after two directors on the board of Larsen and Toubro, B P Deshmukh and Kranti Sinha, exercised the options in March this year and wrote to the LIC informing them about the development. | ||||||||||||||||||
| In a joint missive, the GIC and LIC wrote to Deshmukh and Sinha saying they should not have exercised the options granted to them. | ||||||||||||||||||
| D K Mehrotra, managing director of LIC, said, "According to Sebi regulations, a nominee director cannot accept Esops if any institution has more than a 10 per cent stake in any company. It is more a case of Sebi regulations." | ||||||||||||||||||
| LIC holds 15.97 per cent stake in L&T, while UTI and GIC hold 9.42 per cent and 2.66 per cent, respectively, in the construction major, making them the largest group of shareholders. | ||||||||||||||||||
| Mehrotra said this rule for nominee directors applies to all. "This is a rule not only in the L&T case but for all independent directors who are our nominees. We have sent them a communication long back. It is a part of corporate governance norms," Mehrotra said. | ||||||||||||||||||
| While Sinha and Deshmukh exercised their options this March, the third independent director and Unit Trust of India nominee S Rajgopal had not done it as yet, sources close to the developments said. | ||||||||||||||||||
| According to the L&T annual report for 2006, Sinha held 10,000 options, while Deshmukh and Rajgopal held 15,000 options each. L&T shares closed at Rs 1,697 a share on a bearish BSE today. | ||||||||||||||||||
| Esops are awarded to company employees to retain and attract talent. | ||||||||||||||||||
| Sources close to the L&T independent directors say they have not broken any law and exercising options is "left to interpretation". | ||||||||||||||||||
| "When we were on the payroll of the FIs, we were depositing even the sitting fees to our nominee institution. As retired directors, we are not only protecting the nominee directors but also the minority shareholders," he said. | ||||||||||||||||||
| According to Clause 49 of the listing agreement which deals with corporate governance issues, the resolution at a shareholders meeting for introduction of an Esop scheme should specify the limits for the maximum number of stock options that can be granted to non-executive directors, including independent directors, in any financial year. | ||||||||||||||||||
| "When a nominee director is representing a debt-giving FI, their job is to just recover the loan granted to the company. But when an independent director is representing the equity exposure, they are representing the entire shareholders' interest. These shares would lapse anyway if we do not exercise it," he added. | ||||||||||||||||||
| Corporate lawyers say the Sebi must clarify this before the matter ends up in courts. "It all depends on the agreement signed between FIs and its nominees," said Y K Trivedi, a well-known corporate lawyer and himself an independent director on the board of Reliance Industries. | ||||||||||||||||||
| "The nominee directors are of course accountable to the institutions they represent. The FIs are not unjustified when they say that these shares belong to them. But it is the Sebi which should clarify this matter before any of these directors move courts," he said. | ||||||||||||||||||
| L&T declined to comment on the issue saying it is a matter better sorted out among shareholders. | ||||||||||||||||||
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