Sebi for checks on unfair benefits in private equity pacts

Raising red-flag over share price based incentives through private pacts, regulator Sebi today proposed making it mandatory to take prior approval from shareholders for any such agreements inked by private equity investors with promoters and top executives of listed firms.
At a board meeting held here today, Sebi's board decided to float a consultation paper on corporate governance issues in compensation agreements, which would also entail detailed disclosures for such pacts.
"Instances of private equity funds entering into compensation agreements with promoters, directors and key managerial personnel of listed investee companies, based on performance of such companies have recently come to light. However, when such reward agreements are executed without prior approval of shareholders, it could potentially lead to unfair practices," Sebi said.

Speaking to reporters after the board meeting, Sebi Chairman U K Sinha said, "We came across an instance... If the price goes up beyond a certain level then the managing director would be given an incentive..."
"It was like a private benefit in a listed company. That we plan to attack. We are concerned about such kind of agreements. We will come out with a discussion paper soon," he said.
Sebi said its board approved the proposal for initiation of public consultation process on corporate governance issues in compensation agreements in case of listed companies.

The consultation paper proposes to seek public comments on the possible amendments to Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations).

The proposed changes include adding a new provision that would require disclosures and prior approval of shareholders by way of an ordinary resolution.
In case of existing profit sharing agreements, such agreements would need to be informed to the stock exchanges for public dissemination.
Besides, approval would need to be obtained from their boards and shareholders within stipulated timelines.
The new norms would ensure that any special rights given to private equity funds are approved by minority shareholders.
There are rules mandating special power relating to operations of companies to promoters, while there are no specific rules for private equity players, who have been making significant investments in new age companies.