No Esops for nominees, LIC, GIC tell companies

FIs write to over 100 firms to pre-empt L&T-type situation.

The battle between the insurance companies and their nominee-directors over exercising employee stock option plans (Esops) intensified today, with Life Insurance Corporation and General Insurance Corporation asking over 100 companies not to issue Esops to their representatives.

"We have written to all the companies in which we have nominee-directors, asking them not to give Esops," said LIC Managing Director DK Mehrotra. He said there were more than 100 companies in which LIC had nominee-directors.

The other four public sector insurance companies "" Oriental Insurance Company, New India Assurance, United India and National Insurance "" will follow suit.

Sources close to the developments said some firms in which the insurance companies had board representation had immediately responded by saying they had no such plans.

This comes barely two days after LIC received an ex-parte order from the Bombay High Court, which restrained its nominee on the Larsen & Toubro (L&T) board from dealing with the Esops he had received from L&T. The matter came up for hearing today. The LIC nominee will now file his reply.

Industry sources said the insurance companies wanted to be doubly sure by alerting the management of all companies in which they had nominee-directors about the issue of Esops so that an L&T-type incident did not recur.

The issue of nominee-directors exercising Esops came to the fore when LIC's Kranti Sinha and GIC's BP Deshmukh transferred the Esops they received from L&T to their names. Last month, GIC and LIC asked their nominees on the L&T board not to exercise the stock options.

This has opened a legal can of worms because nominee-directors represent their institutions and sit on the boards of various companies as independent directors and have received shares at discounted rates. Sinha and Deshmukh hold 20,000 and 30,000 L&T shares, the market price of which could be Rs 3.5 crore and Rs 5 crore, respectively.

A corporate observer said no company would now issue Esops to its nominee-directors unless the matter was resolved.

Insurance companies say their nominee-directors are not employees of the firms on whose boards they sit, and thereby, should not be considered eligible for Esops. A section of the financial institutions, however, say the Sebi guidelines on Esops are not clear on the issue.

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