The candidature of Vineet Nayar, former chief executive
, Abhijit Sen, former CFO of Citibank India, and Sanjay Bhandarkar, a veteran banker and head of Rothschild in India, will be formally announced in the coming days before being put to vote at the annual general meeting scheduled next month, said people aware of the matter.
The opportunity to induct fresh faces on the board arose last month when Prakash Parthasarthy, former chief investment officer, Premji Invest, stepped down after a nine-year term as a shareholder director following the departure of Abhay Havaldar, former managing director of PE fund General Atlantic (GA), last year. Both had been shareholder directors since 2012. Another shareholder director, SBI Group nominee Anshula Kant, had stepped down in 2018 and that position has since been vacant.
The NSE board ideally needs to have equal representation between public interest directors (PIDs)–former public sector bankers, academics, technocrats and eminent professionals nominated by the stock market regulator–and shareholder directors. Managing director and CEO Vikram Limaye is a shareholder director while the chairman, former petroleum secretary GC Chaturvedi, is a PID.
However, the trio were not the original choices for many, according to several of the people who spoke to ET. NSE and the shareholders declined to comment.
The selection process to reconstitute the board was fraught with pushback, power plays and hard negotiations that even led to some large investors in the country’s premier stock exchange “displaying their frustration and displeasure” during the deliberations, said one of them.
The proposal by a large shareholder bloc, cumulatively representing a little over a quarter of the total equity pool, seeking two board representatives was disallowed citing internal guidelines. Even formal nomination requests from long-time investors were turned down by the management and the Nomination and Remuneration Committee (NRC), stoking simmering tension, said the people cited above.
Several of the shareholders, representing large financial groups, have been stuck with their NSE investment for over six years without any liquidity event such as an IPO and have been clamouring for an exit. Their logic for seeking direct board representation is to safeguard the investment and maximise value.
“It’s their money on the line,” said one of the officials aware of the parleys. “Who better than their own to address our concerns at the apex decision making body?”
Even the name of a top legal professional–also a member of various capital markets and foreign investment panels of the government–presented formally by one of the shareholders is believed to have been turned down. Additionally, there was resistance even to the candidature of some of the final nominees, which sources said, led to “heated exchanges.”
NSE has 11,000 shareholders, a far cry from the concentrated holdings of the past. Almost 49% of the exchange is held by foreign investors–private equity, venture capital and foreign institutional investors. They include including Tiger Global, Chrys Capital, Saif Partners, General Atlantic, Singapore government’s investment company Temasek, Deccan Value Investors, Acacia Banyan Partners, Norwest Venture Partners, Think Investments, Crown Capital and Saif Partners. The rest is held by Indian shareholders such as Life Insurance Corp. of India (LIC), State Bank of India, other state-owned insurers, IIFL, Edelweiss and PremjiInvest.
In 2016, some of these foreign investors like Norwest Venture Partners and Saif had accused the top management, including then CEO and MD Chitra Ramkrishna, of misguiding them about the contours of the listing committee and the powers given to the CEO on this matter, according to a PTI report in March of that year.
“The board composition and governance standard has wider implications as institutions like NSE act as proxies and impinges on the larger integrity of our capital markets,” said
Shriram Subramanian, MD of InGovern Research Service, a corporate governance advisory firm.
“It is absolutely imperative to have a strong, independent minded board even more so now it has come out of a major scandal. The directors need to be independent of the management also. In the past, the board seemed to have been subservient to the management.”
10% Threshold Key
The management’s resistance stemmed from an internal policy that shareholders with less than 10% stake are not eligible to appoint themselves to the board, according to the persons cited above. By this norm, only LIC, with around 12% as the single largest institutional shareholder, makes the cut. The state insurer has Sunita Sharma, former MD of LIC’s mortgage arm, as its nominee. But both the directors who just exited represented shareholders who did not have that level of holding but continued “for legacy reasons.”
Sources close to NSE argue that a transparent selection process was followed, adding that the threshold is an eligibility criterion.
“Nominations from all shareholders are first sought, then vetted by the NRC before shareholders approve,” said an official. “The 10% threshold is a normal governance criterion for many companies. Moreover, being a Market Infrastructure Institution (MIIs), there are other Sebi and foreign exchange regulations that govern board appointments in exchanges, apart from a 15% investment cap.
Some board representatives argued that independent directors are essential for continuity while individuals attached to financial institutions may sever their ties after a listing.
However, several peeved shareholders told ET that there were workarounds available.
“In deference to the management feedback, we did not press for direct nominations but we are certainly not happy about it,” said one. “Replacing directors in an IPO is not a great excuse to not have them if they add value in the interim.”
To break the deadlock, earlier this month, nine shareholders joined forces and wrote a letter nominating potential candidates such as Nayar and Mohandas Pai. The latter could not be accommodated on technical grounds. Instead, the management handpicked Sen for his “expertise on corporate governance.”
As per the rules, a public interest director has to undergo a three-year cooling off period before becoming a shareholder director. Nayar’s understanding of technology and Bhandarkar’s capital markets knowledge–having advised NSE before on its IPO plans–were among the factors considered.
