The ownership of stock options by nominee directors of financial institutions (FIs), which had been in limelight of controversy from quite sometime now, may get over now. SEBI, the market regulator, has said that nominee directors can own stock options if the FI which has nominated them permits them to do so. The announcement has cleared the grey area in the employees stock option scheme (ESOP), up till now.

There was no clarity regarding this issue, which led to a major controversy between nominee directors and FIs. Corporate governance forms the major reason for the issue out here. Some felt that issuing ESPOs to the nominee directors would lead to making compromises in their independence.

On the late evening of Monday, SEBI clarified all these doubts by saying that there should be an agreement between FIs and directors to accept the option and the agreement should be filed by the company.

But FIs are unsure to let their directors accept stock options as it may lead to a “serious conflict of interest.”

Regarding the issue, a top official of a government-owned insurance corporation said, “We cannot allow our directors on company boards to accept shares as once our nominees become shareholders, they will not be able to discharge their duty to us properly. There would be a clamour to get nominated on the company boards if we allow them to take share options.”

The move taken by SEBI has been welcomed by the legal fraternity.

Partner of J Sagar Associates, Nitin Potdar, said, “The SEBI directive makes it clear that a company should not decide whether it would offer stock option to nominee directors. The financial institution should take the call on whether its representatives on the board of a company should accept the stock option.”