Mumbai: The Securities and Exchange Board of India (SEBI) committee on corporate governance has recommended doing away with the practice of appointing nominee directors by financial institutions on the board of companies.

The committee, headed by N R Narayana Murthy, chairman and chief mentor of Infosys, said if an institution wishes to appoint a director on the board of a company, it should be approved by the shareholders of the company. Such directors shall not be considered as independent directors.

An institutional director, so appointed, shall have the same responsibilities and shall be subject to the same liabilities as any other director. The nominee of the government on public sector companies shall be similarly elected and shall be subject to the same responsibilities and liabilities as other directors, the committee recommended in its draft report.

The rationale to do away with the nominee directors position follows the committees view that the institution of nominee directors creates a conflict of interest that should be avoided. Such directors often claim that they are answerable only to the institutions they represent and take no responsibility for the companys management or fiduciary responsibility to other shareholders.

It is necessary that all directors, whether representing institutions or otherwise, should have the same responsibilities and liabilities, the report said. The committee recommended that companies should lay down a code of conduct for all the board members and the senior management of company.