The motion was passed at a council meeting early this week after a heated debated.
Cr Ian Pottinger moved that elected members be excluded from being directors on council-controlled companies, subsidiaries and joint ventures from the start of the new council's term, in October.
Mayor Sir Tim Shadbolt, Darren Ludlow, Graham Lewis and Lindsay Thomas are directors on council-controlled companies.
Crs Lewis and Ludlow abstained from voting, while Cr Thomas and Sir Tim said they felt comfortable with voting without any conflict of interest, as their directors' roles "were coming to an end".
Cr Pottinger said councils could exercise control through a statement of intent, approval of major transactions, an audit by the Auditor-general, statutory reporting by the council-controlled companies to the council, letters of expectation and dividend policies.
"It is a more formal, effective and transparent mechanism to control our companies."
Sir Tim said it was good to to have elected members in boards and committees because it kept the council informed.
Cr Karen Arnold challenged the document provided by Cr Pottinger.
She said the council should have an "independent information" source instead of a document from a councillor who might have an open bias against Holdco - Invercargill City Holdings, the investment company owned by the council on behalf of ratepayers.
She was worried future councillors would not be able to apply for the director positions even if they had the expertise for the role.
Cr Lindsay Thomas urged to councillors think carefully as the motion would "wipe out any council presence" on the Holdco board."
Cr Toni Biddle disagreed and said councillors were elected to "protect the city" and not to be board directors or chairmen.
"We should not be in these positions. Our obligation is with our community and people."
Cr Alan Arnold believed councillors "should never have to walk away from the table" over voting on subjects related to the council.
Sir Tim and Crs Thomas, Soper, and Karen Arnold voted against the proposal.
