SEC Bans Independent Directors of Public Companies from Becoming Executive Directors
The Securities and Exchange Commission (SEC) has banned independent directors of public companies from transitioning into executive director roles within the same company or group.
In a circular to public companies and capital market operators in Abuja on Friday, the commission said the practice undermined the principle of board independence and weakened the value of having an impartial voice in a company’s governance.
SEC also introduced a three-year cooling-off period before a chief executive officer (CEO) of a public company could be appointed as chairman of the same company. The commission said the decision was aimed at strengthening corporate governance and ensuring a clear separation of roles and oversight.
”The attention of the SEC has been drawn to the prevalence in recent times of the rotation of various directorship positions among individuals within the same entity or group of companies.
”In particular, the Commission observes the worrying trend of the transmutation/conversion of Independent Non-Executive Directors (INEDs) to Executive Directors, including to the position of the Chief Executive Officer.
“This practice clearly erodes the neutrality of the transmuting INEDs, compromises their ability going forward to provide objective judgment, and is generally anti-ethical to the principles which underpinned independent directorship.
”This is outlined in both the National Code of Corporate Governance (NCCG) as well as the SEC Corporate Governance Guidelines (SCGG),” the Commission said.
SEC in the circular also streamlined the tenures on CEOs and board chairmen, barring CEOs from becoming chairmen directly from their positions.
“Pursuant to its powers under Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025 to prescribe corporate governance standards for regulated entities.
”The Commission hereby directs that the tenure of directors of all capital market operators considered as significant public interest entities, as determined by the Commission, be limited to 10 consecutive years in the same company and a total of 12 consecutive years within the same group structure.
“Furthermore, a chief executive officer or executive director who steps down after 10 or 12 consecutive years, as the case may be, cannot be appointed as chairman until the expiration of a 3-year ‘cool-off period.’”
”The tenure of such former chief executive officer and executive director as chairman shall be for a maximum of 4 years and no more,” the commission said. The SEC said the directives would take immediate effect, and compliance was mandatory.
The commission urged all public companies and capital market operators (CMOs) to take the directives into account in their board appointments and succession planning.
