The Securities and Exchange Commission (SEC) has banned the conversion of Independent Non-Executive Directors (INEDs) into Executive Directors within the same company or corporate group.
This is part of the SEC’s efforts to tighten corporate governance standards in Nigeria’s capital market.
In a circular titled “Circular to All Public Companies and Capital Market Operators on the Transmutation of Independent Non-Executive Directors and Tenure of Directors”, the Commission stated that the practice compromises board independence and erodes the objective oversight that independent directors are expected to provide.
The SEC expressed concerns over what it described as a growing trend of boardroom recycling within public companies and capital market operators, particularly the transmutation of INEDs into executive roles such as Chief Executive Officer (CEO).
It said the practice undermines the neutrality and objectivity of such individuals and violates both the National Code of Corporate Governance (NCCG) and the SEC’s own Corporate Governance Guidelines (SCGG).
“This practice clearly erodes the neutrality of the transmuting INEDs, compromises their ability going forward to provide objective judgment and is generally antithetical to the principles which underpin independent directorship,” the Commission noted.
Effective immediately, public companies and capital market operators with significant public interest are required to discontinue the practice of appointing former INEDs to executive positions within the same firm or its group.
In order to strengthen boardroom accountability and reduce concentration of power, the SEC introduced a mandatory three-year “cooling-off” period before a CEO or Executive Director can be appointed as Chairman of the same company.
According to the circular, “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 cooling-off period.”
Additionally, the tenure of directors in capital market firms identified as significant public interest entities will now be capped. Directors can serve a maximum of 10 consecutive years within the same company and up to 12 years within the same group structure. Where a CEO or Executive Director becomes Chairman after the cooling-off period, the tenure in that role will be limited to four years.
The circular draws its authority from Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, which empowers the SEC to prescribe governance standards for regulated entities.
To ensure immediate compliance, the SEC clarified that the tenure count includes years already served by current appointees. Companies are therefore expected to begin succession planning and board composition reviews in line with the directive.
“These directives take immediate effect and compliance is mandatory,” the Commission stated. “Public Companies and Capital Market Operators are required to take the directives into account in their board appointments and succession planning.”
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