…imposes cooling-off period for CEOs
By Chukwuma Umeorah
The Securities and Exchange Commission (SEC) has prohibited Independent Non-Executive Directors (INEDs) from taking up Executive Director roles within the same company or group, citing concerns over the erosion of board independence.
The directive was contained 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,” which was released by the Commission and published on its website.
The SEC also introduced a mandatory three-year cooling-off period before a Chief Executive Officer (CEO) or Executive Director can be appointed as Chairman of the same company or within the same group structure. The new rule is aimed at improving corporate governance and maintaining the separation of oversight and management roles.
According to the circular, “The attention of the Securities and Exchange Commission 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 antithetical to the principles which underpin independent directorship as outlined in both the National Code of Corporate Governance (NCCG) as well as the SEC Corporate Governance Guidelines (SCGG).”
The SEC directed “the discontinuance forthwith of the transmutation of INEDs into Executive Directors within the same company or its Group structure by Public Companies and significant public interest capital market operators.”
The Commission also set limits on the tenure of directors. For capital market operators considered to be of significant public interest, directors are now limited to 10 consecutive years in the same company and 12 consecutive years within the same group.
It added, “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 SEC stated that the changes are in line with its powers under Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, which allows it to set governance standards for regulated entities.
The directives take immediate effect and apply to all public companies and capital market operators. The Commission also clarified that years already served by affected appointees will count towards the new tenure limits.