The Securities and Exchange Commission (SEC) has barred independent non-executive directors from taking up executive roles within the same company or group structure, including that of chief executive officer.
In a circular dated 20 June 2025, the commission informed all public companies and capital market operators of its position on the ‘Transmutation of Independent Non-Executive Directors and Tenure of Directors’.
Independent non-executive directors are meant to act like watchdogs: they monitor the company’s management from the outside and aren’t involved in running the business day-to-day. Their job is to ask tough questions and make sure the company is being run properly.
The problem arose when these independent directors, who were supposed to provide unbiased oversight, started getting promoted to become CEOs or other executive roles within the same companies. The SEC says this defeats the whole purpose of having independent oversight.
“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 said.
“Accordingly, the Commission hereby directs 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.”
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The commission has also introduced a new rule limiting how long directors can serve in significant public interest entities. Directors can now serve for no more than 10 consecutive years in the same company and 12 years within the same group structure.
Additionally, there must be a mandatory three-year “cool-off period” for CEOs and executive directors before they can be appointed as chairman. This means former executives must wait three years after leaving their executive role before they can become chairman of the board.
SEC said the new rules are in line with Section 355(r)(iv) of the Investments and Securities Act 2025, which empowers the commission to prescribe corporate governance standards for regulated entities. The commission further said any former CEO or executive director who becomes chairman may serve for no longer than four years.
“The foregoing directives take immediate effect and compliance is mandatory. Public Companies and Capital Market Operators are therefore required to take the directives into account in their board appointments and succession planning,” the regulator said.
The SEC added that the number of years already served by affected appointees would count towards the 10- and 12-year tenure limits, meaning companies will need to review their current board compositions to ensure compliance with the new rules.
