The Securities and Exchange Commission has issued a new directive prohibiting Chief Executive Officers and Executive Directors from immediately assuming the position of Board Chairman within the same company or group after leaving office.
A mandatory three-year “cool off period” has been introduced before such transitions can take place.
The directive is part of a wider effort to strengthen corporate governance and prevent the concentration of power in public companies and capital market operators deemed to be of significant public interest.
This was disclosed in a circular released by the Commission and signed by the management on Thursday on its website titled “Circular to All Public Companies and Capital Market Operators on the Transmutation of Independent Non-Executive Directors and Tenure of Directors.”
The SEC expressed concern over what it described as a “worrying trend of the transmutation/conversion of Independent Non-Executive Directors (INEDs) to Executive Directors, including to the position of the Chief Executive Officer.”
It warned that such practices undermine board independence.
The Circular reads,”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).”
As a result, the Commission has directed the immediate discontinuance of the conversion of INEDs into Executive Directors within the same company or group structure.
The new rules also introduce strict tenure limits. Directors in Capital Market Operators considered to be of significant public interest will now be limited to 10 consecutive years in the same company, and 12 years within the same group structure.
“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 said these changes are backed by its powers under Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, which authorises it to set governance standards for regulated entities.
“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 statement added.
The Commission also clarified that years already served by current officeholders will count toward the newly established tenure caps.
