SEC CIRCULAR TO CAPITAL MARKET OPERATORS ON TRANSMUTATION OF INDEPENDENT NON-EXECUTIVE DIRECTORS AND TENURE OF DIRECTORS
SEC Independent Director Transmutation
On 19 June 2025, the Securities and Exchange Commission (SEC) released a circular announcing significant changes for Public Companies and other significant public interest capital market operators. The circular prohibits the conversion of Independent Non-Executive Directors (INEDs) into Executive Directors (including the CEO position) within the same company or its group structure. Additionally, the SEC has revised the tenure limits for directors of Significant Public Interest Capital Market Operators.
UNDERSTANDING THE SEC’S RATIONALE
The SEC’s decision aligns with Principle 7 of the Nigerian Code of Corporate Governance, which emphasizes the high level of objectivity INEDs bring to a Board, crucial for maintaining stakeholder trust. Typically, an INED should not have an interest, hold shares (in excess of 0.01% of paid-up capital), or represent a shareholder in a way that could compromise their impartial judgment. Furthermore, an INED must not be is not directly affiliated with the company as an employee, director, business partner, professional, or a relative of a company affiliate.
In contrast, an Executive Director holds a contractual relationship with the company, directly supporting the Managing Director/Chief Executive Officer in the company’s operations and management. While an Executive Director’s loyalty is to the company itself, an INED’s loyalty extends to the company’s broader stakeholders, such as the government and business partners.
These measures are designed to ensure that INEDs serve as strong, independent voices on the board, free from bias or prejudice.
Revised Tenure for Directors of Significant Public Interest Capital Market Operators
Under its powers in Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, the SEC has capped the tenure of directors in significant public interest capital market operators. Directors are now limited to 10 consecutive years within the same company and a total of 12 consecutive years within the same group structure.
The circular also mandates a three-year “cool-off” period for any Chief Executive Officer or Executive Director who steps down after serving 10 or 12 consecutive years. Only after this period can they be appointed as chairman, for a maximum four-year tenure.
When calculating these years, any previously served tenure by the appointees must be included.
These new regulations are effective immediately, and compliance is mandatory.
