Introduction
In response to what the Securities and Exchange Commission (SEC or the Commission) describes as “the worrying trend of the transmutation/conversion of Independent Non-Executive Directors (INEDs) to Executive Directors (EDs)” within companies operating in the Nigerian capital market.
The Commission via a circular published on 19 June 2025 (the Circular), issued a directive to public companies and significant public interest Capital Market Operators (CMOs) – (x) prohibiting the conversion of INEDs to EDs within the same company or group; (y) introducing tenure caps on directorships across group structures and; (z) restricting the ability of former Chief Executive Officers (CEO)and EDs to transition into Chairmanship roles.
The directive which takes effect immediately, with compliance required across board appointment, restructuring, and succession processes – was made pursuant to Section 355 (r) (iv) 0f the Investments and Securities Act (ISA) 2025[1].
Provisions of the Circular
The provisions of the Circular are summarised below:
- Prohibition of transmutation/conversion of INED: To maintain the neutrality and independence of INEDs in accordance with existing corporate governance guidelines and best practices, INEDs can no longer transition into executive roles (including that of the CEO) within the same company or within a group structure.
- Tenure cap for directors of significant public interest entities: Directors of CMOs classified as significant public interest entities by the Commission, may only serve for a consecutive period of 10 years in the same company and a total of 12 consecutive years within the same group structure.
- Restriction on Chairmanship roles for former CEOs and EDs: CEOs/EDs who step down after 10 or 12 consecutive years, must observe a 3-year cooling-off period before being eligible for Chairmanship. If appointed Chairman, such former CEO or ED can only serve a maximum of 4 years in that capacity.
Impact of the Circular on SEC-regulated Entities
Although the determination of what entity qualifies as a ‘significant public interest’ CMO lies with the Commission itself, it is expected that all public companies and CMOs are to take steps to update their existing corporate governance policies in line with the directive under the Circular, to ensure that their subsequent board appointments are in alignment with the recent directive.
Whilst this may not pose an issue to banks and other financial institutions which are currently guided by the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks in Nigeria, as well as the Corporate Governance Guidelines for Financial Holding Companies in Nigeria issued by the Central Bank of Nigeria (the CBN Guidelines) as the CBN Guidelines contain similar provisions against the transmutation of INEDs to EDs and vice versa[2], non-banking public companies may struggle with this directive especially where there are competency gaps within their board.
Notwithstanding, the directive should be applauded as it ensures that INEDs remain neutral and that their ability to provide objective judgment is not compromised.
It should also be noted that whilst the cool-off period for EDs under the CBN Guidelines is two (2) years, under the Circular, it is stipulated as three (3) years [3]. In addition, the CBN Guidelines limit the tenure for INEDs to 8 years[4] while the Circular allows for a tenure cap of 10 to 12 consecutive years.
We expect that the stricter requirement under the CBN Guidelines will continue to apply to banks and other financial institutions.
[1] The Section empowers SEC to prescribe corporate governance standards for public companies and regulated entities.
[2] Principle 3.5.6 of the CBN Guidelines.
[3] Principle 7.0 CBN Guidelines.
[4] Principle 3.5.2 CBN Guidelines.