Enhancing sound corporate governance practice: Securities and Exchange Commission's directives on independent non-executive directors and tenure limits

Introduction

On 19th of June 2025, the Securities and Exchange Commission (SEC) issued a fundamental circular regarding the transmutation of Independent Non-Executive Directors (INEDs) and establishing tenure limits for Directors. This initiative represents a significant stride towards strengthening corporate governance within Public Companies and Capital Market Operators. This development highlights the importance of preserving the independence and objectivity of INEDs, while also promoting board refreshment and diversity.

Prohibition on INED Transmutation

The SEC has directed Public Companies and key Capital Market Operators to immediately cease the practice of converting INEDs into Executive Directors within the same company or group structure, as it undermines the neutrality and objectivity required of INEDs and contradicts established corporate governance principles.

The SEC's directive prohibiting the transmutation of INEDs into Executive Directors within the same company or group structure is a welcome reform as this practice has raised concerns about the dilution of INEDs' neutrality and their ability to provide objective judgment. By upholding the independence of INEDs, Companies can ensure that their Boards benefit from diverse perspectives and robust oversight, ultimately enhancing the quality of strategic decision-making and strengthening overall corporate governance.

Tenure Limits: Promoting Board Refreshment and Diversity

Directors of Capital Market Operators classified as significant public interest entities will now be subject to tenure limits:

• Maximum of 10 consecutive years as a director within the same company.

• Maximum of 12 consecutive years within the same group structure.

It is important to note that the years already spent on the Board by the relevant directors will be taken into account when calculating the 10- and 12-year tenure limits. The objective is to promote board dynamism while encouraging innovation and the infusion of fresh perspectives.

Additionally, former CEOs or Executive Directors stepping down after serving the maximum tenure cannot assume the role of the Chairman until after a 3-year cooling-off period. The tenure as Chairman for such individuals is further limited to a maximum of 4 years.

Compliance Timeline

The foregoing directives are to be implemented with immediate effect, and compliance is mandatory for all Public Companies and Capital Market Operators. Entities are advised to incorporate these directives into their board appointments and succession planning processes.

Implications and Opportunities

These directives are likely to have a significant impact on Public Companies and Capital Market Operators in Nigeria. To comply with the new regulations, Companies will need to:

1. Review their Board composition and succession planning processes

2. Ensure that INEDs maintain their independence and objectivity

3. Develop strategies for refreshing their Boards and promoting diversity

While the implementation of these changes may pose certain challenges, they equally present opportunities for:

1. Strengthened corporate governance practices

2. Stronger Governance Reputation

3. Board refreshment and diversity

4. Structured succession planning

Conclusion

The SEC's directives regarding INEDs and tenure limits illustrate its commitment to promoting good corporate governance practices in Nigeria's capital market. By embracing these changes, Nigerian Companies can strengthen their Boards, enhance their reputation, and contribute to the overall stability and growth of the market. As Nigeria's business landscape evolves, companies must prioritize corporate governance, transparency, and accountability to maintain investor confidence and drive sustainable growth.

This newsletter is for information purposes only. For further information or support on corporate governance, company secretarial practices, or legal matters, please don't hesitate to contact us at governance@jee.africa.