The Securities and Exchange Commission (SEC) has announced that Independent Non-Executive Directors will no longer be allowed to become Executive Directors in the same company or its group.
This new rule affects public companies and capital market operators in Nigeria.
The announcement came through a circular issued to these companies, explaining that allowing Independent Directors to move into executive roles weakens the idea of board independence.
According to the SEC, this switch reduces the ability of former independent members to make fair and neutral decisions, which goes against what independent directorship is meant to stand for under Nigeria’s corporate governance rules.
In addition to stopping Independent Directors from taking executive roles, the SEC also introduced new rules for Chief Executive Officers (CEOs).
A person who has served as a CEO for 10 years in one company or for a total of 12 years across a group of companies will not be allowed to become Chairman of the board right after leaving that role.
Instead, a three-year break is now required before such an appointment can be made.
The circular explained that some companies have been rotating leadership roles among the same individuals, allowing former Independent Directors to later become CEOs or other executives.
The SEC believes this harms the structure of good corporate governance and prevents fresh, unbiased oversight.
It also stated that the new rules on the tenure of directors are now in place.
Directors of firms considered to have public interest must not serve more than 10 straight years in the same company, or 12 years in total within a group.
After serving as CEO or Executive Director for those years, the person must wait three years before being considered for Chairman.
Even then, the Chairman role should not last more than four years.
The Commission directed all affected companies to apply these rules immediately in their board decisions and planning.
It also mentioned that the time already spent by current directors will be included when counting their total allowed years on the board.
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