The Securities and Exchange Commission (SEC) has barred independent non-executive directors (INEDs) from taking up executive roles, including that of chief executive officer (CEO), within the same company or group structure.
In a circular dated June 20, 2025, the commission informed all public companies and capital market operators of its position on the ‘Transmutation of Independent Non-Executive Directors and Tenure of Directors’.
“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),” the SEC said.
“Accordingly, the Commission hereby directs the discontinuance forthwith of the transmutation of INEDs into Executive Directors within the same company or its Group structure by Public Companies and significant public interest capital market operators.”
The commission said it has introduced a new rule limiting the tenure of directors in significant public interest entities to 10 consecutive years in the same company and 12 years within the same group structure.
It also said there must be a mandatory three-year “cool-off period” for CEO and executive directors before they can be appointed as chairman.
SEC said it is in line with Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, which empowers the commission to prescribe corporate governance standards for regulated entities.
The commission further said any former CEO or executive director who becomes chairman may serve for no longer than 4 years.
“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 regulator said.
The SEC added that the number of years already served by affected appointees would count towards the 10- and 12-year tenure limits.
