Intoduction
On June 19, 2025, the Securities and Exchange Commission (SEC) issued the Circular to All Public Companies and Capital Market Operators on the Transmutation of Independent Non-Executive Directors and Tenure of Directors (the "Circular"), introducing significant updates to board appointments and director tenure in response to governance trends observed in the Nigerian capital market. This was followed by the Guidance Note to Capital Market Operators and Public Companies on the Circular Regarding Board Appointments and Director Tenure (the "Guidance Note") issued on July 1, 2025, which clarifies the practical application of these new requirements.
According to the SEC, these measures are intended to address the growing movement of Independent Non-Executive Directors (INEDs) into executive positions within the same corporate group, which the regulator considers capable of weakening board independence. The SEC has stated that the changes aim to support orderly and transparent board succession planning, ensure continuity and independence in oversight, and promote effective corporate governance aligned with global regulatory expectations.
In this Newsletter, we highlight the key provisions of the Circular and the Guidance Note (together, the "New Rules") and outline practical steps to navigate them.
1. Scope of Application
The New Rules apply to:
- Public Liability Companies (PLCs); and
- Capital Market Operators (CMOs) that are designated by the SEC as Significant Public Interest Entities (PIEs) — typically those providing essential financial market infrastructure such as exchanges, central securities depositories, clearing houses, and trade repositories.
Other CMOs and private companies are not bound by the New Rules but may find it valuable to adopt them as part of their journey towards stronger corporate governance.
2. Key Provisions of the New Rules
a. Preserving Independence
INEDs in PLCs and PIEs can no longer be appointed as Executive Directors or Chief Executive Officers (CEOs), within the same company or group. This change protects the neutrality of the INED role and ensures oversight functions remain independent.
b. Tenure Limits for Directors
Directors in PIEs may serve:
- A maximum of 10 consecutive years in the same company; and
- No more than 12 consecutive years in total within the same corporate group.
For the purpose of determining a director's tenure, number of years served before the New Rules came into effect will be counted. Organisations should therefore review the tenure of their current directors to ensure compliance.
PLCs that are not classified as PIEs must continue to comply with the provisions of the Nigerian Code of Corporate Governance 2018 (NCCG), which currently limits the tenure of INEDs to a maximum of three terms of three years each (total 9 years), while the tenure of Non-Executive Directors (NEDs), CEOs and Executive Directors remains at the discretion of the board.
c. Cooling-Off Before Chairmanship
- A CEO or Executive Director in a PIE who has served the maximum tenure on the board must not be appointed as Chairman until after a mandatory three-year cool-off period. Where such a former CEO or Executive Director is appointed as Chairman following this period, their tenure shall not exceed four years
- PLCs that are not classified as PIEs must continue to comply with the applicable provisions of the NCCG, which mandates a three-year cool-off period. The NCCG does not however impose a four-year maximum tenure of chairmanship after the cool-off period.
A Cool-Off Period as defined under the Guidance Note is a regulatory interval during which a former executive must abstain from assuming a leadership or oversight role to ensure independence and prevent conflicts of interest.
3. Practical Steps for Compliance
To navigate these New Rules effectively, organisations should take a proactive approach. This includes:
- immediately reviewing board composition and director tenure to identify any potential compliance gaps;
- updating governance and succession policies to reflect the new SEC requirements, and planning leadership transitions well in advance to maintain stability and continuity;
- engaging proactively with the SEC for clarification or guidance to ensure compliance.
By taking these actions now, organisations will not only meet their regulatory obligations but also demonstrate their commitment to the highest governance standards.
Conclusion
The SEC's Circular and Guidance Note introduce new requirements for board appointments and director tenure that affect public companies and CMOs designated as PIEs by the SEC. Early review and careful planning can help boards identify potential compliance gaps, manage leadership transitions, and update governance policies in line with the rules. For other market operators, considering these standards voluntarily may provide clarity and signal alignment with the evolving governance landscape.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
