Transmutation And Tenure Of Directors - Addendum

The Securities and Exchange Commission (SEC), on 1^st July 2025, issued a Guidance Note to its Circular of 19^th June 2025, on the Transmutation of Independent Non-Executive Directors and Tenure of Directors ("Circular"). Our previous Newsletter on the Circular can be found here.

The Guidance Note has now defined the scope of application of the SEC Circular to cover:

1. Capital Market Operators (CMO) that;

• operate Financial Market Infrastructures and;
• have been determined by the SEC to be Significant Public Interest Entities (SPIE)

1. Public Limited Liability Companies

The Note excludes private companies from the applicability of the Circular. The Note also defined the following terms used in the Circular:

• Significant Public Interest Entity (SPIE):This refers to a CMO whose operations are of systemic importance, have significant investor exposure, or serve a critical infrastructure function within the capital market, as determined by the SEC.
• Financial Market Infrastructure (FMI): This refers to entities that facilitate clearing, settlement, trading, or data functions in the capital market. This includes but is not restricted to all exchanges, central securities depositories, clearing houses and trade repositories.

The SEC Directives have been outlined below, for ease of reference:

1. Transmutation: The Circular mandates the immediate discontinuance of the transmutation of Independent Non-Executive Directors to Executive Directors within the same company or group structure. The Circular states that this Directive is applicable to only public companies and SPIEs. The SEC has replicated this in the Guidance Note and adds that the Directive is applicable to all CMOs and not just the SPIEs. This is a contradiction that the SEC needs to address.
2. Directors Tenure: The Circular limits the tenure of Directors of SPIEs to 10 consecutive years in the same company and 12 consecutive years within the same group. The Guidance Note excludes public companies from complying with this Directive but mandates them to comply with the provision of the Nigerian Code of Corporate Governance (NCCG). This directive would likely have limited scope of application for public companies that operate in sectors (such as banking and insurance) whose corporate governance codes (Guidelines) prescribe stricter tenures (than the NCCG) for their directors. The provisions of the Code/Guideline with the "stricter" requirements prevail in the case of a conflict.
3. Tenure of CEO that transmute to Chairman: This Directive states that a CEO or an ED who steps down after the 10 or 12 consecutive years (as the case may be), cannot be appointed as Chairman of that company or group until the expiration of a 3-year cooling off period. The tenure of such retired CEOs or ED as Chairmen is a maximum of 4 years. The Guidance Note also excludes public companies from complying with this Directive but mandates them to comply with the NCCG.

The Guidance Note has provided some clarity to the SEC Directives contained in the Circular of 16^th June 2025. However, there is need for the SEC to reconcile the contradictions contained in Sections 5(a), 7 and 8 of the Guidance Note – whether the Directive on Transmutation is applicable to all CMOs or excludes CMOs that are not FMIs.

Originally published 09 July 2025

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