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The Securities and Exchange Commission (SEC) has raised concerns over the increasing practice of rotating directorship positions among individuals within the same entity or group of companies. The Commission has specifically noted a troubling trend where Independent Non-Executive Directors (INEDs) are being converted or transmuted into Executive Directors, including appointments to the role of Chief Executive Officer (CEO).
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SEC stated that this practice undermines the neutrality of the transmuting INEDs, impairs their ability to provide objective judgment moving forward, and is fundamentally contrary to the principles of independent directorship as outlined in the National Code of Corporate Governance (NCCG) and the SEC Corporate Governance Guidelines (SCGG). As a result, the Commission has directed public companies and significant public interest Capital Market Operators to immediately discontinue the transmutation of INEDs into Executive Directors within the same company or its group structure.
In addition, exercising its authority under Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025 to set corporate governance standards for regulated entities, the SEC has mandated that the tenure of Directors of all Capital Market Operators classified as significant public interest entities, as determined by the Commission, be capped at 10 consecutive years in the same company and a total of 12 consecutive years within the same group structure.
Furthermore, the SEC has ruled that a Chief Executive Officer or Executive Director who steps down after serving 10 or 12 consecutive years, as applicable, is ineligible to be appointed as Chairman until a three-year “cool-off period” has elapsed. The tenure of such former Chief Executive Officer or Executive Director as Chairman is limited to a maximum of four years, with no extensions permitted.
These directives take effect immediately, and compliance is mandatory for all public companies and Capital Market Operators. The SEC has instructed these entities to incorporate the new rules into their board appointments and succession planning processes. The Commission also clarified that years already served by affected appointees will be included in calculating the exit date for the 10- and 12-year tenure limits.
