The Securities and Exchange Commission has prohibited independent non-executive directors from assuming executive positions—such as chief executive officer—within the same company or corporate group.

In a circular dated June 20, 2025, the SEC outlined its stance on the “Transmutation of Independent Non-Executive Directors and Tenure of Directors,” notifying all public companies and capital market operators.

“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 also announced a new rule capping the tenure of directors in significant public interest entities at 10 consecutive years within the same company and 12 years within the same group structure.

The commission further stated that a mandatory three-year “cool-off period” is required for CEOs and executive directors before they can be appointed as chairman of the board.

The SEC stated that the directive is issued in accordance with Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025, which empowers the commission to set corporate governance standards for regulated entities.

The commission further clarified that a former CEO or executive director who is appointed as chairman may serve in that capacity for no more than four 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 any years already served by affected appointees will be included in calculating the 10- and 12-year tenure limits.