The Securities and Exchange Commission (SEC) has prohibited independent non-executive directors (INEDs) from assuming executive positions, such as chief executive officer (CEO), within the same company or its group.

In a June 20, 2025 circular, the regulator notified public companies and capital market operators of its stance on the "Transmutation of Independent Non-Executive Directors and Tenure of Directors."

The SEC stated that allowing INEDs to transition into executive roles undermines their neutrality and objectivity, conflicting with governance principles in the National Code of Corporate Governance (NCCG) and the SEC Corporate Governance Guidelines (SCGG).

“Public companies and significant capital market operators must immediately cease the practice of converting INEDs into executive directors within the same company or group,” the SEC directed.

New Tenure Limits for Directors

The commission also introduced a 10-year maximum tenure for directors in major public interest entities, extendable to 12 years within the same group. Additionally, CEOs and executive directors must observe a three-year cooling-off period before becoming chairman.

Under Section 355(r)(iv) of the Investments and Securities Act (ISA) 2025*, the SEC mandates that former CEOs or executive directors appointed as chair may serve no more than four years in that role.

“These directives take immediate effect and are mandatory. Companies must incorporate them into board appointments and succession planning,” the SEC emphasized.

Existing tenures of affected directors will count toward the new limits. The move aims to strengthen corporate governance by ensuring board independence and preventing excessive concentration of power.