Nigeria’s Securities and Exchange Commission (SEC) has issued a far-reaching directive that is shaking the leadership inclinations across the entire capital market landscape in Nigeria.Â
The policy, which requires draconian capping of directors of Capital Market Operators (CMOs) deemed to have “significant public interest,” jolted the entire capital market world with fear and uncertainty. With chiefs beating deadlines to understand the scope and meaning, enforcement, definition, and compliance issues have arisen.
The new provision, as explained in a circular issued by the SEC, restricts directors of the companies to a tenure of 10 consecutive years with the same company and 12 years with companies that belong to the same group. In favor of the amendment is a mandatory three-year “cooling-off” period before appointing a former Executive Director or Chief Executive Officer as Board Chairman. Their four-year Chairmanship should be no exception, however. The amendment, from the date of enactment, has created widespread fear, specifically among seasoned leaders in large investment banks, asset managers, and brokerages.
Among the important reasons for skepticism is the broad definition of “significant public interest entities.” Market players are unsure if the classification is kept only for listed institutions or systemically relevant but non-listed institutions. Insiders have mentioned FMDQ Group, the Central Securities Clearing System (CSCS), NGX Group, and NG Clearing as likely candidates because they are of a systemic scale within Nigeria’s financial sector. Traditional banks and traditional private business companies are, nonetheless, exempted from the rule.
Other than tenure, the SEC circular also prohibits firms from redeploying Independent Non-Executive Directors (INEDs) as Executive Directors in the same company or corporate group. According to the Commission, the practice erodes the objectivity and integrity that independent directors must uphold. Ex-INEDs risk forfeiting the objectivity needed for board governance as they transition from their oversight to executive roles. The action is evidence of the SEC’s commitment to enhancing corporate governance standards and avoiding boardroom tendencies that erode lines of accountability.
Surprisingly, the new requirement also finds consonance with provisions under the existing National Code of Corporate Governance (NCCG), under which INEDs are qualified to serve for three successive terms of three years each. The Code also enforces certain strict eligibility conditions, such as shareholding restrictions, family ties, past employment, and tenures to obtain substantial independence on corporate boards. Despite that, application of the NCCG itself continues to be controversial, especially in the light of a Federal High Court ruling in Eko Hotels v. FRCN that raised the issue of whether or not the Code affects non-regulated, private companies.
As the rumour grew, industry players began demanding an explanation. The Association of Securities Dealing Houses of Nigeria (ASHON) assured members that they were not yet encompassed by the new rule. ASHON, via a public statement, confirmed it had contacted the SEC and assured members to keep calm and continue business as usual.
The directive did not mention individual companies by such a long string of words, but the message is unequivocal: the SEC is intensifying oversight of corporate governance arrangements in the Nigerian capital market. By establishing more demanding tenure requirements and strangling dubious boardroom succession tactics, the regulator will calm investor confidence, avoid conflicts of interest, and achieve a more transparent market environment. As the dust begins to settle and additional explanations are provided, this step must be the initial one of a new age of capital market regulation, which will be standards-based and less tolerant of regulatory loopholes.
