Many chief executive officers (CEOs), directors of public companies and capital market operators (CMOs) are worried by the Securities and Exchange Commission (SEC)’s new directives on independent non-executive directors (INED) and directors of boards.
The SEC had, on a June 19 circular, noted that a chief executive officer or executive director who steps down after 10 or 12 consecutive years cannot be appointed as chairman until the expiration of a three-year ‘cool off period.’
“The tenure of such former Chief Executive Officer and Executive Director as Chairman shall be for a maximum of 4 years and no more,” the SEC said.
The directives have however triggered succession fears among board members as some say in hushed voices that they may be counter-productive.
“We have demanded clarifications from the SEC on the interpretations. Please let us wait for that,” a CEO of a stockbroking firm told BusinessDay.
A chief executive officer of a manufacturing company said he understood the reason behind the SEC’s directives but noted the decision should be left for shareholders, not SEC.
“Many founders would be worried about the directives with regard to succession,” he said.
“Imagine what happens when you ask Dangote to step down from his company. Will it not even affect the company in relation to tied contracts, investor confidence, government relations, among others?” the CEO asked.
“Some of the people I know have issues with barring independent non-executive directors from taking up executive roles, but my worry has to do with the chairmanship role.”
However, a CEO countered the argument, saying that nobody is indispensable.
Nobody is indispensable
“There are no irreplaceable people. The SEC directive is appropriate for good governance. People will push back on it, just like they did when the Central Bank of Nigeria (CBN) placed tenure on bank CEOs. Most of those banks continue to thrive after they changed their CEOs,” a CEO told BusinessDay.
A chief executive of a company said, “Transmutation of independent directors to executive directors defeats the whole purpose of independent directors, the selection criteria of independent directors, the definitions of an independent director and the intentions of an independent director – if independent directors are allowed to transmute to executive directors.
“Then management would stop relying fully on the objective and independent reasoning that comes with being an independent director.
“The balance of the board decisions will become skewed, and management would start becoming apprehensive of the objective of the independent directors’ decisions that are supposed to bring enforcement and balance to decision marking.”
He said there are too many young people that started early and rose fast to board levels, who still have a lot to give, noting that some of them are often pushed out too early.
“We have seen a lot of cases in the banking sector, particularly the new generation banks.
However for succession planning and growth in any institution, the policy is good at the board level, only excluding management.”
He said any static institution without a clear path to succession and career growth for the newer upcoming generation from officer through management all the way to the board will get caught up in diminishing returns as the upper management and the board cadre become obsolete.
“The policy can also push out sit-tight directors that turn organisation to dynasties,” he added.
Chika C. Mbonu, project director at KSBC, said the SEC is “reviewing and implementing policies to enhance the corporate governance of companies.”
He further said that the regulator aims to ensure that companies are managed properly to protect the investing public, adding that it targets corporate governance at the optimum.
SEC’s directives
The SEC also said that 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, “it said.
It noted that its attention was drawn to the prevalence in recent times of the rotation of various directorship positions among individuals within the same entity or group of companies.
“In particular, the Commission observes the worrying trend of the transmutation/conversion of Independent Non-Executive Directors (INEDs) to Executive Directors, including to the position of the Chief Executive Officer.
“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).
“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,” SEC said.(BusinessDay)
