Making decisions on the company’s behalf is inherent to the role of a board member, but these strategic decisions can expose the board member’s personal assets to significant risk in Brazil, requiring caution and appropriate care in decision-making.
Board members, in the exercise of their duties, are accountable for decisions that may have significant effects on the company’s assets and, under certain circumstances, on their own personal assets. Although the Brazilian law provides protection mechanisms for board members who act with diligence and good faith, a lack of awareness or improper application of these mechanisms is one of the main causes of undue exposure.
We highlight 4 points of attention for Brazilian business:
1. Informed Decision-Making: Decisions made in an informed, deliberate manner and free from conflicts of interest tend to be protected under the understanding that board members are entitled to exercise discretion within the risk inherent to business activity. This protection in Brazil, however, is not automatic and presupposes that the board member has become adequately informed before voting, evaluated the available alternatives, and acted in good faith and in the company’s interest, without direct or indirect personal benefit from the decision. The key point here is how to document this process, lending legitimacy to the board members’ decision.
2. Formal Documentation of Deliberations: Meeting minutes that record the information considered, the risks discussed, and the grounds for the decision are one of the board member’s main instruments of defense in Brazil. Decisions made informally, without documentary support, make it difficult to demonstrate that the duty of care was observed.
3. Directors & Officers (D&O) Insurance: Liability insurance for directors and officers is an increasingly used tool to mitigate the financial risks arising from holding the position. Even so, it is essential for board members to understand the policy’s exclusions, as certain conduct — such as willful misconduct or bad faith — is not covered by the insurance.
4. Indemnity Agreement: A tool recommended by the CVM (Brazilian Securities and Exchange Commission) itself, aimed at ensuring reimbursement to board members, officers, and executives for losses and costs arising from acts performed in the regular exercise of their duties, preventing personal assets from being affected. Through this agreement, the company assumes responsibility for these costs, and shareholders may themselves be included as parties or guarantors of the obligations, providing greater security in companies with pre-existing liabilities before an executive’s arrival.
A board member’s liability should not be seen as a risk to be avoided at any cost, but as a risk to be managed with the appropriate tools for Brazilian standards. A well-structured decision-making process, combined with proper contractual protection, allows board members to exercise their role with the confidence needed to make relevant strategic decisions and ensure business growth.
