Being appointed to a board of directors in Brazil does not mean receiving a mandate from whoever appointed you; it means taking on a duty of loyalty to the company as a whole, with personal accountability for the decisions made.
Upon accepting a seat on the board of directors, a director assumes fiduciary duties according to Brazilian legislation that must guide their conduct in every decision made. When these duties are breached, they give rise to personal liability, regardless of the decision’s economic outcome.
That is why we highlight below the essential points for understanding the scope of this responsibility:
1. Duty of loyalty: The director must always act in the interest of the company, not in their own interest or that of third parties, even if they represent the shareholder or investor who appointed them to the position. Decisions made to benefit a specific interest, to the detriment of the company’s interest, directly breach this duty.
2. Duty of diligence: What is assessed is not the outcome of the decision, but the care exercised throughout the decision-making process. Even on matters outside the director’s own expertise, they are required to become informed on the subject, including on technical matters, if necessary through specialized advisory support. They must prepare, gather sufficient information and dedicate adequate time before being fit to vote. A diligent director in Brazil may get the decision wrong and still be protected; a negligent one may get it right and still be held liable for how the decision was made.
3. Conflict of interest: Whenever there is a personal, family-related or third-party interest in the matter under discussion, the director has a duty to disclose that circumstance and abstain from participating in the deliberation. Staying silent about an existing conflict is, in itself, a breach of fiduciary duty, regardless of the outcome of the vote.
4. Duty of confidentiality and non-use of privileged information: Information discussed within the board cannot be used for personal benefit, for the benefit of third parties, or leaked under any circumstances. This duty survives even after the term ends, and its breach may give rise to civil liability and, depending on the case, regulatory liability as well.
To whom does a director owe loyalty? One of the most misunderstood points in corporate governance in Brazil is the idea that a director represents whoever appointed them. Even when the appointment comes from a specific shareholder, once in office, the director owes loyalty to the company as a whole. This distinction is what separates a board that genuinely exercises governance from one that merely formalizes individual interests.
Fiduciary responsibility is not a formality in Brazil, it is the legal and ethical conduct expected of anyone who holds a seat on the board of directors. Understanding these duties and applying them is what separates a director who is only technically qualified for the position from one who is genuinely prepared and exercises governance at its best.
