Implement Corporate Governance is a requirement of today’s business in Brazil, especially for companies that wish to raise debt and equity.
In this context, the Board of Directors is a key body for governance and activism to add value to the business is being assessed more and more by lenders and investors, particularly the foreigners.
Understand below 5 important points about Boards of Directors in Brazil:
1. Why to Create a Board of Directors and its Powers: considering that how mature is the governance is a item carefully assessed by lenders and investors, companies in growth stage through debt and equity need to create a Board of Directors (if not formed yet) or to reinforce its role (if already formed) to expand the funding pockets’ available sources.
According to the Brazilian corporate law, the Board of Directors is expected to (i) to set the general orientation of the company’s business; (ii) elect and remove the officers and define their duties; (iii) supervise the management; (iv) call the general meeting when deemed convenient, (v) express an opinion on the management report and the accounts of the executive board, among other powers that the Bylaws have.
Notwithstanding that, with the exponential evolution of the markets towards transparency and social and environmental issues, Boards are also being required to (i) stablish appropriate corporate governance structure, (ii) support and oversee management in setting long-term strategic goals and applicable measures of value-creation, (iii) provide oversight on the identification of material management, operational, and sustainability-related risks, (iv) oversee the financial resilience and integrity of financial statements, (v) make decisions on matters that require independent evaluation, such as mergers, acquisitions and dispositions, (vi) establish appropriate executive compensation structures, (vii) address business issues, such as environmental and social risks and opportunities, and (viii) when applicable, create corporate venture programs aiming to connect with startups that may disrupt the market, products and services related to the company.
2. Which Corporate Type of Companies Are Required to Create Board of Directors: Board of Directors is a management body of Corporations (Sociedades Anônimas or S/A) in Brazil (and not Limited Partnerships – Sociedades Limitadas or Ltda.). It is mandatory only in publicly held corporations. Closely held corporations are not required to constitute a Board.
It is common for Limited Partnership Companies and Closely Held Corporations to constitute the so-called “Advisory Boards”, a non statutory body with role similar to Boards of Directors.
3. How the Board of Directors is Composed: The Board of Directors is composed of at least 3 members, elected by the general shareholders meeting, and the term of office of up to 3 years, reelection being allowed.
The companies are increasingly under pressure by minority shareholders, lenders and investors to name independent board members, who have not relationship with the controlling shareholders.
4. Duties of Directors: The Brazilian corporate law and the market regulations require that Board members, among others, (i) Duty of Diligence: must exercise, in the exercise of their functions, the care and diligence in conducting the company’s business; (ii) Duty of Loyalty: must serve the company with loyalty and maintain reserve about its business; (iii) Conflict of Interest: it is forbidden to intervene in any business in which you have a conflict of interest with that of the company; and (iv) Duty to Inform: must declare the number of securities issued by the company of which it is the holder.
5. Responsibility of the Directors: The Director is not personally responsible for the obligations he/she incurs in the name of the company and due to a regular management act, but he/she is responsible for the losses he/she causes, when he/she proceeds with guilt or intent, and with violation of the law or status.
The Board of Directors is an important body in the Governance structure, whose activism towards value-creation for the business will provide more comfort to the company’s lenders and investors.