Giulia Keese Montanhesi
Lawyer at Marcos Martins Advogados
The corporation, universitas personarum that it is, brings together various bodies to establish, promote and safeguard the corporate objectives conceived therein (the corporate will). The corporate structure, typically hierarchical, establishes competencies for each of these bodies, which seek, in their decision-making, to ensure the development of the company and the defence of its interests.
The general meeting, the board of directors, the executive board and the supervisory board together represent the main collegiate bodies responsible for the strategic decisions of the corporate community, with the exception of the possibility of creating new bodies. The implementation of governance, compliance, audit, risk and other committees to help the legal entity’s governability are added to the organizational system, with a view to its development and in the face of new realities.
The board of directors must set general guidelines for the company’s business and ensure that it is conducted in such a way as to uphold the company’s good name with probity. It therefore plays a strategic, macro-administrative role, dealing with the main lines of business activity.
In turn, the board of directors is responsible for the legal representation of the company and for carrying out the acts necessary for its regular operation. On a micro-administrative level, it must use the general meeting to report on the conduct of business, present amendments to the articles of association and other resolutions relevant to the company’s will.
The supervisory board monitors the fulfillment of these duties, overseeing the actions of the administrative bodies in their legal and statutory duties.
Members of the executive board and the board of directors are chosen carefully. The strategic decision-making control of these bodies is a precious “asset” and keeping them together is a constant objective, especially in publicly traded companies, which are subject to the regulations of the Securities and Exchange Commission (CVM) and the scrutiny of investors.
For this reason, the decision to go public is, for many, a tool that allows for greater flexibility in management and the work of bodies, but caution is needed. There are public companies that have gone public and, within a few years, due to the need for new funds to expand the company’s business activities, have applied for a new registration to trade shares on the open market.
Going public and deregistering shares on the open market is indeed a risky move. Along these lines, it is proposed that there are other ways of defending the decision-making autonomy of the collegiate bodies of joint stock companies and guaranteeing their autonomy in the open market, for example, without compromising the contribution of external capital (shareholders).
It is possible to preserve the control of collegiate bodies, while maintaining compliance with CVM regulations and reconciling the interests of listed investors.
This is done by differentiating between types of shares, with a view to restricting shareholders’ voting rights at general meetings. The appointment of a member of the Board of Directors elected by investors who hold shares with restricted voting rights at general meetings (preferred shares) thus acts as a form of internal pacification.
In addition, the corporation should implement internal regulations and robust corporate governance to regulate the responsibilities, attributions and operating rules of each of its collegiate bodies separately. The board of directors should also be aware of compliance requirementsregarding procedures and measures to be adopted in situations of conflict of interest.
In this way, there will be no doubt as to the competencies and autonomy of each within the organizational system and greater legal risks, once mitigated by the implementation of compliance and corporate governance.
It is important to mention that these tools (compliance and corporate governance) not only professionalize the business in organizational matters, but also add great value to the structure in the eyes of the market and shareholders[1].
Finally, it is essential that the collegiate bodies of the corporation are aligned on its business strategy. Once the core business has been defined and this strategy is public knowledge, investor interest will be aligned with the commercial and financial policy proposed by the company and, as a logical consequence, its success in the market.
Finally, the decision-making process of a public limited company, even with the various interferences of CVM regulations and the diffuse interests of investors, must remain within a corporate structure with clear control by the management bodies, in an attentive manner and legitimized by its instruments of constitution and governance.
[1] To find out more about Corporate Governance and Compliance, see the article “The relationship between Corporate Governance and Compliance”, written by lawyer Gabriela de Ávila Machado, published on December 2, 2020, available at https://www.marcosmartins.adv.br/pt/a-relacao-entre-governanca-corporativa-e-compliance/.
