Fiduciary Duty and the Autonomy of Board Members

The regime of duties and responsibilities of company directors is one of the fundamental pillars of the Brazilian Corporate Law. With the transfer of responsibilities previously centralized with the shareholders to the directors, they take on a prominent role. Today, company management can be conducted either by the executive board or the board of directors, according to their respective duties defined by law and corporate bylaws. This shift in authority requires administrators to be subject to a set of duties and responsibilities that ensure effective performance of their roles while adhering to well-defined standards of conduct.

It is crucial to understand that the legislator did not seek to inhibit managerial activity by creating these duties but rather to ensure that, even with decision-making freedom and autonomy, administrators are aware of the ethical and legal standards they must follow. The law establishes a series of duties, with the duty of care being one of the most important. This duty does not imply a guarantee of results but rather that the actions were taken reasonably and attentively to the company’s interests.

The board of directors, with its collegial nature, aims to bring together a diversity of experiences and qualifications among its members to enrich discussions and provide different perspectives.
It is essential that, upon recognizing that a decision is not appropriate for the company, the board intervenes and alerts the shareholders.

The business judgment rule is one of the main principles that protects the decisions made by directors, particularly by members of the board of directors. This principle acknowledges the freedom of directors to make business decisions without the fear of legal liability, as long as they act in good faith and with diligence. Thus, courts should not interfere in administrative decisions unless they detect bad faith, conflict of interest, or negligence in the decision-making process.
This means that board members will not be held liable for decisions that, although they result in losses for the company, were made carefully and based on the information available at the time of the decision.

Although it is a fundamental component of corporate governance, the business judgment rule does not exempt administrators from acting with reasonable diligence and caution. Conflicts between social and individual interests are common, especially in companies with dispersed ownership. Therefore, it is essential that administrators act in the best interests of the company as a whole, ensuring the continuity and success of its corporate objectives.

The recent resignation of the independent board member of Vale S.A. exemplifies the relevance of fiduciary duty and board autonomy. Driven by disagreements over strategic decisions, ethical concerns, and corporate governance issues, this resignation highlights how board members are subject to a range of duties and responsibilities that must be diligently fulfilled in alignment with the company’s interests. The board member, by resigning, may have acted in accordance with their duty of intervention if they identified issues that they believed were detrimental to the company and chose to dissociate from the situation.

The resignation of the independent board member from one of the country’s leading companies underscores the importance of fiduciary duty and board autonomy in corporate governance.
These principles guide administrators’ actions, influencing the performance and reputation of companies. Fiduciary duty and autonomy, therefore, are crucial elements for the proper functioning of companies, ensuring that decisions are made based on ethical, legal, and diligent standards, promoting sustainable growth and protecting the interests of all shareholders.