One company, one master

Maria Cibele Crepaldi Affonso dos Santos

By protecting a company, as required by law, an officer will end up harming the other company.

Article 147 of the Brazilian Corporations Law (Paragraph Third, subsection II) provides that an officer who has conflicting interests with the company is ineligible, unless an applicable waiver is granted by general meeting. Therefore, once the general meeting grants such waiver, there is the assumption that the mentioned conflict does not exist.

However, the officers are subject to rules provided in law that define their duties and responsibilities. The duties are established by the code of conduct that should be complied with when managing the company. The responsibilities are directly related to the consequences of not complying with the duties with guilt or intent and of violating the law or the company’s bylaws.

Accordingly, article 156 of the same law provides that an officer “shall no take part in any corporate transaction in which he has conflicting interests with the company, nor in the decisions made by the other officers on the matter.” Moreover, the officer shall disclose his disqualification and shall cause the nature and extent of his interest to be recorded in minutes. Therefore, the officer is not obliged to act for one company exclusively, but he shall be prevented from acting whenever there is conflict of interests involved.

An officer who is a member of the board of directors of two companies with intense commercial relations and, consequently, conflicting economic interests, shall certainly face situations involving conflicts of interest. Even though[2] said officer does not take part in meetings in which matters concerning the relations between such companies are subject to discussion and resolution, he shall have access to both companies’ policies and strategies with respect to prices, marketing and profit margins, among others. Hence, he shall be informed on how one company can and intends to negotiate with the other. Correspondingly, for instance, his decisions with respect to one company’s pricing policy may benefit such company and harm the other one.

Moreover, said officer shall not be able to comply with his loyalty duty, mentioned by article 155 of the Brazilian Corporations Law, which provides that an officer shall serve the company with loyalty, aiming to achieve the company’s interests, exclusively. The law obliges the officer not to obtain any advantages for himself or third parties by using the commercial opportunities he may have knowledge of due to his position, even if that does not cause any damage to the company.

Therefore, the officer has a privileged position in the company, being aware of its goals, needs and limitations. Certainly, by acting as member of both companies’ board of directors, he shall know which action shall benefit one company or the other, and he should perform his loyalty duty by protecting both companies’[3] interests. However, the problem is that said officer, by acting as member of both companies’ board of directors, shall benefit one company and damage the other one, and by that, he will be clearly violating the mentioned duty. A choice must be made, after all “no one can serve two masters.”