ECONOMIC AREA, BUSINESS AND LAW – REFLECTIONS AND IMPACTS
THE LEADERSHIP STRATEGIES OF DIRECTORS IN CONTEMPORARY COMPANIES
The challenges of the Independent Director
On November 25, 2024, we took part in an event held by ISE – Business School for a select group of business leaders, C-level executives and board members. The event featured speakers Heloísa Bedicks and Luiz Aguiar, mediated by Fernando Bagnoli. The agenda of the meeting on the ISE campus was to discuss the topic of Strategic Senior Leadership Insights, with the aim of exchanging experiences and exploring new ideas about the Independent Director.
Without underestimating the responsibilities of the other members of the Board of Directors, the position of Independent Director brings many challenges and responsibilities.
In carrying out these activities, we have faced many challenges due to the future of work and the fascinating coexistence between humans and machines. The technological revolution has driven new businesses, new ways of working and created new responsibilities.
Hence the question: is the Independent Director prepared for this transition?
Summary
This article analyzes the strategic issues involved in the work of directors, with an emphasis on the challenges faced by independent directors. Topics such as the evolution of their roles, financial independence, availability of time, cultural alignment and the need for in-depth knowledge of the organization are explored. The analysis includes the central role of independent directors in strengthening corporate governance, according to the IBGC Code, as well as the growing professionalization of their selection via headhunters. It concludes that directors are essential for corporate sustainability, although they face challenges such as internal conflicts and external pressures that test their independence and effectiveness.
1 Introduction
Corporate governance has evolved to meet the challenges of a globalized world, marked by regulatory complexity and growing demands for social and environmental responsibility. In this scenario, board members play a crucial role in mediating between the interests of shareholders and the long-term strategies of the organization.
In this article, we discuss the strategic aspects related to the leadership exercised by directors, with a special focus on independent directors, because by adding impartiality and objectivity to the decision-making process, we also face specific challenges, such as dealing with internal conflicts of interest and pressure from external stakeholders.
2 Evolution of the Role of the Director
The role of the director has evolved beyond simply overseeing the company’s operations. Today, we act as strategists, mentors and defenders of corporate sustainability. This evolution is driven by factors such as:
- requirement for ESG (environmental, social and governance) practices;
- technological advances and the digitalization of business;
- diversification of boards, incorporating perspectives from different sectors, cultures and genders.
These transformations require us, as directors, to combine technical skills and a holistic vision in order to deal with the growing complexity of business.
3 The Strategic Role and Challenges of the Independent Director
3.1 Strategic role
The independent director, according to the Code of the Brazilian Institute of Corporate Governance – IBGC (2023), is an essential element in ensuring that decisions are made impartially, representing the long-term interests of the organization. Our responsibilities include:
- supervising management and ensuring compliance with laws and regulations;
- acting as a bridge between minority shareholders and management;
- assessing strategic risks with impartiality.
3.2 Specific challenges
As independent directors, we face significant challenges, such as:
- internal conflicts: the need to question management can lead to tensions in the atmosphere of the board, especially when executive officers or other directors have conflicting interests;
- external pressures: activist shareholders and increasingly demanding regulations can pressure us to prioritize short-term interests over long-term strategies;
- professional isolation: because we are not directly linked to the company, we independent directors may find it difficult to understand the internal dynamics in depth or have access to crucial information;
- growing fiduciary responsibility: with the expansion of our roles, we are more exposed to legal and reputational risks.
These challenges highlight the need for a prepared and resilient independent director, with the ability to mediate diverse interests without compromising their impartiality.
4 Other Strategic Requirements
4.1 Financial independence
Financial independence is a basic requirement that guarantees that the director can make decisions without fear of personal harm or compromising their position. This autonomy strengthens trust between shareholders and the board.
4.2 Availability of time
Dedication to the position includes not only attending meetings, but also analyzing reports, visiting the company’s operations and interacting with other directors and executive officers.
4.3 In-depth knowledge of the organization
The director must have in-depth knowledge of the industry, products and markets in which the company operates. This allows him/her to anticipate trends, assess risks and help formulate effective strategies.
4.4 Respect for the organization’s values and culture
Alignment with organizational values is essential, but the director also needs to have the courage and ethics to challenge inappropriate practices, ensuring that the company maintains its integrity and purpose.
5 Professional Choice by Headhunters
Recruitment processes conducted by headhunters bring professionalism and diversity to the boards. These experts assess not only technical competencies, but also interpersonal skills and the cultural alignment of candidates.
The inclusion of professionals with different backgrounds and experiences enriches the strategic debate and strengthens governance.
6 Conclusion
Directors play an essential role in corporate governance, adding strategic value and ensuring the sustainability of organizations. However, the challenges faced by independent directors, such as external pressures and internal conflicts, reinforce the need for highly qualified and resilient professionals.
As expectations regarding boards increase, the professionalization and continuous training of these leaders become indispensable to ensure that companies thrive in a constantly evolving business environment.
Reference
IBGC – Instituto Brasileiro de Governança Corporativa. Código das melhores práticas de governança corporative (Code of best corporate governance practices). 6th ed. São Paulo: IBGC, 2023. Available on: https://conhecimento.ibgc.org.br/Lists/Publicacoes/Attachments/24640/2023_C%c3%b3digo%20das%20Melhores%20Pr%c3%a1ticas%20de%20Governan%c3%a7a%20Corporativa_6a%20Edi%c3%a7%c3%a3o.pdf
Suggested bibliography
BRANDÃO, Rute. O papel do conselheiro independente no aperfeiçoamento da governança corporativa. R. Saldanha, 3 Dec. 2021.
MONKS, R. A. G.; MINOW, N. Corporate governance. New York: John Wiley & Sons, 2011.
For more information, contact Ronaldo Corrêa Martins
ronaldo.martins@ronaldomartins.adv.br, +55 (11) 99971-4780 /+55 (11) 3066-4800,Founder & CEO of the firm RONALDO MARTINS & Advogados
ATTACHMENT
BRANDÃO, Rute. O papel do conselheiro independente no aperfeiçoamento da governança corporativa. R. Saldanha, 3 Dec. 2021.
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1.1 The role of the independent director according to the IBGC
According to the Brazilian Corporate Governance Code, an independent director is defined as:
“external directors who do not have family, business or any other type of relationship with members with a relevant stake, controlling groups, executive officers, service providers or non-profit entities that significantly influence or could significantly influence their judgments, opinions, decisions or compromise their actions in the best interests of the organization.
The role of independent directors is especially important in companies with dispersed capital, without defined control, where the predominant role of the executive board must be counterbalanced.”
Independent Directors must therefore be impartial in their actions, so that subjective family, financial or professional factors do not generate potential conflicts of interest with the organization.
Based on this rationale, the Listing Regulations of the Novo Mercado3 characterized the “Independent Director” by the following aspects:
- I
not to have any relationship with the Company, except for capital interest; - II
not to be a Controlling Shareholder, spouse or relative up to the second degree, or not to be or not to have been, in the last 3 (three) years, linked to a company or entity related to the Controlling Shareholder (persons linked to public educational and/or research institutions are excluded from this restriction); - III
has not been, in the last 3 (three) years, an employee or officer of the Company, of the Controlling Shareholder or of a company controlled by the Company; - IV
not to be a direct or indirect supplier or purchaser of the Company’s services and/or products, to an extent that would imply a loss of independence; - V
not be an employee or manager of a company or entity that is offering or demanding services and/or products from the Company, to an extent that implies a loss of independence; - VI
not to be a spouse or relative up to the second degree of any manager of the Company; and - VII
not to receive any remuneration from the Company other than that related to the position of director (cash income from equity interest is excluded from this restriction).
Similarly, the IBGC lists some of these conditions for the characterization of director independence in the Brazilian Corporate Governance Code: Publicly-Held Companies4.
In order to exercise this role of director – independent or not -, IBGC5 recommends that they have both financial and managerial hard skills – such as strategic vision, knowledge of management reports, financial and non-financial accounting, knowledge of risk management, etc. Soft skills are also recommended, such as good communication, the ability to mediate conflicts (being diplomatic) and proactivity.
As far as the independent director is concerned, it is recommended that a selection process be carried out to check that the candidate meets the technical and behavioral expectations necessary for the board6, as well as if he or she adheres to the principles and values of the organization, the business strategy and the company’s stage of maturity.
Finally, the independent director’s performance should be assessed periodically to ensure that it remains aligned with the organization’s corporate objectives and expectations 7.
[3] https://www.b3.com.br/data/files/81/15/35/22/3762F510ACF0E0F5790D8AA8/regulamento-do-novo-mercado-vigente-apos-06022006.pdf
[4] Brazilian Corporate Governance Code: Publicly-held Companies / Interagency Working Group; coordinated by the Brazilian Institute of Corporate Governance. São Paulo, SP: IBGC, 2016.
[5] IBGC – Brazilian Institute of Corporate Governance. Código das Melhores Práticas de Governança Corporativa (Code of best corporate governance practices). 5th ed. São Paulo, SP: IBGC, 2015. p. 43.
[6] The selection process service can even be outsourced if the organization so wishes.
[7] The same system of periodic evaluation should be adopted for administrative directors.
