Often in life of commercial companies, the management (or administration) has to make important decisions and take risks to society. What are the limits for corporate management?
The Commercial Companies Code and other Portuguese legislation establish the rules and values that must be fulfilled by the management when they make decisions. Currently, there is no doubt that corporate managers are required to comply with Corporate Governance, that is, a set of principles that should guide the conduct of the manager, first adopted by the American Law Institute, in 1992. In Portugal, Corporate Governance regulations were also created to control the power and incentives of managers. With the implementation of corporate governance practices, it is intended to regulate the relations between the management or the boards of directors and the partners or shareholders.
First of all, article 64 of the Portuguese Companies Code establishes that managers are obliged to perform two main duties: duty of loyalty and duty of care.
What is the duty of loyalty?
The duty of loyalty requires the manager of the company that always decide towards the interests of society, considering the long-term interests of the partners and considering other relevant concerns for the sustainability and continuity of society, such as its employees, customers and encumbrancer.
We can realize the duty of loyalty in various duties: neutrality, moderation in collecting financial benefits, not to act when there are conflicts between personal interests and the interests of society, the prohibition of competition, not ownership for himself business opportunities of society, among others.
What is the duty of care?
The duty of care obliges managers to manage society with care, which includes, for example, availability, vigilance, competence and knowledge. In fact, the manager must have time, interest, seek information and have knowledge of the activity of society. Obviously, compliance with such a duty of time availability does not mean that the manager can not engage in other activity.
He will be able to do so as long as he is able to manage his time and can take an active part in managing society’s life. As for knowledge, it is not required that the manager be required to have deep technical knowledge of finance, taxation, law, or other areas such as engineering. However, he should seek information with those who have this deep technical knowledge, contracting his services and clarifying the doubts that he has.
It will also be very important the supervision or attention that the manager (manager) should provide to the economic and financial evolution of society not only in the short term but also in the medium and long term, considering the national and international evolution of the market where society acts.
What are the limits of managers’ duties?
Every day, managers make decisions about managing the company’s assets, choose business partners, and sign commercial contracts.
The manager must properly prepare his decision, so that this decision will be a rational and reasonable decision in the concrete circumstances of time, market and opportunity of society. However, the manager does not have to choose the most profitable decision for society. This is only required the manager to opt for a reasonable decision even if it later proves not to be the most profitable.
In conclusion, the commercial and business risk is inherent in the activity of the company, so not always the decisions of managers can achieve this success, although they are reasonable and prudent decisions.