João Pedro Nascimento · Originally published in Revista RI, October 2026 · Portuguese original

Corporate governance holds a central place in Corporate Law and in the capital markets. Although often associated only with codes of best practice, internal policies and independence requirements, its deepest dimension concerns a fundamental question: how to organize and control the exercise of power within the company.

Every business organization involves power: there are those who hold the capital, those who exercise control, those who manage, those who oversee and those who may lend funds. In publicly held companies, this structure becomes even more complex, given the plurality of shareholders, the separation between ownership and management, the diversity of investors’ interests and horizons, and the need to preserve market confidence in the information disclosed.

In this context, corporate governance is an architecture designed to allocate powers, establish responsibilities and create mechanisms of mutual control. Its function is not to eliminate power, which would be impossible, but to prevent it from being exercised without limits, without adequate information, without oversight and without accountability.

The idea of checks and balances helps to understand this architecture: the General Shareholders’ Meeting, the Board of Directors, the Executive Board and the Fiscal Council each hold distinct powers; specialized committees add layers of analysis and oversight; the independent auditor provides external verification. Good governance, however, does not arise from the mere multiplication of rules, bodies or procedures, but from a structure in which each body can perform its function and, at the same time, remains subject to the corresponding controls.

The functions of Corporate Law and their effects on corporate governance

Corporate legislation performs a few main functions.

The first of them is to provide a basic structure, with the essential features and main elements, that form the framework for operating and developing businesses through companies. In this way, transaction costs are reduced among private agents interested in pursuing business through companies.

The second function, which is a logical consequence of the first, is to control and prevent conflicts of interest and agency problems, seeking to harmonize the coexistence of the various agents who interact within companies, including the plurality of shareholders (whether controlling, minority, voting or non-voting), the members of management, creditors, employees and the external community in general.

This second function is particularly important for understanding corporate governance. The company brings together diverse and not always convergent interests: those of the controlling shareholder; those of minority shareholders; the managers’ own incentives; and those of creditors, employees and other stakeholders.

The agency problem arises precisely because the person who makes the decision is not always the one who fully bears its costs or fully captures its benefits. For this reason, corporate governance cannot be understood merely as a mechanism to protect a particular type of shareholder. Its purpose is broader: to organize the coexistence of different centers of interest and power, so that power is exercised efficiently, but also under control.

IBGC and the building of a governance culture in Brazil

The history of corporate governance in Brazil cannot be told without the Brazilian Institute of Corporate Governance (IBGC). Created in 1995 under the name Brazilian Institute of Board Members, in a period marked by privatizations, economic opening and the development of the capital markets, the institute adopted its current name in 1999, when it published the first edition of its Code of Best Practices of Corporate Governance, which became one of the main Brazilian references on the subject.

IBGC helped turn governance into a discipline of its own, for reflection and practice, by disseminating concepts such as independence, transparency, accountability and the responsibility of managers, by training and certifying professionals, and by creating forums for dialogue among managers, investors, lawyers, auditors and academics. Its work takes place in a sphere distinct from that of the legislator and the regulator: the law establishes mandatory structures, regulation details obligations, self-regulation develops market standards, and institutions such as IBGC produce knowledge and consolidate standards of conduct. This is an institutional culture that precedes or complements the legal obligation itself.

Also noteworthy is IBGC’s leadership in the Inter-Agent Working Group that drafted the Brazilian Corporate Governance Code – Publicly Held Companies, a process that shows how recommendations born of business experience and self-regulation can mature and engage with the regulatory process.

The Brazilian Corporate Governance Code – Publicly Held Companies was based on IBGC’s Code of Best Practices and on the “comply or explain” methodology, already adopted in the self-regulation of publicly held companies. The Brazilian Securities and Exchange Commission (CVM) incorporated this content into regulation through CVM Instruction No. 586/2017, which amended CVM Instruction No. 480/2009 and created the Report on the Brazilian Corporate Governance Code. The matter is now set out in Annex D to CVM Resolution No. 80/2022.

The Brazilian experience thus shows that governance results from the interaction among law, market, self-regulation, academia, investors and managers, and that IBGC’s contribution is part of the very institutional infrastructure of the capital markets.

Institutional organization and the power-functions of corporate bodies

Law No. 6,404/76 expressly governs the corporate bodies that make up companies and assigns specific power-functions to each of them: the deliberative power-function is assigned to the General Shareholders’ Meeting; the administrative one, to the Executive Board; and the supervisory one, to the Fiscal Council.

The General Shareholders’ Meeting is the forum in which the collective will of the shareholders is expressed on the matters the law reserves to it. The Board of Directors guides the business and oversees the Executive Board, which makes it an institutional bridge between ownership and management. The Executive Board carries out executive management, and the Fiscal Council meets the need for a specific body of inquiry. All of them have legally defined duties.

This allocation serves a governance purpose: to prevent the same center of power from concentrating the functions of deciding, executing and overseeing. That is the logic of checks and balances. Those who manage should not be the sole evaluators of their own management; those who oversee should not manage; those who provide the capital should be able to exercise their rights without replacing the bodies responsible for day-to-day management. When the Board of Directors merely ratifies decisions already made by the Executive Board, its supervisory function loses substance. And when the Fiscal Council acts as a parallel management, or the General Meeting interferes indiscriminately in ordinary management, the legal allocation of powers breaks down.

The notion of power-function is useful for understanding these limits. A body’s power does not exist to benefit it, but so that a given institutional function may be performed. It is not enough, therefore, for a body to have the formal capacity to influence a decision; one must verify whether its action falls within its sphere of competence. Governance seeks to prevent two equally harmful phenomena, the undue concentration of powers and the undue overlap of functions, and both lead to a loss of accountability: if everyone decides, responsibility is diluted; if only one decides, control disappears. The point of balance lies in clear decision-making, effective oversight and identifiable responsibility.

Independent committees and the limits of delegating powers

The Board of Directors of publicly held companies deals with complex matters, such as audit, risk, compensation, succession, related parties, internal controls, integrity, technology and sustainability, which cannot always be examined with the necessary depth in an ordinary board meeting. Specialized committees, such as audit, people and compensation, and risk committees, respond to this need by concentrating technical knowledge and examining specific issues in depth.

The main virtue of these bodies lies in the specialization of oversight. Information undergoes technical analysis and questioning before reaching the competent body, forming a more qualified decision-making chain.

This sophistication, however, raises a central question: how far can statutory committees go? The answer requires distinguishing advisory work from the transfer of decision-making power. A committee may prepare and analyze matters, raise questions and make recommendations, and may also receive the instrumental powers necessary to perform its functions.

The situation is different when a committee comes to exercise, autonomously and definitively, a power the law assigns to another body. A legal competence is not a mere administrative prerogative that can be freely shifted: it is part of the very architecture of the company and comes with duties, responsibilities and control mechanisms. As a rule, the committee advises the competent body, but does not replace it.

This caution is even more important in the case of independent committees. Independence should raise the quality of the decision-making process, not create a new autonomous center of power. The committee examines, questions and recommends; the competent body deliberates and takes responsibility for the decision.

This does not mean that every grant of powers to committees is inappropriate. The complexity of business activity may justify granting instrumental powers and, in legally permissible situations, even decision-making powers of their own. The closer the grant comes to the core of another body’s legal competence, however, the greater the care required with four dimensions: the source of the competence, to verify whether the matter admits delegation; the scope of the powers granted, to delimit what actually falls to the committee; responsibility, to identify who answers for the decision and for its oversight; and accountability, to ensure that the committee’s actions are documented and reviewed.

A structure in which the Board formally holds the power, the committee materially decides and the Executive Board executes creates a zone of uncertainty as to who actually exercised the power and, consequently, who answers for it. Moreover, the independence of a committee’s members does not, by itself, transfer the responsibility assigned to managers: independence means autonomy of judgment, not the assumption of the manager’s legal position.

In governance matters, substance must prevail over form. A committee that, in practice, makes the relevant decisions performs a function different from the one its name suggests. Hence the importance of clarity in the bylaws and internal rules: the structure must make it possible to identify who holds the legal power to decide, who takes part in shaping the decision and who answers for its exercise. The role of committees is not to create a new layer of power, but to enhance the exercise of the power already allocated by the corporate structure.

Fiduciary duties

The discussion of the limits of committees leads to the fiduciary duties of managers, set out mainly in Articles 153 to 157 of Law No. 6,404/76. The duties of diligence, loyalty and acting in the company’s interest do not disappear when a given matter is submitted to a committee. On the contrary, committees are instruments for the proper fulfillment of these duties: a diligent Board turns to them when it needs specialized knowledge, seeks to reduce an information asymmetry or faces a potential conflict of interest.

The reverse reasoning, however, does not hold. The mere existence of a committee does not demonstrate that managers have fulfilled their duties; they must understand the information received, ask questions, examine alternatives and exercise their own judgment. The Board cannot justify a decision solely because the committee recommended it: the recommendation is part of the decision-making process, but responsibility remains, in principle, with whoever holds the legal power to decide. Nothing prevents managers from deciding against the recommendation; what is required is that the decision be informed, reasoned and consistent with the applicable legal duties.

This discussion points to a less visible dimension of governance: the quality of information. The Board of Directors can only properly perform its oversight function if it receives sufficient, reliable and timely information, and the Fiscal Council and committees likewise depend on access to the elements relevant to their functions. A company may have an adequate formal governance structure and still have shortcomings if the flow of information is asymmetric or insufficient. By examining certain matters in depth, independent committees help reduce these asymmetries.

Proportionality, trust and the capital markets

There is, however, a risk in the evolution of governance mechanisms: turning control into bureaucracy. The multiplication of committees, policies and procedures does not necessarily mean better governance and may reduce efficiency without a proportional gain in security. The goal is not to create the greatest possible number of controls, but to establish mechanisms suited to each company’s relevant risks. There is no single structure that can be applied indiscriminately to companies exposed to different risks.

Excessive control can be as dysfunctional as its absence. Controls disproportionate to risks raise costs, delay decisions and disperse responsibilities, without increasing security.

In publicly held companies, this issue takes on an additional dimension. Investors do not follow day-to-day management and depend, to a large extent, on the information disclosed by the company and on the mechanisms responsible for producing, analyzing and verifying it. Governance is, in this context, part of the trust infrastructure of the capital markets. Its function is not to eliminate the uncertainty inherent in business activity, but to create conditions for decisions to be made on an informed basis, for relevant risks to be identified and for conflicts of interest to be properly addressed.

Managers are not required never to err, but to adopt a decision-making process consistent with their responsibilities, with adequate information, analysis of alternatives, consideration of relevant risks and mechanisms of oversight and accountability. A decision made after an adequate process may produce a negative result, just as a positive result does not, by itself, show that the process was adequate. For this reason, Corporate Law should not automatically link an unfavorable result to a governance failure.

This is where governance reveals its most important function. More than preventing errors or guaranteeing results, it should create the conditions for responsible, informed decisions subject to adequate control mechanisms, without turning the governance structure itself into an obstacle to business activity.

Conclusion

Corporate governance is, ultimately, an institutional architecture designed to organize the exercise of power within the company, establishing how that power is allocated, exercised, overseen and, when necessary, challenged. Law No. 6,404/76 provides the fundamental elements of this architecture by allocating distinct and complementary powers among the General Shareholders’ Meeting, the Board of Directors, the Executive Board and the Fiscal Council.

Contemporary governance has expanded this design, adding independent directors, independent audit and specialized committees to the mechanisms of oversight and decision support. IBGC’s work in this process shows that governance is not limited to legislation: it is also built by business culture, self-regulation, academic work and the interaction among companies, the market and public institutions.

At the center of this structure lies the logic of checks and balances. Its purpose is not to prevent the exercise of power, but to avoid its unchecked concentration; not to eliminate disagreements, but to create space for them to be examined; nor to remove the risks inherent in business activity, but to ensure that they are taken on in an informed and responsible manner.

Each corporate body performs its own function. The General Meeting deliberates. The Board of Directors guides and oversees. The Executive Board manages. The Fiscal Council supervises. Committees examine specific matters in depth and assist in shaping decisions, without altering this allocation of powers: they should strengthen the Board, not replace it; expand the information available, not take on the power to decide.

An adequate governance structure therefore depends on a clear allocation of powers, independence, quality information, effective oversight and responsibility, elements that must work together. Responsibility occupies a central place in this architecture: there is no effective governance when the exercise of power can be shifted without it being possible to identify who answers for it.

Governance, therefore, does not mean merely eliminating conflicts, risks or errors, but creating the conditions for them to be addressed within an adequate institutional structure. Conflicts must be open to examination. Risks, to oversight. Decisions, to questioning. Responsibilities, to identification.

This is the meaning of checks and balances within the company. More than multiplying bodies, rules or procedures, governance should organize power so as to preserve the autonomy of functions, enhance decision-making and keep responsibility for its exercise visible. Its value lies less in the number of mechanisms in place than in the ability to ensure that power is exercised with information, sound reasoning and responsibility.