Author: | Published: 9 Oct 2003
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Some commentators have argued that the ideal corporate governance structure with regard to corporate management organization, independence of corporate body members and management transparency is one where:

  • there exists a board of directors, an audit committee, a remuneration committee and a nomination committee;
  • the members are all independent;
  • they meet regularly (at least, six times a year for the board of directors and four times a year for the audit committee); and
  • relevant information is disclosed in a clear and unambiguous fashion to the shareholders and public on time.

This model will serve in this article as a guide to how the Portuguese legal system is organized.


The Companies Act has been in force since 1986 and provides a relatively modern code of rules which encompasses not only the relevant EU company law directives, but also the most recent corporate management structures. The one-tier and the two-tier board systems are provided for at the option of the company shareholders. The one-tier system comprises the board of directors (conselho de administração) which can delegate certain powers to an executive committee (comissão executiva) of board members. Unlike the two-tier system, this executive committee is not independent of the board of directors and acts by delegation of powers from the latter. The two-tier system comprises the supervisory board (conselho geral) of non-executive directors and the management board (direcção) of executive directors.

There is no co-determination system in Portugal. Workers are entitled to some limited rights of information and no compulsory participation in the corporate management or supervisory board is provided for.


Any shareholder owning more than 1% of a company's share capital is entitled to consult, at the company's head office, certain corporate documents concerning the last three years, such as management reports and accounts, meeting notices, minutes of shareholders meetings and the like, remuneration paid to the directors, auditors and senior staff and the share registration book to identify the shareholders. Listed companies must disclose to the market all relevant information which has an impact on the company's business value or other facts concerning its activity which may influence the market share value.


Internal controls are carried out by the audit committee (conselho fiscal) which has been provided for in Portuguese law since 1901 - a fact which may be surprising in some countries where the mandatory obligation for certain companies to adopt an audit committee has only recently been adopted.

The audit committee must be composed either of three independent members or, at the option of the shareholders, of a single internal independent auditor. It has full powers to check and control the accounts and the lawfulness of corporate activity and it is under an obligation to disclose to the public authorities all actions of the company which are or appear to be illegal. It also has a consultative function in certain management matters.

In addition to this internal supervision, listed companies must apply for the certification of accounts by external independent auditors or submit to them certain matters for their control and advice. Non-listed companies are not mandatorily subject to this control, except where specifically provided for in the law in certain conditions. However, many companies follow the same procedures on this matter as public companies do. Also the market regulatory authority (Comissão do Mercado de Valores Mobiliários or CMVM) has strict controlling powers in all matters concerning the relationship between public companies and the capital market.

Independence in auditing, either by internal or external auditors, means, among other things, not being or not having any of the following:

  • beneficiaries of individual advantages by the company;
  • managerial functions in the company;
  • members of the board of directors of a controlling company or a company within the group; or
  • individuals providing permanent and remunerated services to the company in any other capacity.


There is no general counsel equivalent to the US legal concept in Portugal. However, public companies must appoint a company secretary who must be someone holding a law degree. He or she is in charge of certain bureaucratic matters concerning the company's activities and relationship with shareholders with regard to their right to information about the corporate activities.

Whistleblowers are criminally liable for disclosing or taking advantage of or advising someone to take advantage of any privileged information (information concerning an issuing company which, when disclosed, is capable of reasonably influencing the market share value).


Directors are subject to a strict number of duties of a general or specific nature. Fiduciary duties as conceived under common law are not an instrument used in civil law countries, but the final result is not very different.

As a general duty, a director must act diligently as a judicious and reasonable person in the interests of the company having also in mind the shareholders' and workers' interests (Section 64 of the Company Act). Other statutory provisions concern directors' duties, such as:

  • not negotiating with the company unless previously authorized to do so by the board of directors and with the favourable opinion of the audit committee;
  • not borrowing money from the company;
  • not working, as an employee, in the company or holding or group company;
  • to file for bankruptcy whenever the statutory requirements to do so are met;
  • not to disclose any relevant information concerning the corporate business activity; and
  • to avoid committing any environmental infringement or breach of capital market or public health and safety rules.

The exclusion or limitation of liability is not permitted. Joint and several liability with the company is the rule whenever the company is also liable.

Insurance against personal liability is not provided for in the law. However, internal company rules may require the directors to deposit a bond as a security for liability with regard to the company.


Beyond the right to management information, mentioned above, shareholders owning 10% or more of the company's share capital can apply for a court removal of directors, and shareholders owning 5% or more can file an action against the management for damages caused to the company as a result of a breach of law or contract. They can also associate in order to propose the election of directors appointed by minority shareholders, but only if the articles of association so allow (Section 392 of the Company Act).

A court inquiry to investigate any fact concerning the company is also allowed for under certain conditions.

In addition, the public in general is substantially protected by capital market rules concerning not necessarily minority shareholders but anonymous shareholders and the market in general.


For public companies, the law does not prevent the establishment of defensive clauses against hostile takeovers (poison pills, shark repellents, golden parachutes and so on). The CMVM takes a position on this which is described below.


As any other regulatory authority, the CMVM has issued regulations and recommendations (in addition to mandatory regulations) regarding the protection and development of the domestic capital market, the creation of conditions to obtain more transparency, and also on corporate governance.

These are some of the most recent regulations and recommendations establishing minimum standards on corporate governance matters.


The use of new information technology, such as the internet, is encouraged to disclose financial information and the preparation of documents for shareholders' meetings.

Each listed company is also advised to set up a department for investor assistance. This is already common practice in Portugal.


The active exercising of voting rights, whether directly, by post or proxy, is also encouraged.

As a matter of fact, the Securities Code specifically allows the use of postal voting by shareholders of listed companies at the shareholders' meetings or by proxy. The CMVM established some practical rules aiming to contribute to an efficient application of the right to exercise a postal vote.


Companies are encouraged to create their own internal organizational regulations regarding the settlement of conflicts of interests between board members and the company and also to check and follow up the activity of board members concerning the fulfilment of diligence, loyalty and confidentiality duties with a view to preventing the improper use of business opportunities and company assets.

Self-regulation either by associations or other institutions dealing with corporate governance issues is still not significant in Portugal. In particular, there is a need for control systems to help company directors to identify relevant risks (financial, environmental, legal and others). The creation of a risk-rating system through internal audits and/or risk management is suggested in the recommendations, because, not only would it improve management standards, but also it would bring greater transparency conditions in the marketplace.


With regard to the statutory regime of defensive clauses, the CMVM sustains that when these clauses are intended to prevent the success of takeovers they should respect the interests of the company and its shareholders. Measures contrary to those interests include defensive clauses aimed at causing an automatic erosion of company assets in the event of transfer of control, or of change to the composition of the board which is detrimental to the free transferability of shares and the free assessment by shareholders of the performance of members of the board.


The board should be composed - in accordance with the CMVM - of a number of members who provide managers with effective guidance for the company's management. It should convene at regular intervals, be duly informed at all times and ensure the efficient supervision of the management of the company. In particular, procedures should be put in place to ensure the provision of all information necessary for members of the board to carry out their functions effectively.

The participation of independent individuals on the board (independent from dominant shareholders) is also encouraged with a view to maximizing the satisfaction of corporate interests. Indeed, the CMVM points out that which is vital in a sound corporate governance practice: the management of a public company should not be conducted for the protection of the interests of the majority shareholders only, but also of investors in the company irrespective of the size of their shareholding stakes as well as in the interest of workers. For this purpose, it is recommended that each company, in accordance with its own features (size, shareholder composition and so on), establish its own concept of independent director and explain this to the public and promote the nomination of such directors.

In the event of the creation of executive committees, these should reflect the structure of the board of directors and also be composed of independent executive directors.


It is recommended that part of the remuneration of the members of the board - in particular of members involved in current management - be dependent on the results of the company in order to maximize the exercise of good management practices devoted to increasing the income and controlling the costs of the company.

A proposal for other recommendations about the composition of the remuneration committees and other related matters has just been submitted by the CMVM to public discussion.


This recommendation concerns transparency and completeness of information to shareholders whenever they are requested to vote in shareholders meetings on the approval of plans to allot shares or stock options to board members or employees, such as the criteria for determining the price of the shares or stock options, people involved, the incentives for purchasing the shares/stock options and so on.

The CMVM has included in the measures for public discussion a proposal to regulate a duty to notify the CMVM of any approval of allotment of shares and stock options plan.


The Portuguese capital market is characterized as within the insider system (typical of continent Europe) where banks have a central role in controlling the performance of companies' activities - either when granting credit or placing securities or launching IPO's or when advising investors. And this is different from the outsider system (typical of the US and UK markets) where the investor is largely protected by market over-regulations. However, it is fair to say that the government and the CMVM have developed efforts to cope with the post-Enron impact on markets all over the world.

Following the enactment of the Sarbanes-Oxley Act in 2002, the SEC published a set of regulations. The most important relate, among other things, to:

  1. ongoing certification of statement of accounts by CEO and CFO
  2. rules regarding attorney's obligations to report evidence of violations of securities laws and fiduciary duty;
  3. strengthening auditor's independence;
  4. disclosure of off-balance sheet arrangements and aggregate contractual obligations;
  5. auditor communication with audit committees;
  6. a code of ethics for principal executive officers and senior financial officers;
  7. disclosure of management's evaluation of internal controls;
  8. improper influence on conduct of audits; and
  9. disclosures with respect to audit committee financial specialists.

Number (1) Portuguese law requires that the management sign all statements of accounts. Some of the measures adopted by SEC have not been so relevant in Portugal, such as the case of no. (2) Others are not applicable, such as no. (9). Number (3) is still to be ruled, despite the matter is not so significant as it was in the US in connection with the Enron case and other further scandals. Number (4) is sufficiently ruled in Portuguese law in the extent that it is mandatory the disclosure of all relevant information which may influence the market share value. Number (5) is typical of the new US law after SOX, but it may be necessary in Portuguese law to reinforce the information traffic between the internal and the external auditor in name of the principle of transparency. As to (6) there is still no code of ethics in Portugal for corporate governance, because self-regulation is still at a stage of infancy. This self-regulation gap has been largely filled with a number of CMVM's recommendations, in addition to mandatory regulations. The same comment can be made with regard to (7). As to (8) existing legislation and regulation about auditors may be enough, except on the matters mentioned above and on disclosure of auditors' remuneration for services rendered. Legislation is about to be implemented soon on this and is at the public discussion phase.

Barrocas & Alves Pereira
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Tel: +351 21 384 3300
Fax: +351 21 387 0265