The board of directors is a fundamental component in the development of a public company. Its attributions include not only establishing the organization's strategic guidelines, but also fostering the best corporate governance practices. To make sound, safe decisions, board members must have a profound knowledge of their company's business operations. Therefore, the new best practice code issued by the Brazilian Institute of Corporate Governance (IBGC) recommends that companies refrain from appointing substitute directors to stand in for titleholders who miss a meeting. According to the institute, substitute directors are not adequately familiarized with a company's problems and, therefore, they are not qualified to exercise the attributions of a board member.

This month, in our Comply or Explain sampling, 23 companies have substitute directors in their boards. Brasil Foods is one example. The company argues that its substitute directors – who are appointed at shareholders' meetings – have all the technical qualifications and necessary knowledge about the company. Therefore, their stepping in for a title-holding director not only protects the board’s structure, but also adds value to the company.
Cemig emphasizes that its substitute directors take active part in board meetings and in the many committees that support the board. "Depending on the organization's structure and the proposed attributions of these individuals, substitute directors can be helpful and necessary in the day-to-day life of a company, therefore becoming compliant with the principles of good corporate governance", the company explains.

Usiminas stresses that the absence of substitute directors could hinder the board's decision-making process. "In a decision which must be approved by a qualified quorum, the absence of an effective director could delay the decision or even make it unfeasible, potentially harming the company's interests", it says. The steel company disagrees with the IBGC's claim that substitute directors engaged as occasional stand-ins are not satisfactorily familiarized with the company's problems. Usiminas argues that "the directors are aware of their respective responsibilities and assume fiduciary duties under the terms of the law. In other words, each of them must endeavor to exercise his or her attributions with the care and diligence required by the position."

Tractebel explains that its reason for appointing substitute directors is to bring full representativeness to all board meetings, even in the event of absences or impediments on the part of title-holding directors. And it adds that, in these cases, "the company makes sure that the substitute directors are notified in advance about the issues that will be decided at the meetings, in order to enable them to vote knowledgably and confidently."