Between the duty of Loyalty and the duty of Diligence: The desired Directors’ “Space of Immunity”

The duty of loyalty of a Director is to give priority to the interests of shareholders over those of the Director himself: in other words, to maximize the creation of value and minimize the distribution of that value.

The “space of immunity”, what the Anglo-Saxons call the “Business Judgement Rule” is a “safety cushion” in which strategic decisions are left out of judicial consideration.

Are all strategic decisions outside of judicial assessment?

Remember that the former Judge Elpidio Silva allowed himself to say in Mr. Blesa’s prison warrant that “the perfect storm did not depend on constant weather conditions but on the direct actions of the accused Miguel Blesa”…

Frivolities apart, ALL strategic decisions of the Company, are out of court assessment if they are adopted with the following requirements (which must be accredited):

1. Informed Decisions (traceability)
2. Decisions according to the appropriate decision processes (traceability)
3. Decisions in which the interest of the shareholder prevails over the director’s one (traceability)

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What is a managers duty of loyalty?

The Companies Act imposes a number of obligations on company directors. Among them is the duty of loyalty, regulated in Article 227 LSC.

And how does a Director guarantee the performance of a duty as ethereal as the “Duty of Loyalty”?

The following requirements must be met:

1. Keeping secrecy and having the necessary resources so that this secrecy is maintained at all levels of the Company.
2. Abstaining from voting where there may be a conflict of interest.
3. Not exercising powers for purposes for which they were not granted.
4. Adopting the necessary measures to avoid conflicts of interest between the Director and the Company.
5. Not making private use of the Company’s assets.
6. Not obtaining advantages or remuneration from third parties associated with the performance of the position.
7. Not carrying out commercial transactions with the company if they are not done at market prices.
8. Not using the name of the company, for personal purposes.
9. Not competing directly or indirectly with the Company.
10. Not taking advantage of the company’s business opportunities for their own purposes.

All these requirements require accreditation. These requirements and those described above require “traceability”.

This is not about pre-constituting evidence. It is about transparency and being able to prove good faith.

If this article has been of interest, we also suggest you to read the following article published on our website: Loyalty Shares