Professional Directors in Panamanian Legal Entities
Teresa Carballo, Partner
Pacífica Legal
This guide outlines the fiduciary duties, selection criteria, and roles of professional directors in Panama, providing a comprehensive framework for effective corporate governance. It emphasizes the importance of ethical conduct, diverse board composition, and clear responsibilities to ensure the best interests of the company and its stakeholders.
Fiduciary Duties of Directors
Directors in Panama have a fiduciary duty to the shareholders and other stakeholders of the company. This duty means that members of the Board of Directors must make decisions in a conscious and informed manner, and act in good faith, with impartiality, independence, and with due diligence and care in the best interest of the company. This duty is independent of the parties who elected the directors. Directors must exercise their powers considering the company’s purpose, its long-term viability, and the impacts of its activities, products, and services on society, the environment, and stakeholders.
Internal Regulations of the Company
Companies must have regulations approved by the Board of Directors that govern their operation. These regulations are binding for its members, and non-compliance entails responsibilities. Additionally, directors must be protected against litigation if a decision was made in good faith and with due diligence.
Profile of Directors
The selection process for members of the Board of Directors should align with the company’s purpose, strategy, stage of development, and expectations. The Board of Directors is responsible for defining a director profile that includes attributes such as relevant business experience, strategic and executive capacity, financial and legal competencies, interpersonal skills, and a commitment to business ethics and corporate social responsibility.
Effective Composition of the Board of Directors
The main objective in the composition of the Board of Directors is to ensure broad and enriching discussions for decision-making. Representativeness and heterogeneity in the Board’s composition are fundamental as they improve the decision-making process through a plurality of perspectives. The Shareholders' Meeting must ensure that the Board of Directors has profiles and experiences that include participation in other boards, high-level management positions, crisis management, and knowledge in business and financial risks.
Classification of Board Members
Although all members must act independently in the best interest of the company, there are classifications that distinguish members based on their relationship with the organization:
Internal: Members who hold a position in senior management or work within the company.
External: Members who are neither internal nor independent, such as former directors and employees; lawyers and consultants who have provided services to the company; controlling shareholders or those with significant participation and their relatives; employees of controlled companies and those in the same economic group; and fund managers with significant participation.
Independent: External members without shareholder, family, business, or other relationships with significant shareholders, controlling groups, executives, or service providers that could significantly influence their decisions.
Roles and Responsibilities of Dignitaries
For the optimal functioning of the Board of Directors, it is important to adequately distribute functions among the various dignitary positions, supported by senior management, to ensure a proper distribution of responsibilities and supervision and accountability functions.
Chairman of the Board: Should not be the same person as the Chief Executive Officer. The Chairman must create a harmonious dynamic, foster an open and safe environment for deliberations, and promote a culture of collaboration. Responsibilities include ensuring the effective performance of the Board, establishing objectives and programs, coordinating and supervising directors' activities, and ensuring members receive complete and timely information.
Corporate Secretary: Appointed by the Board of Directors, ensures compliance with formal and material legal requirements, maintains social documentation, and accurately reflects the sessions and agreements of social bodies in the minutes. The Corporate Secretary assists the Chairman and may or may not be a member of the Board.
Treasurer: Supervises the preparation of the budget, balance sheet, and account settlement, ensures proper custody of the company's funds, and ensures compliance with the Governing Bodies' agreements regarding payments and fund releases.
References:
Guía de Buenas Prácticas de Gobierno Corporativo 2024, IGC Panamá