On October 9^th, 2024, the Financial Market Commission (CMF) launched a public consultation on a regulatory proposal regarding the requirements and conditions for qualifying as an independent director in publicly listed companies. It also aims to regulate the content of the general director selection policy in their subsidiaries supervised by the CMF.

This project addresses changes introduced to the Corporations Law through Law No. 21.314 of 2021, by complementing the regulations mainly found in Article 50 bis of the Corporations Law regarding the concept of an independent director in public companies and to improve the mechanisms for appointing directors of subsidiaries regulated by the CMF.

In particular, the proposal addresses:

1. Circumstances Disqualifying a Person as an Independent Director:

A person will not be considered independent if they have significant economic, professional, credit, or commercial ties to the company. Specifically:

• Relevant Contracts: Entering into contracts with the publicly listed company, its group, or its controlling entity, amounting over 25% of the person’s average gross annual income in the last three years, either directly or through entities in which they hold more than 10% of the capital or profits, including those of related persons.
  
  

• If the shareholding in the counterpart entity of the publicly listed company exceeds 10% but is less than 50% of the capital or profits, the contract amount considered will be prorated according to the highest shareholding. If it exceeds 50%, the total amount will be considered.
  
  

• Relevant Credits: Holding credit with the publicly listed company, its group, or its controlling entity amounting to 25% or more of the person’s average gross annual income, excluding loans for the acquisition of their primary residence. This applies either directly or through entities where the person holds more than 10% of the capital or profits, including related persons.
  
  

• Participation in Other Entities: Holding over 10% of the capital in another entity in which the publicly listed company, its group, or controlling entity also hold more than 10%.
  
  

• Foundations or Corporations: Being a founder or director of a foundation or corporation receiving annual contributions of 5% or more of its total income from the publicly listed company, its group, or its controlling entity.
  
  

• Equity Participation: Holding a share equal to or greater than 10% of the equity of a corporation where the publicly listed company, its group, or its controlling entity also hold equal or higher percentages.
  
  

• Previous Employment Relations: Having been a director, manager, administrator, or chief executive of a company of which the publicly listed company is the legal successor.
  
  

2. Minimum Content of the General Director Selection Policy:

The parent company must establish and make public the criteria for determining if a person is suitable to serve as a director of a subsidiary. It must consider the candidate’s level of connection with the subsidiary, the parent company, and other group companies to ensure they can perform their duties effectively. It must also outline the procedures governing the nomination and election of directors, and the mechanisms for disclosing the director election policy.

The proposal includes that, if approved, the provisions will take effect starting January 1, 2026, and will apply to board elections held after that date.

The project will be open for public consultation on the CMF website until November 18, 2024, for review and comments at this link.