The Board of Directors in Family Businesses

Brazil has approximately 9 million family businesses, responsible for 651% of GDP and more than 751% of the country's formal jobs — according to surveys by SEBRAE and IBGE.[1]. Fewer than 30% survive to the second generation. Fewer than 10% reach the third. The question of creating a board of directors sometimes arises as an initiative of the founder, sometimes as a requirement of an investor, sometimes as a consequence of a crisis. The answer depends less on the law than on the timing and maturity of the company.

What the council does

In publicly traded companies, a board of directors is required by law.[1]. The legal structure of most Brazilian family businesses (Ltda.) is a choice. It's the market's benchmark code for corporate governance.[2] He recommends the council because it creates a decision-making space separate from the family and the operation: a place where the tough questions need to be asked and the answers justified. In a company where the owner, the manager, and the family member are the same person, this space rarely exists naturally.

The arguments in favor

• An outsider's perspective.  Independent advisors can bring emotional distance. In Brazil, where it's common to confuse personal and business assets, this external perspective has immediate practical value: it questions decisions driven by emotion, not strategy.
• Succession with criteria.  Research on family businesses in Brazil[1] They point to family conflicts and lack of planning as the main causes of these companies' failure. The board creates a clear process for leadership transition — based on merit, not birth order.
• Access to the capital.  Funds of private equity, BNDES and institutional investors require structured governance. Companies intending to list shares on B3 — especially in the Novo Mercado or Level 2 — need strong governance.[2] — They need independent advisors. Even outside the stock exchange, the advisor reduces the perceived risk for any partner or creditor.
• Professional management with accountability.  Hiring an external CEO without a board is like hiring a pilot without an air traffic control tower. The board defines the mandate, evaluates performance, and, if necessary, replaces them—without it becoming a family matter.

Arguments against — or in favor of — caution.

Cost and speed.  A qualified board isn't cheap, and minutes, quorums, and formal voting can turn a decision that used to take an afternoon into weeks. For companies with tight margins and a heavy tax burden, the equation may not add up.

Council on paper.  Many Brazilian founders agree to create the body and then ignore what it says. A dysfunctional board is worse than no board at all: it generates costs, creates the appearance of governance, and fails to deliver on its promises.

Wrong time.  In the early stages of professionalization, a board can hinder more than help. The company is still organizing processes and separating personal and business finances. Establishing a board before this foundation is in place means having board members making decisions blindly. The sequence that works in Brazil is different: first separate roles, then formalize processes, then structure the family holding company—and only then the board.

Shipping matters

Smaller companies — with revenues of R$30–50 million, centralized control, and no external investors — generally function well with professional management and an organized family board. The priority is to separate company assets from family assets and, when applicable, structure an asset holding company to facilitate succession and tax planning.[1]. In the intermediate stage, an advisory board (advisory boardThis can offer an outside perspective without the legal weight of a board of directors — and it gets the family used to receiving questions before they are obligated to answer them.

For large groups—those with a market capitalization above R$500 million, complex structures, or prospects for an IPO—a formal board ceases to be an option and becomes a necessity. WEG, Votorantim, and Itaúsa made this transition: they maintained family control but opened up space for governance that extends beyond them.

Conclusion

A board of directors isn't the solution to all of a family business's problems—but, at the right time, it can be a powerful tool at the disposal of the controlling shareholders. The family needs to want the board, not just tolerate it. Imposed governance fails at the first crisis. A genuine board of directors isn't a threat to the family—it's what protects the business from it.

It's worth noting that professionalizing governance is not a panacea. The Brazilian market offers examples in both directions. There are countless regional family businesses—in agribusiness, retail, and services—managed with discipline and integrity for decades without ever having established a formal board. And there are companies with sophisticated governance structures, active boards, audit committees, and high ESG ratings that have been the scene of high-profile frauds and abuses—the Americanas and Oi cases are recent reminders that formal instruments do not replace organizational culture and ethics in management. Governance is a necessary condition. It is not sufficient.

Article prepared by: Antonio Mazzucco, Marina Moreno and Paula Suraci.

[1] Supplementary Law No. 214, of January 16, 2024 (Tax Reform). Establishes the Contribution on Goods and Services (CBS), the Tax on Goods and Services (IBS) and the Selective Tax (IS). The reform directly impacts the tax planning of family holding companies, especially regarding the tax treatment of dividends, corporate reorganizations and asset transfers.

References:

• SEBRAE. Business Survival in Brazil. Brasília: SEBRAE, 2023; IBGE. Annual survey of services and business registration statistics. Estimates of GDP share and employment combine data from these two sources with sectoral studies by SEBRAE itself on family-controlled businesses.
• [1] Law no. 6,404, of December 15, 1976 (Brazilian Corporations Law). The board of directors is a mandatory body in publicly traded companies and companies with authorized capital, pursuant to article 138. Its minimum composition of three members elected by the general meeting is set by article 140.
• [1] IBGC. Code of Best Practices in Corporate Governance. 5th edition. São Paulo: IBGC, 2015. Main reference for corporate governance in Brazil, adopted by publicly traded and privately held companies, business families and institutional investors.
• [1] PwC. Family Business Survey Brazil. São Paulo: PwC, 2023; McKinsey & Company. Governing family businesses. 2021. Both surveys point to conflicts between family partners and the absence of succession planning as the main factors for the discontinuation of family businesses in Brazil and Latin America.
• [1] B3 New Market Regulation (current version, updated in 2021): requires a board of directors with a minimum of five members, of which at least 20% must be independent. The Level 2 Regulation provides for a minimum composition of five members with an identical percentage of independent members, plus additional rules for the protection of minority shareholders.