Unlike what happens with associations, when it comes to the governance of foundations, the legislator has gone beyond the Civil Code, which in this matter should be analysed in conjunction with the Framework Law on Foundations (hereinafter LQF), Law 24/12 of 9 July.
Foundation governance is neither a simple nor a clear topic. Firstly, because the LQF introduced and regulates three types of foundations to which different structuring rules apply: i) private foundations; ii) public foundations governed by public law; and iii) public foundations governed by private law. (Art. 4(1) of the LQF)
It should be noted that the LQF applies to public foundations governed by public law and public foundations governed by private law, namely articles 48 to 61, together with the other legislation applicable to public legal persons, namely the Framework Law on Public Institutes (Art. 52(1) of the LQF). Bearing in mind the specificities of public law and the fact that private law foundations are more prevalent in the Portuguese foundation sector, the following analysis will focus on the governance rules applicable to them.
Firstly, the LQF stipulates that private law foundations must have three governing bodies: i) an administrative body, which is responsible, among other things, for managing the foundation's assets; ii) a governing or executive body with day-to-day management powers; and iii) a supervisory body. (Article 26(1) of the LQF) In this regard, in order to ensure the transparent, regular and legal functioning of the foundation, it is important to emphasise, in accordance with the law, the importance of avoiding overlapping competences between the governing bodies. (Art.27(1) of the LQF)
The LQF also provides for the possibility of foundations having one or more optional governing bodies, of varying composition and powers, which have advisory functions and/or the mission of ensuring compliance with the statutes and/or ensuring and protecting the will of the founder (Art.26, no.2 of the LQF). Typically, in the Portuguese foundational ecosystem, this figure takes the form of Boards of Trustees or Advisory Boards. These bodies are an expression of democratic and transparent internal workings and are therefore highly recommended.
With regard to their composition, the LQF determines the mandatory collegial form of the management body, which must have an odd number of members. The executive body and the supervisory body can be headed by a single person, natural or legal, or alternatively, take a collegiate form (Art. 27 of the LQF). As far as the optional governing bodies are concerned, there are no legal limitations on their composition.
While we have already explained the importance of avoiding overlap between the competences of the governing bodies, it is important to address the question - which has the potential to cause so many headaches – ‘can the members of a foundation's governing bodies wear "several hats" within the foundation, i.e. hold positions on different bodies’? Although the law does not prevent this (with the exception of foundations with IPSS status, which are subject to a legal prohibition in this area), it is not recommended that they do so, as this could lead to unnecessary complications in the smooth running of the foundation. It is extremely important to maintain transparency and to ensure that each body has its interests safeguarded by its respective members with the common aim of contributing to the foundation's smooth running and longevity.
The rules for appointing the members of the governing bodies also deserve special mention because of their particular importance in the governance model. The fact that the LQF grants wide discretion in this matter, combined with the fact that foundations do not include members who meet in General Meeting to elect the members of the governing bodies (unlike associations, for example) and that they are dependent on the administration to amend their statutes (Art. 31 of the LQF), means that foundations are particularly permeable to governance problems related to the statutory rules on appointing members of the governing bodies. Therefore, in order to prevent situations of entropy at this level, often the result of the family nature and the preponderance of the founder's will in most foundations, it is prudent to include an "escape clause" in the articles of association that determines the subsidiary competence of a body, for example the Board of Trustees, for the appointment of the Board of Directors, thus ensuring the longevity of the foundation.
Likewise, it is important to emphasise that, despite the prohibition of lifetime terms of office - except for positions expressly created by the founder with this nature in the act of institution - the law is silent on the renewal of the terms of office of the governing bodies, so it seems advisable to determine in the articles of association a limit on the number of terms of office, and to establish limits on their renewal.
Finally, with regard to regulating the functioning of governing bodies, it should be noted that the LQF does not prohibit the remuneration of office-holders in private foundations, so the form of remuneration and the amounts to be paid should be based on ethical standards of governance.
