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/ Board decisions under scrutiny: the new rule proposed by MK4

October 27, 2026

The capital markets reform bill known as MK4, introduced under legislative docket No. 18.643-05 and recently reported out of the Finance Committee of Chile’s Chamber of Deputies, proposes a new standard for assessing business decisions made by boards of directors. The proposal is particularly relevant for companies, as it reinforces the importance of having appropriate mechanisms in place to demonstrate that directors and executives have fulfilled their duties.

Luis Fuentes
Director of Litigation and Arbitration

Article 41 of the Chilean Corporations Act (Law No. 18,046) requires directors to exercise the care and diligence that people ordinarily use in their own business affairs. Directors are jointly and severally liable for loss caused to the company and its shareholders by their intentional misconduct or negligence. However, the law does not provide specific criteria for determining when directors have satisfied this duty when making a business decision.

This is particularly relevant when boards are required to make decisions involving investments, financing, acquisitions, reorganizations, or other transactions whose outcomes cannot be predicted with certainty. When a decision is assessed after an adverse outcome, there is a risk of judging it in light of that outcome rather than based on the information and circumstances available to the board at the time.

The proposed standard resembles the business judgment rule developed in other jurisdictions. Rather than focusing on the outcome of a decision, it looks at the circumstances and process through which the decision was made. Under the proposal as currently understood, a director’s duty of care would be deemed satisfied in respect of a business decision in which the director has no interest, provided that the director acted in good faith, on the basis of reasonably sufficient information, and with a reasonable belief that they were acting in the interests of the company. The director’s conduct would have to be assessed based on the circumstances existing at the time the decision was made.

Although this rule applies in the corporate law context and does not, in itself, preclude potential administrative, civil, or criminal liability, it highlights the practical importance of maintaining a clear record of the decision-making process. Board minutes, financial and technical reports, legal opinions, and records of the alternatives considered will be key to demonstrating how and why a particular decision was made.

The bill also expressly provides that a company may take out civil liability insurance for the benefit of its directors, managers, executives and employees.

The proposed rule does not provide immunity. It applies to business decisions in which the director has no interest. For related-party transactions, each director’s interest and compliance with the specific rules governing those transactions must be assessed separately. The proposal does not replace the special rules applicable to related-party transactions.

If approved, the practical value of the proposed rule will depend largely on how boards prepare for, discuss, and document their decisions. Companies should therefore review their board procedures, the quality of the information provided to directors, the content of board minutes, and the adequacy of their liability insurance coverage.

What should companies review?

The procedures for providing information to the board.
How conflicts of interest are identified and documented.
The content of board minutes.
Documentation of the alternatives considered.
The technical and legal reports relied upon.
The actual scope of coverage under directors’ and officers’ liability insurance (D&O insurance) policies.

The soundness of a business decision cannot be established by its outcome alone. It must also be possible to reconstruct the decision-making process that led to it.