OUTSIDE DIRECTOR LIABILITY: GERMAN STOCK CORPORATION LAW IN TRANSATLANTIC PERSPECTIVE
Author: ROTH, MARKUS
Source: Journal of Corporate Law Studies, Volume 8, Number 2, October 2008 , pp. 337-372(36)
Publisher: Hart Publishing
Abstract:The role of outside directors is one of the key features in the transatlantic corporate governance debate. As their importance rises, their liability is also attracting attention. Since there are only a few cases internationally in which outside directors of listed companies have been held liable for violating company law duties, and oversight liability is considered to be dynamic, it is fruitful to consider German cases as well. In Germany, with its two-tier board system, where management and oversight are the responsibilities of, respectively, a management board and a supervisory board, supervisory boards are common for non-listed as well as listed companies. Supervisory directors have been held liable in an increasing number of cases in the last 10 years. In Germany, as in the US, courts distinguish between the decision-making and the monitoring contexts. Supervisory directors are engaged in decision-making, and in this respect are protected by a newly introduced business judgment rule. In the monitoring context, the German Federal Supreme Court traditionally denies business discretion, while in the US good faith serves as a general standard of review. It is argued that, as in the US, the stricter standard applies only when a red flag is present. Concerning the lack of out-of-pocket liability in general, the provisions of the German Corporate Governance Code concerning a suitable deductible could usefully be taken into account in the transatlantic discussion.
Document Type: Research Article
Publication date: October 2008
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