Authors

Dr. Martin Knaup, LL.B.

Salary partner

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Dr. Carl-Tessen Taube, LL.M. (UNSW)

Associate

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Dr. Frank Koch

Partner

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Authors

Dr. Martin Knaup, LL.B.

Salary partner

Read More

Dr. Carl-Tessen Taube, LL.M. (UNSW)

Associate

Read More

Dr. Frank Koch

Partner

Read More

27 May 2020

Directors’ and officers’ liability despite legally permissible conduct - why “legally permissible” is not always dutiful

Entrepreneurial decisions represent a considerable challenge for decision-makers, especially in times of crisis, due to the exponential increase in the uncertainty of forecasts and time pressure.

We have developed a 3-step model to help you navigate your way through these uncertain times:

1. Legal check

The safety threshold for any decision should be what is permissible within the legal framework. Although not equally correct in law, it is a mandatory basic requirement for a decision that is safe from liability. An avoidable violation of mandatory law is the shortest route to personal liability.

It is precisely in times of crisis that the general duties of care of decision-makers are particularly strict. It is only when the formal, competence-related and organisational basic requirements are fulfilled that increased uncertainties open up a wider scope of discretion in favour of the decision-makers.

What we can do for you:

Legal check:

  • How can I effectively use legal scope, special regulations and government aid packages

Contract check:

  • What room for action is available under the contract in relation to business partners

Competence check:

  • Which decisions require the approval of which corporate bodies

Catalyst for decision-making:

  • Quick and (also formal) legally secure procurement of the necessary resolutions of approval

 

2. 360°- decision analysis

Starting point: As the current example of the corona crisis shows, a general crisis situation forces almost all companies to renegotiate existing contracts.

Challenges: As current examples show, it is not enough to review business decisions to determine whether they are legally permissible. Obligatory decisions must always be made on the basis of adequate information. Regardless of whether this is to unilaterally defer rent payments to contractual partners, to apply for short-time work or to take advantage of government aid, the effects of the decision on other stakeholders - in particular customers, employees, business partners, the public, - must always be considered and included in the decision-making process.

Approach –360°- decision analysis: Analysis of the basis for decision-making that goes beyond purely formal legal considerations and includes other stakeholders and their interests by:

  • Identification of affected stakeholders
  •  Pre-mortem analysis taking into account potential reactions of relevant stakeholders and based on our experience in litigation relating to D&O liability
  •  Court-proof documentation of the information basis

 

3. Communication management

Finally, in the sense of a comprehensive monitoring of the decision-making process, the correct communication of the decision is of central importance. Even a legally and economically impeccable decision can destroy long-standing business relationships, frustrate employees and cause lasting damage to the public reputation of a company if communication fails.

The core element of communication is to take a holistic view of corporate culture, business partner relationships and public perception. Such a consistent appearance creates trust in reliability and values, makes decisions comprehensible and gives them substance.

How we can support you with this:

  • Implementation of a corporate culture, especially through corporate guidelines, “Tone from the Top” and employee training
  •  Development of a negotiation strategy aimed at achieving the economic goal, while avoiding damaging or even destroying the relationship with the business partner, and appropriate staff training
  •  Conducting negotiations with business partners and other participants (accompanying or as external negotiators)
  • Interdisciplinary cooperation with communication experts
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